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The Advantages and Disadvantages of the Increase of Artificial Intelligence

Sat, 11 Apr 2026 00:07:26 GMT

Artificial Intelligence (AI) is the use of computers and machines to mimic the problem-solving and decision making capabilities of the human mind. From autonomous vehicles, humanoid robotic workers, construction and healthcare settings, and the web of interconnected devices that makes up the Internet of Things, AI is very much a part of day to day life. This trend covers the increasing influence of AI on the physical systems and mechanisms that constitute the world around us. It’s sharing our homes, industries and workplaces, becoming a tangible presence in our world and redefining our interactions and relationships with all forms of technology. How are these increasing trends in AI affecting specific markets and industries? Let’s look at some of the pros and cons of the increase of AI in industries that affect our everyday lives.

AI in Healthcare:

The following benefits promote the use of Artificial Intelligence in healthcare.

Faster and more accurate diagnosis : AI-powered imaging helps spot diseases earlier.
Personalized treatment plans: Tailors therapy to individual genetics and conditions.
Reduced errors in care: AI surgical tools and decision support minimize human error.
Expanded access to healthcare: Telemedicine and wearables bring quality care to rural and underserved areas.
Improved hospital efficiency: AI scheduling tools cut delays and increase ROI. By managing repetitive tasks, AI allows clinicians to focus on patient care rather than administrative work.

Concerns:

The number of Americans who want artificial intelligence (AI) involved in their health care is declining. According to a poll commissioned by Ohio State University’s Wexner Medical Center, only 42% are open to AI being used as part of their care, down from 52% in 2024.
Additionally, according to the same survey, fewer people believe that AI makes healthcare more efficient.
Despite the fact that medical professionals state that AI should NOT be used in making healthcare decisions, 51% of adults reported using AI to make an important decision regarding their healthcare without consulting a physician or healthcare professional. Dr. Ravi Tripathi, Chief Informatics Officer at Ohio State Wexner Medical Center, stated that he would be very concerned about a patient who is following AI. Per Tripathi, “AI is going to be inaccurate or potentially hallucinate about 2% of the time.”
The lack of personal interaction between physicians and their patients is concerning. The proposed efficiency of AI will allow doctors to take on more patients during the day, leading to less time spent with each patient. If you are sick, you want the assurance of knowing that your doctor will take as much time with you as possible to alleviate any concerns that you have, no matter how trifling they may seem. Increasing AI in healthcare is primarily about maximizing the financial benefits (seeing more patients) which actually contributes to minimizing time with each patient.

AI in Education:

Artificial Intelligence (AI) is swiftly changing the educational landscape. Specifically the use of AI brings about the following significant benefits and noteworthy challenges.

Benefits:

Assistance : Teachers who’ve tried AI have found that it can help make their jobs easier, from coming up with lesson plans to generating student project ideas to creating quizzes. Assistance from AI can allow teachers more time to spend with their students.
Speed : AI programs can provide immediate, helpful assistance to a student if a teacher isn’t available.
Individualization : AI programs can help individualize learning opportunities for students. These programs can quickly and easily translate materials to another language, making it easier for students who speak another language to understand assignments. Additionally, these programs can revise materials so they are suitable for varying grade levels and tailor projects to suit students’ skills and interests.
Personalization : Artificial intelligence can also personalize student learning. By analyzing student performance data, AI-powered tools can determine which students need support to improve their learning experience, and the best ways to help those students.

Concerns:

Bias: Artificial intelligence is only as knowledgeable as the information it has been trained on. If the AI program is trained on biased information, then when a student asks it a question, they will get a biased response.
Errors: In addition to bias, artificial intelligence may generate misinformation. The data that AI draws from may have errors, be outdated, or spread misinformation. Teachers and students should not assume that information provided by AI is accurate.
Cheating: Students can use AI programs such as ChatGPT to write entire essays, answer quiz questions, or do their homework. This prevents students from actually developing important cognitive skills such as conducting research, formulating thesis statements, and drawing their own conclusions.
Isolation: If students interact with a software program more than with a teacher, they can begin to feel disconnected and isolated. Their motivation and engagement may decrease, which could lead to an increase in dropout rates.
Jobs: Artificial intelligence has the potential to be a powerful learning tool. Some teachers worry that AI will replace them.

AI in Finances:

In the financial sector, AI is widely used to automate trading, manage investments, detect anomalies, and provide customer service. AI algorithms can analyze vast amounts of financial data in record time. This aids in predicting market trends, thereby supporting strategic financial decisions.

Some of the advantages of AI in finances include the following:

Efficiency: AI can analyze vast datasets much faster than humans, making it ideal for processing complex financial data.
Precision: AI algorithms are free of human bias and emotion, which may help make accurate, objective decisions.
Automation: Routine and mundane tasks can be automated with AI, freeing financial professionals to focus on more complex work.
Risk management: AI can predict market trends and detect anomalies, helping financial firms and their professionals to manage risks effectively.

While the benefits of AI in finances can be advantageous; it does not come without its hurdles. The negative side of AI in finances include the following:

Job displacement: With the automation of routine tasks, some support staff may lose their jobs. Over-reliance on AI can lead to a lack of critical human involvement in some cases.
Security risks: AI systems, like any other technology, are susceptible to hacking and manipulation, leading to significant financial losses.
Lack of transparency: AI algorithms are often complex, leading to a lack of understanding of how decisions are made.
Bias in algorithms: AI models trained on biased datasets can include algorithmic bias that might produce discriminatory outcomes.
Data privacy concerns: Managing sensitive financial data raises questions about security and compliance.
Regulatory uncertainty: The absence of standardized global regulations complicates the implementation of AI systems.

In general, there are advantages and disadvantages of Artificial Intelligence. AI can save time, catch patterns, and improve decision-making. However, it can also misfire, amplify bias, and create security and trust issues when it is used without checks. The difference is not the tool. The difference is how you deploy it, what you measure, and how much human oversight you keep.

Tickers to consider: JTAI, PPCB , FBRX , ATLX , BMNR , AGPU , BESS, ACTU

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The Conflict in Iran and the Stock Market

Wed, 11 Mar 2026 23:38:35 GMT

On February 28, 2026, United States and Israeli forces began conducting joint strikes on Iran, in what the United States dubbed Operation Epic Fury. This conflict is primarily driven over Iran’s nuclear program and its perceived threats to U.S. allies in the region, particularly Israel and Arab states. Diplomatic efforts to negotiate a nuclear deal have failed, leading to military action. What does this overseas conflict mean for the stock market?

Over the weekend, oil prices surged above $100 per barrel as the escalating conflict disrupted production and shipping routes. Raising the fear of the tumultuous energy markets of broader inflation shock. In the United States, retail gasoline prices have risen to their highest level since August 2024. President Trump describes the surge in oil prices as “short term” and a “small price to pay” for destroying Iran’s nuclear threat. President Trump assures that prices will fall rapidly when “the destruction of Iran’s nuclear threat is over.” Case in point, on March 9, 2026, c rude oil prices skyrocketed to $119.50/ barrel. The following day, the same crude oil plummeted to $88.54/ barrel. This significant drop came after President Trump suggested that the conflict would end “very soon.”

According to Charles Schwab, there are three potential outcomes for the US-Iran conflict, an upside case, a moderate case and a downcase case. The upside case is defined by a quick end to military operations, with energy production and shipments normalizing and market pricing returning toward pre-conflict levels. In the moderate case, military operations continue for several weeks at reduced intensity before winding down. Oil prices may remain elevated, but there is no major disruption to global supplies. The downside case presents risk to portfolios with a prolonged conflict disrupting global energy supplies and pushing oil prices sharply higher for a sustained period. That would raise recession risk by squeezing household purchasing power and corporate margins while also lifting inflation.

Ryan Detrick, chief market strategist at Carson Group states, “Historically, what in the near term seems like a geopolitical crisis tends to be largely resolved from a market perspective over the ensuing six months…near-term volatility and potential weakness is common, but as you go out the returns are more positive.”

On March 9, 2026, Wall Street stocks rebounded their way back from a steep selloff to close higher. This rebound came in the eleventh hour as ‌U.S. President Donald Trump suggested that the U.S.-Israeli war on Iran could be close to ending. All three indexes staged a late comeback after President Trump announced that the war was very far ahead of his initial four-to-five week estimated time frame.

To be sure, if the Iran conflict goes on for a while, it could hurt global oil flows and therefore affect stocks. According to Stubbs at AlphaCore Wealth Advisory a one month conflict would be manageable. “If there’s going to be a wider conflict and a longer disruption, then eventually parts of the equity market will start to pay attention.”

"There is still an awful lot of uncertainty out there regarding the duration of the conflict, …" said Sam Stovall, chief investment strategist of CFRA Research in New York. "Again today, seeing such a relative reversal in price movements indicates that investors are looking for any opportunity to jump back into the equity markets."

Tickers to consider: JTAI, PPCB , FBRX , ATLX, BMNR, AGPU

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The Fall of Cryptocurrency

Thu, 12 Feb 2026 23:06:57 GMT

Cryptocurrency is a digital currency that operates independently of a central authority, using blockchain technology for secured transactions. Crypto currency has increased in popularity as both a method of payment and a speculative investment.

The crypto market has been experiencing a significant downturn. In just 22 days, the crypto market has lost more than $900 billion, showing how fast prices have dropped.

Bitcoin seems to be leading the fall of the cryptocurrencies. On January 13, 2026, Bitcoin (BTC-USD) closed at a value of $96,929.33. Today, February 9, 2026, Bitcoin closed at a value of $70, 202,02. This equates to a 27% loss in value. As prices fell quickly, many traders were forced to exit their positions. More than $7 billion worth of trades were closed automatically due to losses.

Altcoins, cryptocurrencies other than Bitcoin are also struggling, seeing a sharp decline in value. XRP (XRP-USD) has fallen drastically. On January 12, 2026, XRP closed at a value of $2.16/ share. Today, February 9 2026, XRP closed at a value of $1.44/ share. This equates to a loss of 33% in a month’s time period. Ethereum (ETH-USD), has also taken its bumps. On January 13, 2026, Ethereum closed at $3354.72/ share. Today, February 9, 2026, it closed at $2117.22/ share resulting in almost a 37% loss in value over the past month.

Solana (SOL-USD), another altcoin, was valued at $146.75 on January 13, 2026. On Feb. 9, 2026, Solana closed at $87.22, a loss of 40% in value. These sharp price swings have triggered forced selling. Overall, the continued losses in altcoins suggest investors are stepping back from riskier assets rather than buying during the downturn.

The following factors are also playing a role in the decline of the crypto market:

Investors are putting more money into safer assets such as precious metals in lieu of cryptocurrencies.
Hopes for U.S. interest rate cuts have dwindled. Markets now believe that there is only a 10% chance that the Fed will cut rates at the March 18th meeting.

The drop in crypto seems to be forcing investors to sell in order to prevent any further losses. However, history indicates that the opposite may be beneficial.

Investors who bought practically any Bitcoin dip since 2009 eventually ended up in the green. From that perspective, it might make sense for investors to start building a small position, as long as they are willing to hold the cryptocurrency for several years to maximize their chances of earning a positive return.

Tickers to consider: JTAI , PPCB , FBRX

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The Impact of Artificial Intelligence on America

Mon, 12 Jan 2026 17:00:43 GMT

Artificial Intelligence (AI) has been hailed as revolutionary and world changing. While AI does have some convenient and beneficial aspects such as speed of information and automation; there are some serious risks that occur with the rising use of AI. As AI grows more sophisticated and widespread, the potential threats and dangers of AI are growing louder and louder.

Impact on Jobs:

One of the most pressing threats is AI’s impact on the human job market. The concerning risk is that the human labor market will be made redundant by machines that are cheaper to run than human beings. AI machines would not require paychecks, insurance or any type of “employee benefits.” There would be no need for policies surrounding issues such as DEI, equal pay, discrimination, or wrongful termination. This in turn, would drastically reduce the function of The Bureau of Labor and Industry.

Impact on Education:

A student sits at his desk. He has been given the assignment of writing an essay on the Cuban Missile Crisis during Kennedy’s presidency. He opens his school- issued tablet, and types a single prompt into an AI chatbox. Within seconds, a well written essay appears on his screen. His assignment is completed and turned into the teacher. He has learned nothing.

One of the greatest dangers of AI in education is not that they will help students cheat; but rather it will reshape how they think, learn and even understand truth itself. The problem is not merely that students may use AI to cheat on assignments—it’s that they may cheat themselves out of the very mental work that forms them into capable thinkers. A fifth grader who struggled with reading and writing, once asked, “Why do I need to know how to read and write? I can just ask Google for anything that I need to know.”

Nature Reviews Bioengineering published an article titled, “Writing is Thinking.” While this article’s focus was on writing scientific articles as part of the scientific method to communicate research findings; it also included the importance behind human- generated writing. According to this article, writing is not only about reporting results; it also provides a tool to uncover new thoughts and ideas. The thesis behind this article is that writing is not simply a way of spitting back what some AI wrote. Human- generated writing ( the act of drafting, wrestling with ideas and revising ) forces the brain to process information, clarify thoughts and form original positions. A premature use of AI in education risks depriving students of that experience. Human- generated writing helps us uncover “new thoughts and ideas.” It encourages us to think in a linear and structured way, which increases brain connectivity, and improves overall learning and memory. These aren’t just academic skills—they are foundational to human intelligence.

Impact on the Environment:

Operating generative AI language models requires huge amounts of computer power. This is provided by vast data centers that burn through energy at rates comparable to small nations, creating poisonous emissions and noise pollution. These data centers also consume massive amounts of water at a time when water conservation is a public concern. Some believe that the eventual advancements created by AI will eventually outweigh the harm it causes to the environment. Yet, a lot of these advances are currently theoretical, while the environmental impact of AI is happening today.

Impact on Privacy:

We all joke that our tv’s cell phones, computers etc. are listening to us. Well, that might not be just a joking matter after all. It is not a coincidence that after you are chatting with your friend, spouse, or children about your desire to purchase a new table, that all of a sudden you see ads on your computer screen for furniture. AI has the ability to capture and process vast quantities of personal information. Employers are increasingly monitoring and analyzing worker activity. There is a growing number of AI-enabled cameras on our devices, and in our streets, vehicles and homes. Police forces are rolling out facial-recognition technology . Soon no corner will be safe from prying AIs.

Impact on Intellectual Property:

Multinational technology companies can train their AI’s on the work of artists, authors and other creative professionals, without paying them a dime. This has sparked widespread protest and backlash, with artists and their unions arguing that tech companies are effectively monetizing their stolen Intellectual Property (IP). Despite the legal battles, OpenAI and Google are spending huge resources into their missions for more and more training data. There are legitimate concerns that the rights of human creators might be overlooked in the interest of AI training.

Impact on Information:

AI enables and accelerates the spread of misinformation. It makes it quicker and easier to disseminate the misinformation and makes it more convincing. It is harder to detect from Deepfake videos of world leaders saying or doing things that never happened, to conspiracy theories flooding social media in the form of stories and images designed to go viral and cause disruption. The aim is often to destabilize, and create chaos and fear. One very scary factor is that the algorithmic nature of AI reinforces views by serving up content that individuals are likely to agree with. Or worse yet, leads the individual to content agreed upon by the creator of the AI algorithm, and suppresses content that opposes the creator of the algorithm.

Impact on the Financial Industry:

AI algorithms can help investors make smarter and more informed decisions on the market. But finance organizations need to make sure they understand their AI algorithms and how those algorithms make decisions. For example, “ AI trading bots ” aren’t clouded by human judgment or emotions. They also don’t take into account contexts, the interconnectedness of markets and factors like human trust and fear. These algorithms then make thousands of trades at the speed of lightening with the goal of selling a few seconds later for small profits. Selling off thousands of trades could scare investors into doing the same thing, leading to sudden crashes and extreme market volatility.

“Frankenstein”, “The Space Odyssey”, “Terminator” and “The Matrix”, are cautionary tales that warned us of the potential dangers of giving our creations the power of thought. To some, those stories are just entertainment. To others, they are an eerie feeling of what might come to fruition. It’s hard to comprehend how we would go from ChatGPT to machines intent or even capable of maliciously harming us. But the threat of “ runaway AI ”, should be treated very seriously. Many leading AI researchers and alliances have spoken openly about the need for safeguards and transparency to prevent unknowable circumstances from emerging in the future.

It is important to acknowledge and address the risks of AI and its impact on our country. It is equally important to focus on building the safeguards, governance frameworks, and ethical guidelines that can steer this technology toward positive outcomes. By addressing these risks with informed action, we can hopefully shape a future where AI serves humanity rather than threatens it.

Tickers to consider: JTAI , PPCB , FBRX

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The Impact of Government Involvement on Specific Industries

Sat, 20 Dec 2025 00:35:41 GMT

Governments around the world play a role in shaping the environments in which businesses operate. Government involvement in specific industries can lead to increased regulation, subsidies, and tariffs. These can support growth, enhance sustainability, and protect workers and consumers. However, these interventions can also create burdens for businesses by imposing compliance challenges and operational constraints.

Government involvement in various industries can significantly shape the economic environment of businesses. Governments can provide financial subsidies to specific sectors, making them more profitable. This can lead to potential investment and growth in those industries. Additionally, by imposing tariffs or taxes on imported goods, governments can protect domestic industries from foreign competition, allowing those said businesses to succeed.

Government regulation plays a significant role in shaping the landscape of various industries. These regulations can have far-reaching consequences, affecting everything from the profitability of businesses to the safety and well-being of consumers. The primary goal of government regulation is to balance the interests of different stakeholders, including businesses, consumers, and the environment, to create a fair and sustainable market.

Regulations imposed by the government can have both positive and negative impacts. Economic regulations are designed to ensure fair competition and prevent monopolistic practices that could harm consumers. These include antitrust laws, price controls, and industry-specific regulations. Compliance with these regulations is non-negotiable. Excessive regulations can hinder innovation by making it difficult for new businesses to enter the market, or for existing businesses to adapt to the ever changing rules. Failure to adhere to these regulations can result in fines, lawsuits, or worst case scenario, dissolving the business. In order to stay compliant, businesses must invest in legal expertise and compliance monitoring systems to effectively navigate these regulations.

Labor laws were enacted to protect workers and employees. These regulations cover a wide array of issues, including minimum wages, maximum working hours, workplace safety standards, and anti-discrimination policies. Businesses are required to remain compliant with evolving labor laws. Changes in policies—such as an increase in the minimum wage or new paid leave requirements—can significantly impact payroll structures and overall operational budgets.

One of the benefits of government regulation is the protection it offers to consumers. By setting standards for product safety, regulating advertising claims, and enforcing competition laws, governments can ensure that consumers have access to fair and safe markets. These measures not only benefit society as a whole but also contribute to the long-term sustainability of businesses.

Government regulation can also have negative consequences, especially on small businesses. Overregulation can lead to increased compliance costs, which may disproportionately affect small businesses and startups. This limits their ability to compete with larger corporations. Furthermore, regulatory barriers can hinder innovation by making it difficult for new products or services to enter the market. The complexity of regulatory frameworks can also lead to “regulatory capture” where larger companies use their resources and influence to shape regulations in their favor. This further marginalizes smaller competitors.

Regulatory burdens aren’t just shouldered by businesses. They are also passed on to consumers. According to August Pfluger, a representative from Texas, and Chairman of the U.S. House of Representatives Republican Study Committee, “[Regulations] amount to a massive stealth tax, paid by the American people, through lower pay and higher prices for the goods and services that we buy every day,” Doug Holtz-Eakin, a former director of the Congressional Budget Office and current president of American Action Forum, says costs are costs when it comes to the impact of regulations on businesses. “If you’re a businessperson, you have to cover the costs, whether it’s a tax you have to pay or another way to get to the same thing – a regulation that they force you to comply with. It hurts your opportunity to hire people. It hurts your chances to expand. It hurts all the things we think of as productive in the economy, and that’s a headwind to growth.”

Tickers to consider: JTAI , VNRX , FBRX , POAI , PPCB ,

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The Effects of the Government Shutdown

Thu, 06 Nov 2025 23:07:16 GMT

Government shutdowns in the United States (“U.S.”) are creatures of both constitutional and statutory law. The Constitution states that “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law,” meaning that federal agencies cannot spend funds to operate without the approval of Congress. Under the Antideficiency Act, agencies may not “make or authorize an expenditure or obligation exceeding an amount available in an appropriation or fund for the expenditure or obligation” or “ involve either government in a contract or obligation for the payment of money before an appropriation is made unless authorized by law.” In other words, Congress must determine how the government will spend its funds, and a government shutdown ensues if the parties cannot agree on a budget.

The current government shutdown occurred on October 1, 2025, as a result of Congress’s failure to reach an agreement for funding federal agencies and programs for the 2026 fiscal year. The previous budget expired on September 30, 2025, and without a new budget or continuing resolution, the government was forced to shut down. One of the biggest hurdles in reaching an agreement has to do with the demands by the Senate democrats. In order to vote for a continuing resolution or extension of the 2025 fiscal budget, the Senate Democrats are demanding in part that Congress resume Medicaid, Medicare and Affordable Care Act premium subsidy policies that open the door for illegal aliens to receive government benefits. Those benefits were terminated when the One Big Beautiful Bill Act (OBBBA)was approved. OBBBA provides eligibility for health benefits only to U.S. citizens, lawful permanent residents, Cuban and Haitian entrants, and lawful residents under the Compact of Free Association. The Senate Democrats’ continuing resolution would repeal changes made by OBBBA.

What are the impacts of this shutdown? Members of Congress still get paid during this shutdown. Lawmakers' pay has been funded by a permanent appropriation since 1983, according to a recent Congressional Research Service report , meaning funding for their pay doesn't need to be renewed annually. Other government employees and contractors are not afforded the same luxury. Federal employees, whether they remain on the job or are furloughed do not get paid while the government is shut down. They are also at risk of permanently losing their jobs. For those federal employees who still have their job, they will receive back pay once funding to their agency is restored. But for now, those same federal employees have to work without collecting a paycheck if they choose to keep their job. Government Contractors (1099 contractors, not W2 Employees), those who carried out about $755 billion worth of government work in the last fiscal year, are not guaranteed back pay. They should have a written contract which outlines their pay, and should eventually hold up in a court of law; but how long they have to wait for payment of said contract would remain uncertain.

During a government shutdown, the administration retains limited spending flexibility by prioritizing funding for programs that the president deems essential for public safety or national security, such as military operations or emergency services. Agencies may also reallocate available funds to maintain critical operations, provided those actions comply with the Antideficiency Act and other legal constraints.

For most companies, one of the biggest hurdles will be navigating a complex regulatory scheme that relies on federal agencies to function. As the shutdowns disrupt these agencies’ operations, businesses and federal employees will be adversely affected. How much individuals will be affected will be largely determined by the duration of the shutdown. The longer government workers and contractors go without paychecks, the more likely they are to start looking for new jobs. A longer shutdown, in addition to possible layoffs and unclear guidance regarding back pay, may leave the government with a substantially smaller workforce post-shutdown.

Tickers to consider: JTAI , VNRX , FBRX , POAI , PPCB ,

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The Rise of Digital Asset Treasury Companies

Fri, 24 Oct 2025 03:54:09 GMT

Digital Asset Treasury Companies (DATCO) are publicly traded firms that focus on accumulating and managing digital assets like Bitcoin and Ethereum as a core part of their business strategy. They provide investors with exposure to cryptocurrencies without the need for direct ownership, often utilizing equity and debt to fund their asset acquisitions. This allows the companies to fund asset acquisitions by borrowing money through loans or issuing bonds, thereby sanctioning the companies to purchase assets without using its own cash reserves.

DATCO’s took off in 2020 when Strategy (formerly MicroStrategy) started gobbling up Bitcoin (BTC) as an inflation hedge. In August 2020, Michael Saylor, founder of MicroStrategy, led the company’s dramatic push into becoming a DATCO with the purchase of over 21,000 BTC for $250 million. As of September 15, 2025, Strategy owned almost 640,000 BTC valued at $47.2 billion. During that same period, Strategy’s market value has risen over 2,700% (92.0% annualized), capturing the imaginations of finance and financial technology people alike.

DATCO’s differ from crypto miners or exchanges in that they are all about accumulating assets, with digital holdings making up 70-90% of their enterprise value. Below are some key features of DATCO’s:

Core Functions: DATCO’s aim is to hold digital assets as the primary function of their business model.
Investment Access: DATCO’s provide investors with exposure to cryptocurrencies without the need for direct ownership or management of the assets. This makes it an attractive alternative for investors who want crypto exposure but prefer not to hold tokens directly.
Revenue Generation: DATCO’s can generate income through various means, including lending services and decentralized financial protocols.

The uniqueness of a DATCO lies in its dual nature. It is simultaneously a publicly traded company and a capital markets vehicle for direct exposure to a specific digital asset. For investors, this offers a compelling alternative to owning the asset directly or through an exchange-traded fund (ETF).

There are several rewards associated with investing in DATCO’s. Investors benefit from the expertise of professionals who specialize in managing digital assets. DATCO’s often adhere to regulatory standards, providing for a safer investment environment. Finally, DATCO’s ensure liquidity for their digital assets, which makes for easier transactions.

DATCO’s come with their own set of challenges and risks. For example, the Stock Market’s Volatility can significantly fluctuate the value of digital assets, impacting the financial stability of DATCO’s. Additionally, changes in regulations can affect operations and the profitability of DATCO’s. Lastly, funding can be a big risk when it comes to DATCO’s. Most DATCO’s rely on external capital to fund their asset accumulation strategies. This can be very risky in volatile markets.

The true strength of a DATCO will be measured not by the size of its digital asset holdings at a bull market peak, but by its ability to navigate volatile markets, manage funding costs prudently, and build sustainable business models that can withstand the inevitable digital asset market downturns. The companies that master this balance will not only survive but will cement their place as true pioneers in the next generation of finance. The rise of these companies into DATCOs helps to foster a more efficient, transparent, and accessible financial system. This benefits business investors, broadens the economy, and encourages individuals or investors to participate in DATCO investments.

Tickers to consider: JTAI , VNRX , FBRX , POAI , PPCB ,

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Pending Interest Rate Cuts: Boost or Bust?

Tue, 16 Sep 2025 00:51:07 GMT

The Federal Fund rate, which impacts interest rates, can potentially be cut at the Fed’s policy meeting this month. Cutting interest rates can potentially stimulate the economy by making borrowing cheaper, which encourages spending and investments. However, some experts believe that rate cuts may not be enough to boost the current economy.

According to the CME FedWatch tool, investors are quite certain that the Fed will cut interest rates in September by at least 25 basis-points. There are several benefits that could arise from reducing interest rates. Loans would become cheaper for consumers and businesses. Consumers may be more inclined to borrow money for larger purchases, such as a home or a vehicle. Lower rates can finance business operations and expansions, leading to the creation of more jobs.

There are a few who don’t believe cutting interest rates will help the current state of our economy. David Kelly, the chief global strategist at JP Morgan Asset Management, stated that interest rate cuts are inevitable, but “that’s not going to fix anything.” Morgan discussed three reasons why he does not see rate cuts helping the economic picture with CNBC.

Lower interest rates could cut income for retirees. Retirees tend to store a larger chunk of their savings in safer assets, like US Treasurys, which are tied to interest rates in the broader economy . If the interest rate goes down, then the interest income decreases.

Hesitant borrowers might make cutting rates have a backfire effect. Hesitant borrowers tend to “wait and see” if the rates will drop even further before taking the plunge to loan money just to make sure that they are getting the best rate possible. Kelly speculates that borrowers will be incentivized to wait for rates to drop further before taking out loans.

There is still a looming uncertainty of how much the Trump administration’s tariff policy and immigration policy will affect the economy. Lowering interest rates will not remove this uncertainty.

Lastly, there is always the concern that lowering interest rates will actually boost inflation in an already elevated state. If consumer demands increase too quickly due to lower rates, then the result is inflation. This would undermine the purpose of the rate cuts.

In short, lowering interest rates may temporarily boost the economy. But the long-term effects of reduced interest rates are affected by many other factors that might limit their effectiveness in the current economy. Economic uncertainty, borrower behavior and inflation risks can complicate the benefits of monetary policy actions.

Tickers to consider: JTAI , VNRX , FBRX , POAI , PPCB , GRCE

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The Stock Market and the Trump Administration

Mon, 11 Aug 2025 21:52:13 GMT

The US stock market continues to trend higher after overcoming a challenging period earlier this year. On April 7, 2025, the S&P 500 hit an all time low. Since then, it has gained more than 28% in value and repeatedly reached all time highs.

On Friday, Aug. 1, 2025, US stocks dipped after President Trump hit every US trading partner with sweeping tariff hikes and the July jobs report showed signs of a labor market slowdown. President Trump refuted the July jobs report, stating that the Bureau of Labor Statistics Commissioner manipulated prints for political purposes.

Despite the August 1 dip and the July jobs report, on Monday, August 4, 2025, Wall Street stocks rallied as investors jumped on a market pullback, shrugging off economic worries and focusing on the rising odds of Federal Reserve interest rate cuts. S&P 500 gained 1.5 per cent to 6,329.94, while the tech-rich Nasdaq Composite Index jumped 2.0 per cent to 21,053.58. The August 4th trading session effectively reversed the losses from August 1, 2025.

It can be speculated that the volatility of the market can be linked to the uncertainty of the effects of the Trump trading tariffs on the economy. However, it appears as though investors are shrugging off those worries of economic uncertainty and focusing on the likelihood that the Fed will cut rates in September. Mr. Steve Sosnick of Interactive Brokers stated, “Traders and investors have made a lot of money by deciding that tariffs won’t matter.” According to Sosnick, the bias of most investors is “Let’s not think about tariffs as being a problem until they actually prove that they are.”

Regardless of the reasoning, the market is up. Overall, year to date, the major stock market indexes are showing positive gains in 2025: the S&P 500 is up 7.86%, the Dow Jones Industrial Average is up 4.2%, and NasDaq is up 9.19%. The rollercoaster ride of the market may continue. But so far, under Trump’s economic policies, it appears as though the market is fairing well.

Tickers to consider: JTAI , VNRX , FBRX , POAI ,

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Unemployment Rate and the Economy

Thu, 10 Jul 2025 22:47:45 GMT

The US job market continues to chug along despite heightened uncertainty about the economy and how President Donald Trump’s tariffs could shake out.According to the June jobs report, Job growth was solid at 147,000 and the unemployment rate was at 4.1%, down from 4.2%.

Despite the continuation of fairly solid monthly employment gains, the jobs report showed several potentially concerning signs. N early half of the jobs added were from the government sector. Private industry showed only the smallest gains in the last eight months . Additionally, the reduction in the unemployment rate was in part due to the fact that some people left the labor force, whether to retire, or voluntarily quit their jobs. Finally, the average work week for all private non-farm payrolls fell to 34.2 hours in June, down from 34.3 hours in May. This suggests that employers are reducing the hours of their employees. If this is the case, it is likely to see weaker job growth in the months ahead.

Perhaps the biggest negative in this report is a slowing in the pace of wage growth. The annualized rate of growth comparing the last three months (April-June) with the prior three (January-March) is just 3.2 percent, down from 3.7 percent year-over-year. According to Brian Bethune, an economics professor at Boston College, "The private sector was clearly losing momentum in the latter part of the second quarter, which does not augur well for the performance of the economy in the third quarter.”

Are these potentially concerning issues a real threat to the economy, or is it a necessary “hiccup” required to correct the problems caused by Biden-economics and the inflation that has ravaged the country since 2020? The policies that were implemented during the Covid Pandemic, in which the government paid people to stay home and not work has crippled this economy. Five years later, employers are struggling to find skilled workers who will work for a reasonable wage. In fact, they are struggling to find people who will just show up to work. This has created extreme wage hikes just to get people to show up to work, which is costly to the employer causing him to limit the number of hours his employees can work. For example, pre-Covid, unskilled construction laborers made an average wage of $10-$12 hour depending on their level of skill. Today, that same unskilled worker will not show up to work for less than $25/ hour. This creates an extreme burden on the employer, who now can either only hire one worker instead of two, or has to raise his rates to his customer in order to meet the demand of payroll.

Another problem is the inflated interest rates that occurred during the past 5 years. This has caused increases to mortgage payments for those who are purchasing homes. This in turn increases the rent that a landlord has to charge in order to make his rental property pencil out. In Bend, Oregon, an average monthly rent payment for a 3 bedroom/ 2 bath 1500 sq. ft. home pre-Pandemic was between $1200-$1500/ month. Today, that same home would rent for $3000/ month. We all know that the cost of food and groceries have gone through the roof in recent years. The high cost of living makes it almost impossible for workers to accept a “reasonable” wage. They simply cannot live on less than $25/ hour due to the high cost of living.

A correction needs to occur in order to get things under control. Wages, rents, mortgages and food needs to become more affordable and reasonable. How this will occur has still yet to be answered. Maybe reducing the work week hours, and reducing wage growth is a start. But the government needs to do their part by not making it so easy for people to not go to work. There are a lot of people who choose to not go to work, because they make more off of their unemployment check than they would going to work. That has to stop! That will just promote laziness and lead to higher unemployment. Both are detrimental to the economy and the country as a whole.

Tickers to consider: JTAI , VNRX , ZVSA , FBRX , POAI , PPCB

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2025: The Year of Layoffs?

Thu, 19 Jun 2025 00:38:51 GMT

Layoffs in 2025 are reshaping the workforce. Government, tech, retail, accounting, manufacturing, and logistics have been dealing with the biggest cuts. Driven by tariffs, cost-cutting, AI adoption, and federal downsizing, these layoffs show a shift in the economy.

Government-related layoffs remain the biggest single source of reductions, with more than 284,000 job cuts attributed to direct or indirect impacts of Elon Musk’s Department of Government Efficiency (DOGE).

The Retail industry announced 11,483 job cuts in May, bringing their total year to date job layoffs to more than 75,000, up 274% from 2024.

Tech Layoffs also surged. According to data by Challenger, Gray & Christmas (CG & C), an outplacement firm, the tech industry holds the bronze medal for most layoffs in 2025. Total layoffs for 2025 hover right at 75,000, representing a 35 year over year surge.

Why is this happening? What are the reasons behind the mass layoffs of 2025? Per CG & C, nearly half of all layoffs so far in 2025 have been driven by cuts related to the DOGE’s efforts to reduce government waste, and restore fiscal discipline to the federal government. Another big contributing factor in the layoffs across the sectors is Artificial Intelligence. Tools like ChatGPT, GitHub Copilot, and RPA (Robotic Process Automation) have made several support and low-code tasks redundant. Those who haven’t upskilled to work with AI are the most vulnerable to losing their jobs. This segues into another contributing factor…. employees working in outdated technologies. Many of these employees are being replaced by fewer, highly skilled professionals in AI, Cyber security, and Data Engineering. Today, layoffs are not about performance, but about irrelevance. Finally, thanks to remote work, companies can now hire skilled talent from anywhere. While this is a plus for employers, it also comes with negative consequences such as more pressure for local salaries, more competition for every job, and outsourcing jobs to cheaper regions.

How can individuals position themselves to be layoff-proof? Most people would agree that reducing government wasteful spending and restoring fiscal discipline to the federal government is a good thing; therefore those layoffs will probably continue until that gets under control. However, while those government employees may not currently be layoff-proof, they can reinvent themselves to become layoff-proof if they are willing to put in the work. Here are a few tips:

Learn future ready skills such as AI, Data, Cloud, etc.
Be agile and ready to adapt to cross-functional roles.
Upgrade your tech stack regularly through certifications, real world projects, and online courses.

Layoffs in 2025 are not just about cutting costs. They are also about realigning talent with the future of work. Tariffs and trade wars are sometimes scapegoats for companies. They may use these trends to conduct firings, pivoting to AI-driven models. If a person is working in outdated technologies, or not adapting to the new AI driven world, then their risks are real. However, opportunities are just as real. Those who take initiative, invest in upskilling, and stay future focused will not only survive, but will thrive.

Tickers to consider: JTAI , VNRX , ZVSA , FBRX , POAI , PPCB

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Rising Gold Prices and the Economy

Tue, 06 May 2025 19:49:55 GMT

The price of gold has increased rapidly in the months since Trump took office, surging particularly since his April 2 announcement of a baseline 10 percent tariff on all US imports. Gold has often been regarded as a safe-haven asset during times of economic uncertainty. When the economy is shaky, investors put more of their money into gold to preserve their wealth and protect their portfolios.

Gold typically has an inverse relationship with interest rates. When interest rates go up, the value of gold often goes down. The reason for this is that higher interest rates make other investments, such as stocks and bonds, more attractive to investors, thereby decreasing the demand for gold and subsequently its price. Should this trend continue, lower interest rates could affect the economy in several ways.

Lower interest rates make it cheaper to borrow money. This tends to encourage spending and investments.
Lower interest rates will reduce the monthly costs of mortgage repayments. This will leave households with more disposable income and potentially cause a rise in consumer spending.
Lower interest rates make it more attractive to buy assets, such as houses, land, vehicles and businesses. This will cause a rise in prices and therefore a rise in wealth.

Gold maintains its intrinsic value better than any other commodity. It remains our best barometer of monetary trouble. A sustained rise in gold prices typically signals inflation; a price decline indicates deflation—a shortage of dollars.

According to Forbes, The Federal Reserve fundamentally misunderstands inflation. Monetary inflation results from reducing a currency's value, by creating too much of it. Non-monetary inflation occurs when prices rise due to production disruptions: natural disasters, wars, pandemic lockdowns that severed supply chains, costly regulations, or certain tax increases.

Gold has climbed over 60% since mid-2023, during the very period when the Fed claimed to be fighting inflation through interest rate hikes. The Fed's flawed thinking lies in its belief that prosperity causes inflation. Per the Fed’s reasoning, in order to lessen inflation, then the economy needs to be slowed. This approach fails to account for non-monetary price changes or the consequences of a weakening dollar.

Stabilizing the dollar appears to be a better approach to fight inflation. The Federal Reserve should focus on returning to a “gold-backed” standard for the dollar. By focusing on dollar stability rather than manipulating interest rates, the Fed could end inflation without causing economic contraction. This addresses the monetary cause directly rather than attempting to slow growth—a strategy that inevitably causes unnecessary economic pain.

The warning from the gold market cannot be ignored much longer. The question is whether the Fed will heed it before it's too late.

Tickers to consider: JTAI , VNRX , ZVSA , FBRX

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Trump Tariffs and the Stock Market

Wed, 09 Apr 2025 21:07:04 GMT

On Wednesday, April 2, 2025, President Donal Trump announced new tariffs on nearly all U.S. Trading partners, including 34% tax on imports from China, and 20% tax on the European Union. Responding to what he considered an economic emergency, elevated tariff rates will be placed on several countries that run trade surpluses in the United States and a 10% baseline tax will be imposed on imports from all countries. The purpose behind these tariffs is to boost domestic manufacturing here in the United States, and at the same time bring in hundreds of billions in new revenue to the U.S. government and restore fairness to global trade.

Although the President campaigned on this policy, these so-called reciprocal tariffs were much more aggressive than anyone on Wall Street anticipated. The announcement triggered a plunge in the Stock Market. On Friday, April 4, 2025, the S&P 500 closed down 5.97% and the Dow Jones Industrial Average was down 5.5%, both the biggest single-day declines since June 2020 during the COVID pandemic and the Nasdaq Composite dropped 5.8%. Some Trump officials acknowledge that there will be some short- term pain. How much pain before the gain has yet to be determined.

According to Trump, these tariffs will force other countries to lower their import fees on U.S. goods and services. That will create a more balanced economic playing field for U.S. exports and a strong incentive for companies to manufacture goods in the United States.

In retaliation, China announced on Friday, April 4, 2025, that they will be imposing a blanket 34% tariff on all American products. These tariffs are set to go into effect on April 10, 2025, the day after the Trump tariffs go into effect.

In 1913, the 16th Amendment to the Constitution introduced a national income tax. Prior to this, tariffs supplied as much as 90% of the federal government’s revenue in the mid-1800s. The U.S. moved from tariffs to income taxes to raise more money to finance an expanding government, collect more revenue from the wealthy and make the economy more efficient by reducing trade barriers and encouraging competition. In 2024, tariffs accounted for less than 2% of Federal revenue, 51 % came from income taxes and 36% came from Social Security and Medicare Taxes. Trump would like to replace income tax revenues with tariffs, allowing Americans to keep more of their hard earned money.

Goldman Sachs Chief U.S. Equity Strategist, estimates that every 5 percentage point increase in the U.S. tariff rate will cut S&P 500 earnings per share by 1%-2%. This year's estimated 22.5 percentage point increase implies a potential 4.5%-9% cut in S&P 500 earnings from Trump tariffs. Despite a boost to inflation as firms pass through some portion of tariffs to customers, the economic hit will likely prompt the Fed to resume rate cuts. That would proceed tax cuts, which could give the economy a shot in the arm to start 2026.

Tickers to consider: JTAI , VNRX , ZVSA , FBRX

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AI and Energy

Tue, 11 Mar 2025 01:18:34 GMT

Artificial Intelligence (AI) is the ability of a digital computer or a computer-controlled robot to perform tasks commonly associated with intelligent beings such as learning, problem solving, reasoning, and decision making. AI, and the data centers required, demand more of one thing… Energy.

Energy is essential to addressing the challenges of reducing costs on everything from groceries to housing. History proves that economic progress only comes when energy production increases. Long story short, energy fuels the growth that improves people’s lives.

AI requires significant computational power primarily due to the complex algorithms and large datasets involved in training and deploying machine learning models. Many AI applications utilize deep learning, which involves networks with multiple layers. Training these networks requires extensive computations, which require large amounts of data for training to improve accuracy and performance. This data must be processed, stored, and analyzed at data centers, consuming a significant amount of computational resources. The more robust the AI workload, the more energy is consumed by the data center.

As AI continues to evolve, further advancements in data centers will be necessary to keep pace with its requirements. By 2030, data centers could potentially consume the equivalent energy of New York City's annual energy use. Approximately 60% of that usage would be powered by gas. According to S&P Global, this shift could add 50 GW of gas-fired power to US grids, and increase the natural gas demand by 17%.

According to McKinsey & Company, global demand for data center capacity could rise at an annual rate of between 19 and 22 percent from 2023 to 2030 to reach an annual demand of 171 to 219 gigawatts (GW). This contrasts with the current demand of 60 GW, raising the potential for a significant supply deficit. To avoid a deficit, at least twice the data center capacity built since 2000 would have to be built in less than a quarter of the time.

Access to power has become a critical factor in driving new data center builds. Without ample investments in data centers and power infrastructure, the potential of AI will not be fully realized. Meeting this demand will require considerably more electricity than is currently produced in the United States.

Below are some suggestions to create new solutions to power access and sources.

1 . Investors can funnel investments into utility companies to build out transmission and distribution (T&D) infrastructure in key markets. The demand for data centers and power show no signs of slowing, so T&D markets should respond accordingly.

2. The timeline of building out data centers and those of power infrastructure development can take years. Hyperscalers are building out capacity in new and atypical locations outside the core data center markets because these areas offer cheaper, available power and have the potential for carbon-free infrastructure . Investors have opportunities to fuel growth by accelerating the build-out of fiber or power infrastructure in these secondary locations.

3. Investors can seek to support behind-the-meter solutions to provide power in areas where utilities providers cannot keep up with pace or reliability requirements as local supply availability or transmission constraints worsen. The sites available for these opportunities are limited, but creating more competition and urgency among investors to act sooner than later can help secure the talent, connectivity, and regulatory requirements necessary to run the sites.

4. Investment in clean energy such as solar power or offshore wind. Investment in this space has a long track record, but does have mixed returns.

AI has forced the pace of progress. Whether we can provide the energy to keep up with that pace is something only time will tell.

Tickers to consider: KALA , EVAX , JTAI , VNRX

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Deep Seek AI and the Energy Industry

Thu, 06 Feb 2025 02:34:52 GMT

DeepSeek is an AI development firm based in Hangzhou, China. DeepSeek focuses on developing open source Large Language Models (LLM). A large language model is a type of artificial intelligence algorithm that applies neural network techniques with lots of parameters to process and understand human languages or text using self-supervised learning techniques . The company's first model was released in November 2023. The company has repeated multiple times on its core LLM and has built out several different variations. On Jan. 20, 2025, DeepSeek released its R1 LLM at a fraction of the cost that other vendors incurred in their own developments. DeepSeek is also providing its R1 models under an open source license, making it free to use.

Deep Seek’s R1 LLM will also have far-reaching impacts for the energy sector. Not only is DeepSeek far cheaper than its rivals, it also claims to be far more energy efficient. This is an important declaration, as data center energy demand growth has recently been pushed to extreme heights thanks to the enormous spread of AI. The scale of these newfound energy needs are so significant that it has single-handedly destroyed the tech sector’s hopes of meeting its own decarbonization goals, placed stress on energy grids around the world, and threatened the energy security of entire nations. The scale of the challenge posed by data center demand poses a serious money-making opportunity for energy providers. “Energy firms ranging from small reactor startups to incumbent utilities to gas producers — and plenty in between — see data centers as a critical U.S. market,”

One segment of the energy industry that could potentially benefit from the expected data center boom is nuclear power. Older power plants have been closing across the country for the past decade. Yet, atomic power has seen a surge in interest and investments in the last year, as owners revive shuttered plants and tech companies seek contracts for the electricity.

Nikki Hsu, Analyst for Bloomberg Intelligence Utilities, said that power demand is going to climb from homes and factories that are increasingly shifting to electricity. “Demand is definitely going to rise, but by how much, we don’t know,” she said. “Nobody knows exactly what AI demand will be.”

Rob Thummel, Senior portfolio manager at Tortoise Capital, asserts that AI will boost natural gas. He alluded that natural gas could steal some of growth from nuclear power developers, since reactors typically take longer to build and are far more expensive than gas plants. “We still think natural gas will be a winner here, primarily because it is the lowest cost from a reliability perspective,” Thummel said.

DeepSeek’s efficiency could even lead to more widespread use of AI. According to Carlos Torres Diaz, head of power markets research for Rystad Energy, “if data centers become more efficient, they may end up simply processing more data — making it difficult to model their future energy use.”

It is important to remember that if you download Deep Seek, then all of your data will be sent back to China. However, since Deep Seek open sourced its R1 LLM , then it is available to everyone. Venture capitalist and newly appointed AI and crypto czar for the White House, David Sacks, stated in an interview with Fox Business that Perplexity and Ollama are two American hosted companies that will allow you to have access to Deep Seek without sending all your data back to China.

Tickers to consider: KALA , EVAX , JTAI , VNRX

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The Inauguration and The Market

Thu, 16 Jan 2025 20:58:18 GMT

On January 20,2025, this country will inaugurate a new and previous President. This inauguration represents a change in political power in the Executive Branch. How much impact will this transition of power affect the Stock Market?

Historically, the U.S. Stock Market tends to struggle a short time after inauguration day. Since the DOW Jones was created in 1896, one of its worst quarterly returns has been the first three months of a President’s term in office , producing an average return of 0.2%. This compares to an average return of 1.9% in the other quarters of the Presidential term. This pattern has been consistent whether or not the incumbent political party won or lost.

In Donald Trump’s first presidency, the S&P 500 performed very well. Specifically, the S&P advanced 70% during Trump’s first term, this equates to 14.1% annually. Some analysts are anticipating strong returns in his second term driven by deregulation and tax cuts. In fact, since the creation of the S&P 500 in 1957, the index performed better under President Trump than any other president except Bill Clinton.

It is important to remember that presidents do not control the stock market. However, they can influence it by shaping policies that impact the economy. As Trump prepares to be sworn in as the 47th president of the United States, he is set to inherit a strong economy, characterized by robust growth opportunities, low unemployment, and positive financial markets. The agenda of a second Trump administration could have a stimulating effect on the U.S. economy in 2025 and into 2026.

Many experts making stock market forecasts for 2025 are convinced that stocks should enjoy not only a rally, but broad-based prosperity. Sameer Samana, a global market strategist at Wells Fargo Investment Institute, noted the importance of the Republicans capturing not only the White House, but the Senate and House of Representatives as well. According to Samana, this red sweep means “more cohesion,” supporting a strong stock market forecast for the coming year.

Tickers to consider: IKT , KALA , EVAX , JTAI

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The "Red Sweep" and the Economy

Tue, 10 Dec 2024 01:46:13 GMT

The November election gave the Republicans control of two of the three branches of government. Former President Donald Trump’s victory over Vice President Kamala Harris gave the Republicans control of the Executive Branch and by winning a majority in both the House of Representatives and the Senate, they now have control over the Legislative Branch as well. What will this “Red Sweep” mean for the economy?

With former President Donald Trump regaining control of the White House and having majority support in both the House and the Senate, it is more than likely that President Elect Trump’s economic campaign promises will come to fruition. Trump has proposed increasing Federal revenue by imposing tariffs on goods made in foreign countries. He plans on imposing a 60% tariff on all goods made in China and a 10-20% tariff on all goods made in other countries. While some feel that this will hurt US competitiveness, others believe it will encourage the US to manufacture its own goods on our own soil. Leading to another Trump incentive, his proposal to lower the Corporate Tax rate from 21% to 15% for any companies producing goods in the US.

Trump has also pledged to renew most of the provisions of the 2017 Tax Cut Job Act (TCJA) , which is set to expire in 2025. He plans on making these provisions permanent, including a higher level for personal standard deductions and lower taxes in most brackets.

Trump has proposed several new targeted tax breaks, including an exemption on taxes on both overtime and tipped income. The former president has also proposed excluding Social Security payments from income taxes. He has also proposed expanding the Child Tax Credit from $2000 to $5000.00.

President-elect Trump has argued for broad deregulation, which has been supported by the Supreme Court’s decision to repeal the Chevron Doctrine . By overturning Chevron the powers of regulatory agencies have become extremely limited if not potentially non-existent. Big Tech may see mixed impacts from de-regulatory policies, and energy companies stand to benefit most from looser regulations. Additionally, the perception of less anti-trust enforcement could boost corporate Mergers and Acquisitions (M&A) moving forward.

In response to the election, Equity markets have rallied strongly, the Treasury yields and the U.S. dollar have surged. Greater policy change under a “sweep” could affect economic growth, inflation and market performance. Time will tell in the months to come how much an effect this sweep will have.

Tickers to consider: IKT , KALA , EVAX , JTAI

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The Election and The Economy

Sun, 03 Nov 2024 18:43:32 GMT

The United States will elect a new President on November 5, 2024. This is set to be one of the most important economic and political events in recent history. The outcome of this election will have a major impact on the US economy, and will determine the direction that the US will be traveling toward for the future. The trajectory of the US economy looks very different under each candidate.

What will a Trump victory mean for the economy? Former President Trump has made a series of promises to help revitalize the US economy. These promises include changes in the trade policies, eliminating taxes on tips and Social Security benefits, and a proposal to reduce the corporate tax rate. President Trump is confident that these measures will help in restoring employment opportunities, and also cool down inflation.

Trump plans to impose a universal tariff of 10%-20% on all imports and as high as 60% on goods from China. He emphasizes that imposing tariffs will protect jobs of Americans and industry workers as this will encourage domestic production and reduce reliance on foreign goods. Trump believes that the tariffs would be absorbed by foreign producers; therefore the rising costs would not affect Americans.

Trump also plans to bring back all of the tax cuts that he signed in 2017, and further reduce taxes for individuals and corporations. His proposal includes elimination of taxes on Social Security benefits and also tips. Trump also believes that lowering the corporate tax rate from 21% to 15% would produce more jobs and spur economic growth.

Trump also supports strengthening our borders and a mass deportation for undocumented immigrants. This would increase jobs for documented immigrants or Americans, and decrease the country’s financial burden for providing for undocumented immigrants. Undocumented immigrants consume the benefits of living in the United States (healthcare, education, etc.), but do not contribute fiscally (through taxes) for the services that they use.

How will the economy be affected if Harris wins the election? Vice President Kamala Harris has been in office for the past four years. During her time in office, inflation has been out of control. The cost of living has significantly increased since Harris has been VP. Over the past four years, grocery prices have increased by 22%, utilities have increased by 28% and the price of new homes have increased by 28%. In a speech she gave in Washington this past week, the Vice President focused on the challenges facing Americans, including high prices for food, housing and childcare. She stated, “I get it.” What she failed to address is that these price increases occurred on “The Biden Watch,” which technically implies “her watch.”

Vice President Harris has indicated that she would like to see the corporate tax rate return to 35%. This would mean continued higher costs for corporations and small businesses that are categorized as a corporation (Limited Liability Corporations, S- Corps, and C-Corps). This high tax rate would cause the owners of said companies (whether large or small) to pass their costs onto their consumers. This would probably result in the companies charging more for goods and services that they provide. Ultimately keep prices higher for the average consumer.

The Vice President has also promised to keep a Biden promise that those earning less than $400,000.00/ year would be spared any higher taxes. However, she does have a record of favoring steeper taxes, not only for businesses, but also for individuals. She would have to find the money to pay for the expanded social programs that she is focusing on, such as affordable housing , paid leave, and childcare support. It is highly likely that the money for those programs will have to come from tax increases, unless she knows of some buried treasure somewhere.

The Vice President has not addressed her thoughts on tariffs. So it is uncertain how she will proceed regarding trade tariffs. Harris does support Biden’s commitment to renewable energy. However, renewable energy investments require more upfront costs. Again, it is unclear where that money will come from.

With regards to high grocery prices, Harris has proposed a plan for a federal ban on grocery price gouging during national emergencies . This may help to manage food costs during a time of crisis, but will probably have little impact on prices outside of emergencies.

Harris supports current immigration laws and does not support mass deportations. She has signaled support for enhanced border security, but fails to have policies that will strengthen the border.

Trump’s policies are very aggressive and bold. While his policies may not be palatable with everyone, he believes that his policies prioritize American industry and independence. Kamala Harris, in turn, is coming from a more passive role as vice president. She plans to build on Biden-era policies with a focus on sustainability and middle-class support. Yet, Harris has still not proposed any tangible actions on her plans, leaving many economists concerned about the viability of her plans.

Tickers to consider: IKT, KALA, EVAX

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Rate Cut Reactions

Thu, 10 Oct 2024 00:13:31 GMT

On September 18, 2024, the Federal Reserve [Fed] cut the Federal Fund Rate by 0.50 percentage points. This is the first rate cut since the Fed began raising interest rates in March 2022. Most economists were surprised by the aggressive rate cut, which was double the typical 0.25 percentage point cut. Fed chairman, Jerome Powell, stated that the reason for the aggressive rate cut was because, “The U.S. economy is in a good place…and our decision today is designed to keep it there.”

Here are a few takeaways we can reflect on regarding this decision by the Fed.

First and foremost, Powell’s statement that the U.S. economy is in a good place is controversial. Most Americans would not agree with this statement. Basic living costs such as groceries, gasoline, housing prices, rent, etc, are still very high. The majority of Americans are living paycheck to paycheck just to survive and often cannot afford simple luxuries such as eating out at restaurants or going to the movies. While the Fed rate cut could help improve mortgage interest rates, most people still cannot afford to buy a new or used house due to the still inflated prices of homes. The Federal Fund Rate is just one factor of many that affect the housing market. There are many issues beyond the Fed’s control that impact the housing market, such as lack of supply. Lack of supply and greater demand just causes the price of homes to remain high. So the Fed’s decision to aggressively cut the rate by .5 percentage point in order to keep the economy where it is today , may not have been the best decision for most Americans.

The Federal Reserve's decision to cut this month was also influenced by data from the labor market. In July, the Labor Department issued a data revision showing that the U.S. actually added 818,000 fewer jobs f rom March 2023-March 2024, than originally reported. What this means is that the U.S. job market was not as strong as it originally appeared. This sparked concerns the U.S. economy could be cracking under the highest interest rates in 23 years. Nationwide senior economist Ben Ayers was predicting a rate cut of 0.25 percentage points. He stated,"Calls for a larger, 50 bps decline will become louder if the August jobs report comes in weaker than expected and there are more signs of businesses retrenching," The 0.5 percentage point drop further confirms that the U.S. economy may not be currently in a “good place” as Powell suggests.

Powell has repeatedly stated that he and his colleagues are not swayed by partisan politics. However, the timing of the Fed's move is politically sensitive. This rate cut comes less than seven weeks before a presidential election. The strength of the economy is always a key issue for voters. If the economy is strong, Americans usually like to keep things status quo. If the economy is not doing well, Americans tend to vote for a change in the system. Avoiding a recession at all costs seems to be a motivating factor for the Fed’s aggressive rate cut, especially coming into an election season.

While falling interest rates may help borrowers and potentially spur economic growth; it comes with a cost for savers. The minimal interest currently paid for online savings accounts and money market funds will likely decline. This means less money for those who are attempting to put something aside for that rainy day.

The Fed’s rate cut also does not affect the high costs of wages for Employers. While the Federal minimum wage rate is currently $7.25/ hr, only 13 out of the 50 states have their minimum wage set at that rate. The majority of U.S. employers are paying anywhere from $10/ hr. - $17/ hr. for employee MINIMUM wage in addition to the employer taxes and benefits that the employer pays for each employee. Most Americans will not work for, nor can they survive on minimum wage due to the high cost of living. This leaves the employer with the dilemma of having to offer an hourly rate much higher than minimum wage just to get an employee to show up for work. This increases the employer’s costs which in turn requires him to pass his increased costs onto the consumer, leaving consumer prices at an all time high.

Whether this aggressive rate cut by the Fed will actually spur the economy to a better place or send it into a severe recession is yet to be determined. I guess time will tell as we watch and wait.

Tickers to consider: IKT , KALA , EVAX

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Housing Beyond Your Means

Fri, 30 Aug 2024 23:50:08 GMT

Housing affordability is a major problem in America. Home prices spiked during Covid-19 and then the Fed’s war on inflation sent mortgage rates surging. Elevated mortgage rates and home prices have caused prospective homebuyers to push the “pause” button on buying a home. Additionally, homeowners have been reluctant to put their properties on the market and risk potentially forfeiting the ultra-low mortgage rates they locked in during the pandemic. This has created the perfect storm for a housing market that’s been more or less frozen.

Home sales are expected to remain constrained as long as mortgage rates remain well over the 6% to 6.5% level. According to the most recent economic projections from June, the Federal Reserve doesn’t see inflation subsiding to 2% on a consistent basis until 2026, which could mean higher but declining short-term interest rates for the next two years.

Inventory of unsold homes rose across the country this week — but at less than 1% rate. Slower growth of unsold homes on the market is a result of too few sellers on the supply side and stability on the demand side. Due to the weak or declining homebuyer demand, the unsold supply of homes continues to build. What is the economic impact should these homes continue to pour into the market, but remain unsold?

Typically, when there is a flood of supply in the housing market, housing prices come down, making homes more affordable for potential buyers, and thereby “unsticking” the market. However, this is not the case in our current market. Despite the increase in homes on the market, average home prices still remain high. According to the National Association of Realtors (NAR), existing home prices were 4.2% higher in July compared to a year ago after rising for the 13th consecutive month. Yet, just because home prices keep rising, does not mean that a household’s income keeps rising. In order to qualify for the median-price existing single-family home in today’s market, a potential buyer must have a household income of around $110,000. Three years ago, households needed to earn about $59,000 to qualify for the same type of home. Therefore, lack of rising income and those who are locked into low interest rates, are keeping buyers from buying and sellers from selling, effectively “freezing” the market.

A frozen housing market does affect the economy. Spending linked to home sales have dropped. There has also been a drop in the demand for work required for fixing up or renovating homes to get them ready to sell. Lack of home sales also means reduced sales or commissions for professionals handling the logistics of homes sales. According to the National Association of Home Builders, these activities normally account for 3-5% of the U.S. output.

On the plus side, the millions of households that are “locked into” cheap mortgage rates theoretically should have extra money to spend on other things. This may be one reason that consumer spending has remained resilient despite higher interest rates.

The U.S. labor market is also affected by the frozen housing market. Workers are reluctant to accept job offers in other states, if it means sacrificing their low mortgage rates. So labor mobility has been significantly reduced due to this “locked in” effect.

The rental market is also affected by the frozen market. People who cannot afford to buy a home, end up being renters. When there is a flood of renters in the market, rental prices go up. Because rental prices are high, individuals can no longer afford to live on their own. They either end up moving back in with family, or end up having to have roommates just to survive.

The Federal Reserve (FED) may be a primary key in unlocking the gridlock in the housing market. Although the FED has not cut the federal funds rate in over a year, lowering the federal funds rate, which highly influences mortgage rates, would be a step in the right direction to make housing more affordable and accessible for buyers.

Tickers to consider: IKT , KALA , CEI , EVAX

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Buy or Wait?

Thu, 08 Aug 2024 22:05:19 GMT

Sinking sales, rapidly rising inventory and prices at all-time highs gives us a picture of the current state of the housing market. According to the National Association of Realtors (NAR) home sales data, sales of existing homes in June fell 5.4% year over year. That’s the highest rate of decline so far this year.

A shortage of homes for sale has made circumstances difficult for buyers for quite some time. But inventory appears to be slightly improving. In June, the months’ supply of homes for sale reached its highest level in more than four years. Per the NAR report, in June there was a 4.1 month supply of homes on the market nationwide, up from 3.1 months the previous year . What this means is that at the current pace, it would take a little more than 4 months to sell all the properties currently for sale. The market hasn’t seen an inventory above 4 months since 2020. Typically, in a balanced market, the supply of homes for sale would last six months. Supply less than six months is considered a seller’s market, and more than a six month supply is considered a buyers market.

The median sales price also hit a new all-time high ($426,900) for the second month in a row. This in combination with still high interest rates, makes home ownership unattainable for many Americans. According to Zillow, interest on a 30- year mortgage averaged 6.6% annual percentage rate for the week ending August 1, 2024, down from 6.9% the previous year. While the interest rate on mortgages seem to be inching in the right direction, there needs to be more drastic changes in order for the housing market to become affordable. Ordinarily, high sale prices would be an incentive for home builders to construct more houses, thereby increasing their profits. However, inflation has driven up the costs for building a home to record highs, drastically cutting into the home builders' profit margins. This equates to fewer new homes being added to the market. Simultaneously, many existing homeowners have a huge incentive not to sell. They can’t afford to lose their ultralow interest rate. In 2020 and 2021, millions of people got mortgage loans or refinanced their current loans at around 2%-3%. Selling their homes today would be they would have to exchange that very low interest rate for today’s much higher rate.

Last, but not least, economists and financial analysts have been anticipating the Federal Reserve (FED) cutting the Federal Funds Rate, which influences interest rates for mortgage loans. The FED increased the Federal Funds Rate eleven times in 2022- 2023, supposedly to battle inflation. While the FED has kept the Federal Funds rate steady since September 2023, it has yet to make any cuts. Until cuts happen to the Federal Funds Rate, interest rates on mortgages will still make buying a home beyond the budget of many Americans. So for all intents and purposes, a lot more needs to change before we see the housing market shift to a “buyers” market.

Tickers to consider: IKT , KALA , CEI , EVAX

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Chaos or Compliance?

Fri, 26 Jul 2024 01:38:16 GMT

On January 17,2024, The Supreme Court heard oral arguments in the case of Loper Bright Enterprises ET AL, v. Raimondo, Secretary of Commerce, ET AL, No. 22–451, 45 F. 4th 359 & No. 22–1219, 62 F. 4th 621. In this case, a group of commercial fishermen who regularly participated in the Atlantic herring fishery sued the National Marine Fisheries Service (NMSF) after the NMSF put into effect a rule that required the industry to fund at-sea monitoring programs at an estimated cost of $710.00/ day. The fisherman argued that the Magnuson-Stevens Fishery Conservation and Management Act of 1976 did not authorize the Service to create industry-funded monitoring requirements and that the Service failed to follow proper rulemaking procedure. Both the district court and the U.S. Court of Appeals ruled in favor of NMFS decision to impose the $710.00 daily fee based on the 1984 finding in Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984). In Chevron, the court found that where statutory guidelines are not clearly defined by legislation, then the courts will give government agencies deference to its policy making as long as its interpretation of the law is reasonable. The fishermen appealed to the Supreme Court and were granted certiorari or a written review by the highest court in the land.

On Friday, June 28, 2024, the Supreme Court overruled Chevron, finding that under t he Administrative Procedure Act (APA) courts may not defer to an agency interpretation of the law simply because a statute is ambiguous. This finding overruled the 1984 decision in Chevron, which essentially gave government agencies Carte Blanche in imposing regulations regarding the environment, public health, workplace safety, and consumer protections.

How will the Supreme Court’s decision to overrule Chevron impact our economy and businesses moving forward? According to Bill Bright, a New Jersey based fisherman who was a part of the lawsuit, the decision to overturn Chevron will help fishing businesses make a living. Bright stated, “Nothing is more important than protecting the livelihoods of our families and crews.”

Overturning Chevron will definitely make it more difficult for agencies to impose regulations on the public and private sector that have not been defined by legislation or statutes. Here are just a few examples:

1 . Over the last few years, the SEC has put forth an ambitious set of rules, including controversial ones pertaining to climate disclosures, private funds, and digital assets. These rules have been under attack, but with the Court’s decision there is a new path to challenge the SEC’s authority in these and other areas .

2. For the last 40 years, the Environmental Protection Agency (EPA) used Chevron to impose strict environmental regulations, broadly interpreting the Clean Air Act and Clean Water Act. Most environmental industries found these rules extremely costly and stifling.

3. The Internal Revenue Service (IRS) Tax Regulations: The IRS has interpreted tax laws to enforce extra taxes or penalties on specific transactions or entities. This made tax planning more complex and unpredictable.

4. The Department of Labor (DOL): The DOL expanded the Fair Labor Standards Act, making more workers eligible for overtime pay. Employers have had to navigate these new rules, leading to increased labor costs.

5. The Fair Trade Commission (FTC) Antitrust Actions: The FTC blocked mergers or acquisitions and regulated business practices deemed anti-competitive, interpreting antitrust laws. This impacted the business landscape and market competition.

6. Occupational Safety and Health Administration (OSHA) Safety Standards: OSHA enforced new workplace safety standards, interpreting the Occupational Safety and Health Act. Businesses have had to adjust to these ever evolving requirements.

The decision to overturn Chevron affects individuals as well as businesses. Every individual, whether they realize it or not, is impacted by the regulations that are imposed on us by governing entities. Fees for a driver’s license and continued fees to renew your license, building permits to build on your own property, regulations and of course, fees regarding whether the vehicle you drive is smog compliant in the state you live in, professional licensure requirements and fees that go along with that licensure, and continued fees to renew your license. We have all been affected by the over-reaching hand of our government. Maybe this decision is a gift to the people to take back their voice and be a country that is governed by the people and for the people.

Tickers to consider: IKT , KALA , CEI , EVAX

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The FED: Friend or Foe?

Tue, 11 Jun 2024 17:05:13 GMT

The Federal Reserve System [hereinafter, “FED”] is the central bank of the United States. It was created in December 1913, with the enactment of the Federal Reserve Act, after a series of financial panics led to a desire for central control of the monetary system in order to supposedly alleviate financial crises. It performs five general functions to promote the effective operation of the U.S. economy and, more generally, the public interest . According to the Federal Reserve website, the five functions of the FED includes the following:

Conducting the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy;
Promoting the stability of the financial system and minimizing systemic risks;
Promoting and monitoring the soundness of individual financial institutions;
Provides safety and efficiency services to the banking industry and the U.S. government inorder to facilitate U.S.-dollar transactions and payments; and
Monitoring emerging consumer issues and economic development activities, and administering consumer laws and regulations.

In short, the FED is supposed to promote financial stability for the benefit of the United States. However, is this the reality of the most recent actions of the FED?

Every year, Gallop conducts a survey of American adults on a variety of economic topics, including the Federal Reserve. According to its most recent poll in May 2023, only 36% of Americans have a “fair amount” of confidence that the FED will do the right thing for the US economy. This is the lowest number in over 20 years. This is most likely due to the FED’s policy on raising interest rates at speeds of lightening since the Pandemic. This policy has created several adverse effects on the American economy including, but not limited to the following:

Negative impact on the Stock Market;
Increased burdens for those with variable-rate debts; and
Mortgages and home buying are becoming less affordable.

In their final meeting of 2023, The FED chose to keep interest rates at their current borrowing rate of 5.25-5.5%. It also indicated that there could be three rate cuts in 2024 . We are halfway through 2024, and there have been no rate cuts by the FED. Instead, in their most recent meeting at the beginning of May, 2024, the FED again chose to keep rates at the current level of 5.25-5.5%, a 23 year high. FED Chairman Jerome Powell indicated that it will “take longer than expected” for FED officials to feel confident enough to cut rates. Perhaps actions like this also give the American people pause to trust whether they can believe what the FED is telling the public.

Since the FED began to raise interest rates in 2022, in order to supposedly fight inflation, the following has occurred:

Interest rates remain high;
Savings accounts are dwindling;
Americans are racking up credit card debt; and
Inflation has remained high, taking a toll on people's budgets.

Does it appear that these policies are really promoting the financial stability of the American people? I guess that is for you to decide.

Tickers to consider: IKT , KALA , CEI , EVAX

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Deja Vu?

Thu, 09 May 2024 14:36:50 GMT

In March 2024, the average sales price of an existing single family home in the United States was $397,200.00 up 4.7% from March 2023. While prices of homes in the United States may appear to be at an all time high, the total home sales have been decreasing as mortgage rates continue to soar. According to the National Association of Realtors, total home sales in March 2024 were down 4.3% from the previous month and down 2.8% from the previous year.

On April 25, 2024, ATTOM, a leading curator of land, property and real estate data, released its first quarter 2024 Home Sales Report. This report showed that the profit margins on median home and condo sales in the United States decreased to 55.3%, down from 57.1% in Q4 2023. Additionally, this report showed that the median home price fell quarterly by 4.3%.

According to Freddie Mac, the average interest rate on a 30 year mortgage rose to 7.22%, up from 7.17%, last week. Rising mortgage rates can add hundreds of dollars a month in costs for borrowers. T his results in limiting how much homebuyers can afford at a time when a relatively limited number of homes on the market coupled with heightened competition for the most affordable properties has kept prices marching higher. Additionally, borrow rates on a 15 year mortgage also rose to 6.47%, up from 6.44%. On May 1, 2024, the Fed announced that it does not plan on cutting interest rates until it has greater confidence that price increases are slowly sustainably to its 2% target. Most economists agree that until the Fed cuts interest rates, then mortgage rates are unlikely to ease.

With regards to new home starts, 1,458,000 building permits were issued in March 2024, down 4.3% from February, yet up 1.5% from the previous year. Of those 1,458,000 building permits issued, 1,321,000 actually started construction on homes and condos, down 14.7% from February and 4.3% lower from the previous year according to the US Census Bureau. Construction on Multi-family homes (apartment buildings), continued to slow. Construction on buildings with five or more units decreased by 20.7% in March, and was down 43.7% from the previous year.

The slowdown in single family housing starts reflects a more cautious outlook in the housing market. Perhaps builders are anticipating that interest rates will likely remain elevated for much longer than previously thought or maybe a large number of homes are still under construction. Either way, it is probably wise to “proceed with caution” when considering the value of investing in a home in the next few months. In 2008, the world was shocked when the housing market seemed to crash overnight. Yet, there were definite indicators back then that a housing crash should have been expected. The biggest indicator was probably the common occurrence of the banks approving individuals for home loans that they simply could not afford; thereby resulting in the nationwide bank failures and bank bailouts by our government. Be on guard. Similar signs exist. High interest rates challenge the affordability of owning a home, and yet, somehow home prices are still high. In March, the consulting firm Klaros Group , released its most recent financial analysis of thousands of banks across the U.S. Of the 4000 banks analyzed, 282 institutions have both high levels of commercial real estate exposure and large unrealized losses from the rate surge. This is a potentially toxic combination for these banks. Housing prices are at an all time high, banks are failing or at the very least, extremely stressed…. This is feeling all too familiar.

Tickers to consider: IKT , KALA , CEI , EVAX

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Brace for Impact

Sat, 06 Apr 2024 20:35:52 GMT

When the Federal Reserve (Fed) began hiking interest rates at the beginning of 2022, it turned the housing market upside down. The housing market, more than any other segment of the economy, was negatively impacted as the rate environment changed. Higher mortgage rates initially slowed demand, then dampened housing supply, particularly for those in the market for existing homes.

A combination of rising home prices and the highest mortgage rates in more than 20 years, creates a budgeting challenge for potential homebuyers. According to Rob Haworth, Senior Investment Strategy Director at US Wealth Management, “The combination of higher home prices and elevated mortgage rates creates a meaningful headwind for new homebuyers. They either need to be able to make a bigger down payment or they must earmark more of their monthly budget for housing costs.”

In December 2023, the Fed's Summary of Economic Projections (SEP), projected three rate cuts in 2024 by the Central Bank. However at the end of March, the Fed's Federal Open Market Committee (FOMC) left the short-term federal funds rate steady at a 23-year high of 5.25% to 5.5% . Interest rate traders are hoping that the FOMC will enact its first quarter cut rate in June.

Housing economists are waiting with bated breath for these anticipated rate cuts to begin. Home prices have dropped sharply and appreciation has slowed nationally since the Fed began raising rates in 2022. Since home prices are not solely driven by interest rates, it can be difficult to predict how rate cuts will affect the housing market. Still, the Fed’s policies set the overall tone for mortgage rates. The Fed bumped rates seven times in 2022, a year that saw mortgage rates jump from 3.4 percent in January all the way to 7.12 percent in October. Clare Losey, an economist at the Austin Board of Realtors in Texas, says that such increases diminish purchase affordability, making it more difficult for lower-income and first time buyers to purchase a home.

The predicted cuts by the Fed should typically lead to lower mortgage rates. Selma Hepp, Chief Economist at Core Logic stated, “Lower mortgage rates would help spur home sales activity, which are expected to increase in 2024 compared to 2023.” Additionally, Hepp concluded that, “ Declines in mortgage rates will drive more sellers to trade their existing home and help add much-needed inventory to the market, leading to more transactions.” More inventory may lead to more competitive housing prices and reasonable affordability for home buyers.

Tickers to consider: IKT , KALA , CEI

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Bitcoin Boom

Wed, 27 Mar 2024 00:38:35 GMT

On March 5,2024, the cryptocurrency Bitcoin crossed $68,900, the highest price in its 15-year history. This soar comes less than 2 years after Bitcoin dropped below $17,000 in November 2022. Most analysts are very familiar with the volatile cycles of Bitcoin. Immediately after reaching its record high, Bitcoin fell to $61,000 by close of the same day. Today, March 15, 2024, Bitcoin closed at $69,621.28.

Bitcoin was originally designed as an alternative to the traditional finance system, in which people might be able to send money around the world without extractive intermediaries. The concept behind Bitcoin allows online payments to be transferred from one party to another without going through a financial institution. Thereby alleviating the typical processing, service and wire transfer fees that are accrued by most financial institutions. Another appealing aspect of Bitcoin is that it has been viewed as an inflation hedge. This means that Bitcoin cannot be devalued by a central bank printing more of it. Bitcoin was designed to only have 21 million units in circulation.

In January, the US Financial Regulator approved exchange traded funds (ETF), which has benefited the surging price of Bitcoin since the start of the year. According to Jeff Billingham, director of strategic initiatives at Chainalysis, this approval shows there is now “institutional maturity” in the cryptocurrency market . Additionally, James Knightley, the chief international economist at the banking group ING, says elevated inflation readings have encouraged bitcoin buyers who see the cryptocurrency as an insurance policy against rising prices. According to Knightley, “Risk appetite has also soared in recent weeks with tech stocks fuelling the sense of Fomo [fear of missing out] in markets and I think bitcoin is being swept along in all of this.”

Haseeb Qureshi, a managing partner at the crypto venture capital firm Dragonfly, believes that Bitcoin will only continue to increase in value over the next year. Bitcoin has yet to hit the “halving,” a mechanism built into Bitcoin that aims to make the currency more scarce and therefore, more valuable. Bitcoin halvings happen roughly every four years, with the next one set for April. Bitcoin prices rose after each of the three previous halvings, giving reason to believe that the trend will continue.

Bitcoin is known for its ability to overcome any challenges and have strong comebacks. Various financial experts have been predicting that the Bitcoin bubble will pop “in the near future” for the past eight or so years; yet, somehow the coin still remains on top. BTC investors are enjoying their high profits and hoping the rising trend of Bitcoin will continue.

Tickers to consider: IKT , KALA , CEI

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Gold and Interest Rates

Sat, 17 Feb 2024 22:11:59 GMT

Many analysts and investors adhere to the belief that gold prices and interest rates have an inverse relationship. The idea is that, since higher interest rates make fixed-income investments more attractive, money will flow out of gold and into high-yielding investments as rates rise. Therefore when the Federal Reserve raises the federal funds rate, then weakness in gold should follow. However, historical data shows no significant correlation between rising interest rates and falling gold prices. Ultimately, the relationship between gold prices and interest rates is uncertain and unstable because gold is traded on a global market subject to forces far beyond the reach of the Federal Reserve .

From March 2022 to July 2023, the Federal Reserve raised the federal funds rate by more than five percentage points. In that same time period, gold prices rose from $1908.30 to $1960.40. By the end of 2023, gold was trading at $2062.40. While interest rates may have some effect on gold prices, rising rates don’t automatically drag gold prices down . The real picture involves many moving parts, including factors such as fears of inflation, geopolitics, global growth prospects, and wider investor outlooks.

It is also important to remember that gold is influenced by supply and demand. Higher interest rates may reduce overall investment demand for gold. At the same time, if supplies do fall, then it is possible that the price of gold sustains, or even appreciates. The constant jostling of supply factors can influence the relationship between the gold price and interest rates.

Economic and geopolitical uncertainty tend to be positive drivers for gold. Many investors view gold as a safe-haven asset during troubling times due to its ability to remain a reliable store of value. Because of its low correlation with other asset classes, gold can act as insurance during falling markets and times of geopolitical stress.

J.P. Morgan research predicts that both gold and silver will have a positive forecast over the course of 2024 and into the first half of 2025. According to the J.P.Morgan, gold prices will peak at $2300/ oz in 2025. T his prediction assumes a Fed cutting cycle initially delivering 125 basis points (bp) of cuts over the second half of 2024, pushing gold prices to new nominal highs.

Tickers to consider: IKT , KALA , CEI

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2024 Real Estate Forecast

Thu, 18 Jan 2024 23:16:28 GMT

2023 was not a good year for potential home buyers. Mortgage rates surged and hit a high of 7.79% in October. On December 13, 2023, policy makers kept the federal funds rate unchanged for a third straight meeting. The federal funds rate is the benchmark interest rate that financial institutions charge for overnight loans. The federal funds rate tends to indirectly influence mortgage rates. Although economists are optimistic that the Federal Reserve is done with its rate-hiking campaign to lower inflation due to the unchanged rate, affordability challenges will probably continue in 2024. Pent-up demand and low inventory will generally bolster prices, and elevated mortgage rates will remain until the Fed implements cuts to the federal funds rate.

The US housing market has experienced a significant upswing in home prices over the past few years. However, forecasting the housing market for 2024, there are signs that this trend may be changing. The data from the housing market indicates a potential housing market correction, with home prices stabilizing and, in some regions, even dropping.

According to the Central Finance Group, the real estate forecast for next 5 years presents mixed messages. Some experts predict a stable housing market, whereas others foresee a downturn, leading to a real estate crash. In order to better understand the mixed messages, factors that primarily affect the housing market need to be evaluated. First and foremost is the trend in interest rates. Higher rates typically lead to increased mortgage payments. This reduces the affordability of homes for many potential buyers. This scenario can potentially lead to a housing market correction if the rate rising trend continues. Inflation also plays a crucial role in the housing market. High inflation rates cripple the purchasing power of the consumer. This in turn makes it more challenging for individuals to afford new homes. If wages do not keep up with the cost of living, we could end up with a scenario where home price dropping becomes a common phenomenon.

Despite these challenges, there does remain a healthy demand for home purchases amongst millennials. This demand could potentially protect the housing market from a severe crash. Additionally, a limited housing supply has been a persistent issue, and it continues to influence housing market predictions 2024. A limited housing supply combined with a high demand from millennials may play a leading role in keeping the housing market from crashing again. Finally, it is important to remember that in order for the demand from the millennials to positively influence the housing market; interest rates must be cut by the Fed. This is the only way these millennials will be able to afford to purchase a home. If interest rates remain high or continue to rise, it will not matter how much of a demand there is. At the end of the day, the demand will not be met simply because it is unaffordable.

Tickers to consider: IKT

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The Rise of Bitcoin

Wed, 20 Dec 2023 00:50:15 GMT

Bitcoin was created in 2009, by a pseudonymous creator, Satoshi Nakamoto and is the world’s first cryptocurrency. Cryptocurrencies are digital tokens that use technology to facilitate instant payments without the need of a third party. From the beginning, the Bitcoin supply was capped by Nakamoto. The maximum number of coins stipulated to be in existence was 21 million. As of Nov. 12, 2023, there were 19.53 million Bitcoins in existence with 1.46 million left to be mined. However, experts believe that it will take until the year 2140 before the supply cap of 21 million is reached.

In 2009, Bitcoin started trading at a price of $0.00099 per coin. On December 12, 2023, Bitcoin was trading at a price in excess of $41,000 per coin. 2023 has been a surprisingly good year for Bitcoin. Since January 1, 2023, Bitcoin has increased by 164%. It has outpaced traditional assets, including gold which has risen 10% and the S&P 500 which has gained 20%. Additionally, according to CoinGecko data, Bitcoin has increased its share of the total crypto currency market by more than 50%.

What is fueling this rally by Bitcoin? One of the most important factors is signs that major investment firms are set to get regulatory approval to offer spot bitcoin exchange traded funds (ETF)— a pooled investment security that can be bought and sold like stocks. Federal regulators are expected to give the “go ahead” for several bitcoin ETFs as early as January 2024. Yiannis Giokas is a senior product director at Moody’s Corporation, an American business and financial services company. According to Giokas, the green light from federal regulators for Bitcoin ETF’s could make investing in crypto more accessible to investors. In an interview with MoneyWatch, Giokas states, "As more and more managers venture into the bitcoin spot ETF space, more retail and institutional investors, even the more conservative ones, will feel a higher degree of comfort investing in this space." Asset management giants like BlackRock and Fidelity are among the 13 companies that have submitted applications to the U.S. Securities and Exchange Commission for the multi-billion dollar product.

Another important factor is the growing assumption that the Federal Reserve is done hiking its benchmark interest rate and that inflation is receding. When interest rates fall, investors are more likely to pour money into riskier investments such as crypto. Greg Magadini, Director of Derivatives at the crypto data firm, Amberdata, told CBS MoneyWatch, “Lower rates are bullish for Bitcoin.”

So what is in store for Bitcoin in 2024? In April 2024, Bitcoin will undergo what is known as halving. This is an event where the rewards for mining Bitcoin transactions are cut in half. This event occurs about every 4 years and cuts the rate at which new Bitcoin supplies enter the market. Past havings have led to huge rallies for Bitcoin, and another massive rally is predicted for 2024. It is important to remember that past performance is no guarantee of future performance. According to the Motley Fool, Bitcoin investors are setting their sights on the $1 Trillion mark. However, they also recommend that investors should not buy Bitcoin unless they plan on holding it for the next 5 to 10 years. Bitcoin is a “long term investment and should be treated as such.”

Tickers to consider: IKT

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The Stock Market and War

Thu, 09 Nov 2023 02:11:17 GMT

Conflicts and stand-offs like the most recent Israel- Palestinian war have global implications, not only for peace and security, but also for the economy and global stock markets. Despite a certain level of uncertainty that war can bring, stock markets have shown resilience over time.

In his article on counterintuitive market outcomes, Ben Carlson, Director of Institutional Asset Management at Ritholtz Wealth Management, wrote "From the start of World War II in 1939 until it ended in late 1945, the Dow was up a total of 50%, more than 7% per year…” In the days and weeks following the Russia/ Ukraine conflict, the S&P 500 fell more than 7%, but within a month, the market had rebounded and the S&P 500 was trading at a higher level than before the invasion.

So what can we expect from the Israel - Hamas conflict? Although Israel is only about the size of New Jersey, it has a huge influence on the US Stock Market. According to Bloomberg, funds in the US hold more than $43 billion in Israeli stocks and bonds. More than 100 Israeli companies are listed on US exchanges, with a combined market cap of more than $150 billion – Israel has the fourth most companies listed on the Nasdaq after the United States, Canada and China. Analysts are predicting that if the conflict remains between Israel and Palestine, then the markets will likely forget about it after a few days or weeks.

Historical evidence suggests that conflicts can have an impact on stock market performance. Past conflicts have shown that stock markets can experience initial declines in response to escalating tensions and uncertainties. However, once the Israel-Hamas conflict reaches a resolution, the stock market has the potential to experience a recovery and stabilization period. Historically, military surprises typically decline the S&P 500 for about 30 days after the initial conflict, and then recover about 60 days after the event.

Tickers to consider: IKT

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The Fed’s Monetary Policy and The Market

Fri, 29 Sep 2023 01:07:39 GMT

The Federal Reserve (The Fed) is the central banking system of the United States. It comprises 12 regional banks and is responsible for governing and conducting monetary policy , supervising and regulating financial institutions, and maintaining the overall stability of the banking and financial system of this country.

Monetary policy is the approach taken by a central bank or government authority with the intent to influence economic growth by expanding or constraining the supply of money in that region. The question to be answered is how does The Fed’s monetary policy affect the Stock Market (The Market)?

On September 20, 2023, The Fed officials held the benchmark overnight interest rate in the current 5.25%-5.50% range, but sketched a stricter policy path moving forward in an inflation fight they now see lasting into 2026. Fed Chair Jerome Powell said, a solid economy combined with strong job growth, will allow the central bank to keep additional pressure on financial conditions through 2025.

In August, inflation fell to 3.7% , down from 7.0% when it peaked in June 2022. However, that still remains well above the Federal Open Market Committee's (FOMC) objective of 2 percent. Bringing inflation back to 2 percent will likely require a period of below-trend growth and some softening of labor market conditions. In response to high inflation, the FOMC continued to increase interest rates 11 times and reduce its securities holdings of the Treasury and mortgage-backed securities over the course of this past year. The Federal Reserve is acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials. The FOMC is strongly committed to returning inflation to its 2 percent objective. Long story -short, The Fed will continue to raise interest rates until they reach their goal for 2% inflation.

What does this mean for the outlook of the Stock Market? The Market has endured significant volatility as investors factored in rising rates. Juan Pablo Villamarin, senior investment advisor at Intercontinental Wealth Advisors, notes that the Fed’s primary policy tool is the Fed Fund Rate (FFR). The FFR is the rate that banks borrow and lend to each other overnight. Changes in the FFR affect the overall economy by making money easier or more difficult to borrow. A higher FFR results in a higher cost of borrowing for businesses. This in turn means that businesses no longer have access to cheap capital for reinvestment in growth. Consumers no longer have access to low interest rates for car purchases and mortgages, causing them to spend less.

Villamarin notes that the primary result of Fed interest rate hikes on stocks is an increase in the cost of capital. “All else being equal, a higher cost of capital causes future potential profits to be worth less, and decreases investment and spending on margin by companies," he says.

Robert Johnson, chairman and CEO at Economic Index Associates, agrees, finding that during "restrictive," or rising-interest-rate, environments, stock returns tend to be more muted. Johnson notes that the average annual real return for stocks over a 55-year period was 13.8% in expansive periods, but only 1.7% in restrictive periods. However, businesses that are more cyclical in their demand tend to be disproportionately affected by a restrictive environment. This often includes stocks from technology, materials and consumer cyclical sectors and small-cap stocks.

Tickers to consider: IKT

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Consumer Spending and The Stock Market

Wed, 09 Aug 2023 22:21:56 GMT

The US economy perked up a bit in the second quarter despite interest rate hikes and still high inflation. This growth can be attributed in part to consumer spending. Consumer spending, which accounts for about two-thirds of economic output, grew at just a 1.6% rate in the second quarter, down sharply from a 4.2% rate in the first three months of the year . The rate decline from the first quarter was due largely to a sharp pullback in spending on durable goods, such as cars and appliances.

According to Shannon Seery, an economist at Wells Fargo’s Corporate and Investment Bank, consumers have “shifted their spending patterns in terms of their actual consumption." This was reflected in consumers cutting back on durable goods purchases in the second quarter. Consumer spending and the health of the labor market typically have a parallel relationship. If one goes up, the other goes up and vice versa. If employers continue to provide jobs, and wages continue to grow as inflation slows, then consumers will still have healthy purchasing power. Whether the Fed can successfully defeat inflation without seeing a decline in the labor market remains to be seen, but so far, both spending and hiring have lessened slightly and gradually.

What does this mean for the stock market? Optimism that the economy will land softly has rallied the stock market recently and sent prices soaring. In July, the DOW posted 13 straight days of gains, The S&P 500 reported a 3.1% gain and closed out July just 200 points below its all time high. Finally, the NasDaq Index jumped 4% and its 37% gains from January -July 2023, marked its best since 1975.

The stock market is entering the second half of 2023 with positive momentum, which historically bodes well for returns for the rest of the year. Technology stocks and growth stocks have outperformed in 2023, and investors are increasingly optimistic the Fed can navigate a soft landing for the U.S. economy. While the risk of a recession remains elevated due to inflation and high interest rates, most analysts are generally optimistic about the outlook for stocks in the second half of the year.

Tickers to consider: MARK , ASST , RNAZ , & IKT

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FedNow: The Pros and Cons of Digitizing Central Banks

Thu, 20 Jul 2023 16:31:18 GMT

On March 15, the Federal Reserve announced that the FedNow Service would launch in July 2023. According to the Federal Reserve, FedNow will “facilitate nationwide reach of instant payment services by financial institutions—regardless of size or geographic location—around the clock, every day of the year.” With FedNow, financial institutions will be able to clear and settle retail payments instantly at any time, including nights and weekends.

Payments between banks typically require clearing and settlement. Clearing means that banks exchange information about a payment, including checking for fraud. Settlement involves moving money to the recipient’s account. FedNow is an interbank, like Automated Clearing House (ACH) Network. However unlike ACH, which processes its transfer in batches and tends to take one to three business days to complete, FedNow transfers will take seconds.

The instantaneous transfer of funds can be likened to immediate gratification. We want something and we want it NOW. Having our payments made and received instantaneously sounds like a good thing. But is immediate gratification really in the best interest of individuals? The instantaneous transfer of funds can only occur by digitizing the funds being transferred. The digital dollar being advocated by the Federal Reserve is an example of a central bank digital currency (CBDC). At first glance the US currency already appears to be digitized. Many people rarely carry physical cash and prefer to use digital payment methods like a chipped credit card or their smartphones. Direct deposit has become the standard method of payment for employers. Dollars are transferred electronically, and no longer in the form of paper money and coins. However, those paper dollars and coins are interchangeable, exchangeable and can be substituted for something of equal value. For example, I can go to a yard sale with my paper cash, or checkbook, and make a purchase, exchanging my “paper money” for a specific item.

CBDCs are entirely under bureaucratic control because every digital dollar has a unique fingerprint. Because CBDCs are programable, traceable, trackable and taxable, all transactions can be surveilled, recorded, or even reversed by the push of a button. CBDCs can be earmarked for certain purchases and forbidden from others. With a CBDC, the central bank can potentially force spending and prevent saving by imposing or capping maximum savings levels. Additionally, in order to prevent people from going over their maximum savings “cap,” the central bank could confiscate unspent digital dollars. People with no savings are more reliant on the government in emergency situations. In this scenario, if you’re unable to save for a rainy day, you would be at the mercy of the government who holds your financial purse strings.

Many proponents of central bank digital currency (CBDC) are also supporters of a “cash-free” society. Some may argue that in a cashless society there would be less crime and theft, etc as there would be no cash to steal. However, a cashless society would lead to more bondage and less freedom for individuals. Digitizing central bank funds just gives the Fed more control (monopoly) over your money. People would not be able to escape a government-imposed fee on their idle money balances. People would have no alternative to electronic accounts, and have no way to stop the government from taking their money when, for example, the Fed declared a macroeconomic emergency.

Another huge concern would be the Fed’s ability to inflate and devalue the currency. Implementing CBDCs essentially removes private banks from the Fed’s methods of creating money. This would in effect guarantee future inflation and unlimited government spending. Private banks would no longer be necessary because all borrowing by consumers could happen directly through the central bank. The End Result?- The central banks have complete control over who does and does not get to borrow money. With no accountability, people could be turned down for loans for reasons other than the ability to repay the loan. Are you not ‘WOKE” enough? Do you donate money to churches? Do you financially support or volunteer for certain organizations? These could all be potential reasons that you “denied” a mortgage or a loan. CBDCs make such hypothetical scenarios possible, and perhaps probable.

In summary, FedNow is a new interbank Real Time Gross Settlement (RTGS) payment system that will support instant clearing and settling of retail transactions that is supposed to go into effect in less than a week. The instantaneous transfer of funds will occur through the use of central bank digital currency or CBDCs. Individuals will not have access to FedNow directly, but instead will have access to the instant payment services offered by their financial institutions. As with other Fed payment services, FedNow will charge fees to its participating institutions. This inevitably means those fees will get passed onto the customers of said institutions, and instantaneously withdrawn from the patron’s accounts. The implementation of FedNow appears to actually remove an individual’s control over their money and place control into the hands of the government. There is a saying, “whoever controls the money has the power.” Our founding fathers built this country as a Republic, a government by the people, for the people. We have drifted very far from being governed “by the people and for the people.” It is highly unlikely that our country would benefit from our government having more power.

Tickers to consider: MARK , ASST , RNAZ , & IKT

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Eat More Fruits and Veggies

Sat, 03 Jun 2023 21:56:31 GMT

The human race has always had a fascination with youth and longevity. Numerous studies have been conducted time and again to find substances that can fight aging and offer humankind the gift of better health and wellness. With the advancement of technology, the time where we could take a pill to extend our lifespan might be just around the corner.

A class of drug that supports healthy aging, known as a senolytic drug, could do more than add years to your life. Cells constantly divide, a process that allows us to grow and heal, but as we age, some cells stop dividing and become “ senescent . ” Cellular senescence regulates physiological and homeostatic processes particularly during embryonic development and wound healing. Cellular senescence can also be a pathological process that contributes to aging, various diseases and metabolic disorders. Senescent cells can also contribute to a number of health conditions such as cancer, dementia, and arthritis. The older we are, the more of these senescent cells we accumulate.

Senolytic drugs are designed to clear away senescent cells while leaving adjacent cells unharmed. Senolytic drugs, stem cell therapies and other interventions, have been shown to extend lifespan and reduce tissue injury in various animals.

Fisetin is a plant compound found in many fruits and vegetables. Scientists have considered Fisetin a senolytic compound because it targets and wipes out senescent cells in the body. In his research, Paul Robbins, co-director of the Institute of Biology of Aging and Metabolism at the University of Minnesota, found that Fisetin significantly extended and improved the lives of lab mice. Other studies have shown that Fisetin has improved Alzheimer's disease and slowed the growth of cancer cells in mice.

It is still early days for the senolytic field. While some drugs such as Dasatinib, Quercetin, Fisetin, 17-DMAG, Navitoclax, Catechins may show promise in lab mice, more time and research is necessary before in order to determine the benefit of senolytic drugs or compounds to humans. It is important to note that natural Fisetin and other anti-inflammatory compounds are abundant in strawberries as well as onions, apples, and a whole bunch of other colorful fruits and vegetables. So we may not have to wait for the miracle “anti-aging pill” after all. Eating more fruits and vegetables as we age is just a win-win for everyone.

Tickers to consider: MARK , ASST & IKT

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Will The Advancement of Artificial Intelligence Improve or Destroy Society?

Wed, 17 May 2023 16:39:36 GMT

Brittanica.com defines Artificial Intelligence (AI) as, “the ability of a digital computer, or a computer controlled robot to perform tasks commonly associated with intelligent beings.” Merriam Webster defines AI as “ 1) a branch of computer science dealing with the simulation of intelligent behavior in computers; or 2) the capability of a machine to imitate intelligent human behavior.” Over time, the definition of AI has changed and evolved. Today, AI refers to the range of technologies that allows computers to enhance, supplement or replace human decision making. In short, AI is the ability of a machine to act like a human.

Most people are probably favorable toward the development of technology and AI. Smartphones, Smart appliances, Smart TV’s, GPS,etc, have made life very convenient for us. Yet, is AI technology actually improving our lives, or crippling human kind? Let’s take a look at some of the pros and cons of the development of AI technologies.

As previously stated, smartphones make things very convenient. We have access to a plethora of information at our fingertips. This can be very time saving as we instantaneously get access to directions, stock prices, news, recipes, etc. However, access to this instant information also prevents us from having to learn basic skills for ourselves. Tasks such as map-reading, basic multiplication and division, and knowing how to do research or look up information are rapidly becoming extinct in mankind. We are graduating a generation of children that do not know their basic multiplication tables, do not know how to balance a checkbook, and would not know how to find their way around a city without GPS.

More employers are incorporating AI into their business models. AI can perform tasks at a faster rate than humans and also can perform tasks that are potentially risky or harmful for humans. The cost-savings is also a plus to employers as they do not have to pay salaries, benefits, or retirement packages to AI. But does this actually benefit society or mankind? What happens to the humans who lose their jobs to this AI technology? How are they supposed to live and provide for their families? How are these humans supposed to be productive functioning members of society when they have no job to go to because a machine has replaced them? The need for man to work goes back to the beginning of mankind when God gave Adam the job of taking care of the Garden of Eden and naming all of the animals. Mankind needs to work. It is an integral part of how we were created. When AI takes over the workplace, we lose an important part of our purpose.

Mankind was also meant to live and thrive in community. Interpersonal communication and social interaction with others is vital for the health and well-being of people. We saw a severe rise in depression, suicide and mental health issue during the COVID shut-downs. People need to be with people. We need face-to-face interaction and personal touch from others. The importance of human touch on our health came to light in the mid-1990’s when two scientists traveled to Romania to examine the sensory deprivation of children in understaffed orphanages. The “touch-deprived” orphans had significantly lower levels of cortisol, the hormone responsible for metabolizing carbohydrates and proteins in our bodies, and lower growth development levels compared to orphans in their same age group who had been touched and held.

The progressiveness of AI will disrupt the way we live in the human community. Humankind has to be industrious to make their living, but with the service of AI, we can just program the machine to do a thing for us without even lifting a tool. Human closeness will gradually diminish as AI will replace the need for people to meet face to face for idea exchange . With the advancement of AI, personal gatherings will no longer be needed for communication. This will lead to isolation and eventually the extinction of interpersonal relationships. There is a price to pay for convenience. However, in this scenario, I am not sure the price would be worth it.

Tickers to consider: MARK & ASST

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The Fault in the Central Banking System

Mon, 17 Apr 2023 21:55:00 GMT

On Friday, March 10, 2023, Silicon Valley Bank, Santa Clara, CA was closed by the California Department of Financial Protection & Innovation. The Federal Deposit Insurance Corporation (FDIC) was named Receiver. In order to protect depositors, the FDIC transferred all the deposits and assets of Silicon Valley Bank to Silicon Valley Bridge Bank, National Association (N.A.), a full-service bank that was operated by the FDIC. On March 26, 2023, the FDIC entered into a purchase and assumption agreement for all deposits and loans of Silicon Valley Bridge Bank, N.A. As part of this transaction Silicon Valley Bridge Bank, N.A., was placed into receivership.

On Sunday, March 12, 2023, Signature Bank, New York, NY was closed by the New York State Department of Financial Services, which appointed the FDIC as Receiver . Signature's failure just two days after the Silicon Valley Bank's shutdown was the second largest bank failure in U.S. history behind Washington Mutual, which collapsed during the 2008 financial crisis. The FDIC created Signature Bridge Bank, National Association (N.A.), to take over the operations of Signature Bank. On March 19, 2023, the FDIC announced that it, “entered into a purchase and assumption agreement for substantially all deposits and certain loan portfolios of Signature Bridge Bank, National Association, by Flagstar Bank, National Association, Hicksville, New York, a wholly owned subsidiary of New York Community Bancorp, Inc., Westbury, New York.”

Back to back bank failures of both Silicon Valley Bank (SVB) and Signature Bank (SB) have raised questions about the security and stability of the central banking system in this country. It appears as though the Federal government is once again stepping in order to attempt to pay back depositors and broker sales of the failed institutions to functional banks.

Is this really the best solution to this country’s bank failure problem? Back in 2008, the Federal government “bailed - out” over 700 banks with approximately $245 billion dollars in taxpayer money. The collapse of the housing market and the implosion of mortgage backed securities left the U.S. banking system on the brink of insolvency. A huge part of the equation was the banks overwhelming approval of subprime mortgage loans, which enabled buyers with low credit scores to secure home loans at prices beyond their means.

Silicon Valley Bank was the 16th largest bank in the United States before its collapse. SVB’s bank documents indicated that corporate leadership was more interested in things like environmental sustainability, climate change, and diversity initiatives than risk management. These documents make SVB sound more like a political institution than a financial institution. Silicon Valley Bank had no chief risk officer between April 2022 and January 2023. Its Risk Committee had no members experienced in risk management. Additionally, it appears as though this very large bank had no accountability from bank examiners. Laws, including the Dodd-Frank Act , are worthless if there is no enforcement mechanism from bank examiners on banks to reduce risk. Without consequences, banks will take unnecessary risks with depositors’ funds. However, not with their own funds: Silicon Valley Bank CEO Gary Becker sold $3.6 million in shares two weeks before the crash, netting a profit of $2.3 million, and other board officers also sold shares this year.

Signature Bank (SB) was one of 20 largest banks in the country, based on deposits and catered to privately held businesses, owners and their executives . Unlike most U.S. Banks, SB was very friendly to cryptocurrency businesses. However, SB stock took a huge hit when FTX crashed and declared bankruptcy in 2022. After hitting a high in 2022, at a price of $365/ share, SB’s stock plummeted to $70/share on March 10, 2023. SB did share one major characteristic with SVB, a high portion of uninsured domestic deposits. At the end of 2021, Signature Bank was fourth in that category with nearly 90% of its deposits being uninsured. SVB was second. Uninsured deposits are amounts above the FDIC insurance limit of $250,000 per individual account. Only after the bank was taken over did the FDIC waive the insurance cap for depositors in both it and Silicon Valley Bank. Why would SB continue to receive deposits knowing that 90% would not be insured? That would be likened to having a $1M home with a homeowners insurance policy of $100,000.00. If that $1M home burns down, you only get the $100,000.00, the amount it was insured for.

So again, the question has to be asked, why does the government feel the need to step in when the banking industry appears to be making “less than” wise decisions. The 2008 banking collapse was due largely in part to banks lending to individuals that simply could not afford the loans that they were approving. When the housing market collapsed, people walked away from their mortgages because the banks failed to require “skin in the game,” from the buyers. Silicon Valley Bank had a high percentage of uninsured deposits and no accountability whatsoever. How were the CEO and board officers of SVB able to make millions in profit only weeks before its failure? Signature Bank could have just been a product of bad luck and timing with the FTX crash and the market slump, but we need to remember that 90% of its domestic deposits were uninsured. They allowed that to happen. It seems that maybe the time has come for the government to allow the central banking system to face its natural consequences instead of coming to its rescue. Maybe the time has come for a complete overhaul of our banking system because doing things the way we always have done does not appear to be working.

Tickers to consider: CEI , MARK & ASST

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The Rise and Fall of Real Estate

Sat, 04 Mar 2023 01:23:37 GMT

In June 2022, the national median existing-home price for reached a new high of $416,000.00. I n January 2023, the median home sales price was $359,000.00, down $57,000.00 in a 6 month period. Data on the housing market is indicating that we are in a recession. Building permits are down, sales of new homes have fallen, the sales of existing homes have declined and days on market (DOM) is increasing. Should we be bracing for a repeat of the Great Recession where a plethora of foreclosures and short sales dominated the real estate market?

The Fed raised the federal funds rate eight times in the past year. These increases have drastically affected mortgage interest rates. According to Mortgage News Daily, on February 25, 2022, a 30 year - fixed mortgage rate was 4.18%. One year later, the same 30 year fixed mortgage rate is 6.88% and rising. Increased interest rates means buyers can no longer afford the same sized loans. Since 2021, interest charges on a median-priced home have risen so much that the monthly payment on the same mortgage has roughly doubled. Additionally, the massive home price increase since 2021, has priced out many buyers. Interest rate increases combined with home -price appreciation has reduced home ownership affordability to its lowest level in 16 years.

In a nutshell, too many homes are too unaffordable for too many people at today’s prices. Therefore, home prices are expected to fall.

What does this mean for those with Adjustable Rate Mortgage (ARM) loans. The increase in interest rates is a pending disaster for these people. There is an increasing number of people who gambled when the rates were low and opted for an ARM loan instead of a 30 year-fixed loan because the initial rate was lower. Combining higher interest rates with declining home prices, overleveraged individuals may find themselves completely underwater because they did not put enough money down on their home. They will end up owing more money than what their home is worth and their monthly mortgage payment will explode once the rate adjustment begins.

The Fed’s interest rate regime can significantly impact the real estate industry. First, they artificially reduced interest rates after the Great Recession, and now they are raising rates to combat inflation, resulting in a volatile market. Investors are not experiencing the expected returns on existing deals and are faced with a hindered ability to project cash flow accurately on new deals. On the bright side, the tight labor market will help sustain demand for space against a fixed supply, despite a recession. This may be a painful adjustment for real estate investors and homeowners. At the same time, this could also lead to more predictability in the market as we settle into the “new normal” of the housing market.

There is truth to the saying, “What Goes Up, Must Come Down.” Real Estate has been at an out of control “high” for a while, it was just a matter of time before the decline. The downturn has begun, and it will continue to fall unless the Fed changes their tune. Be on the lookout for the “bottom” of the market. It may take a while, but it will land there. Be ready to take advantage of the downturn, because everything is cyclical and it will eventually go back up again.

Tickers to consider: CEI & MARK

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The Fed's Rollercoaster Ride with Inflation

Wed, 08 Feb 2023 02:56:57 GMT

Anyone who has driven too fast in slick conditions has likely experienced overcorrecting. If you steer a vehicle too sharply in one direction you will start to skid or slide. When this happens, you need to quickly steer in the opposite direction in order to correct it. However, overdoing it can create a worse skid in the opposite direction. The pattern then repeats with each skid growing increasingly violent until the vehicle spins out of control.

In 2020, the Fed flooded the economy with money (by just printing more) in hopes of easing a short recession due to the government shut-downs. The trillions of dollars created by the Fed for the government to spend, resulted in too much money relative to the size of the economy…Enter inflation.

In order to bring inflation under control, the Fed needed to reduce the amount of money in the economy. A prudent Fed would cut back on the newly created money that was given to the government, because that is what started us off on this inflation ride. This could have been accomplished by selling off trillions of dollars in Treasury bonds. Yet, this option did not appear to be favorable to the government as the Treasury would have to auction its new bonds to the private market requiring much higher bond yields. Higher bond yields would raise borrowing costs for the Treasury and make government spending levels prohibitively expensive. Therefore, instead of curbing government spending, the central bank instead “passed the costs onto the customers.” The Fed has raised rates eight times in the past year, which has increased borrowing costs for consumers and businesses. Typically this causes the private sector economy to slow down and throw the economy into the wall of recession.

Enter the anomalies of this rollercoaster ride…

First of all, the labor market remains strong. According to the Non-Farm Payroll Report, the economy added 263,000 jobs in November 2022 , and in January 2023, The Bureau of Labor reported a low unemployment rate at 3.4%. The plethora of “We’re Hiring” signs suggests that jobs are available for those who want them. So there are no typical indications of any job losses or cuts that result from a slowing economy.

The second anomaly is that the markets are rallying despite the interest rate hikes. Historically, lower interest rates tend to lead to rising stock prices, and higher interest rates to falling stock prices. After the Fed raised rates again on Wednesday, February 1, 2023, the S&P 500 index rose 1% on Wednesday while the Nasdaq jumped 2% . Could this be a premonition that Wall Street is confident that inflation pressures are easing and the Fed will end up lowering rates this year? I guess we will have to wait till the end of the ride to see.

Tickers to consider: CEI & MARK

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Unemployment Rate and Interest Rates.. Are They Related?

Wed, 18 Jan 2023 23:10:22 GMT

The Federal Reserve (“FED”) adjusts the interest rates in response to what is going on with the economy. One of the main indicators affecting the FED’s decision of whether or not to raise interest rates is the unemployment rate . During periods of strong economic growth and falling unemployment, the Fed tends to raise interest rates in order to cool wage growth and slow inflation. In contrast, officials are more likely to lower rates during a weakened economy in order to spur economic growth.

In 2022, the FED increased interest rates seven (7) times. In a one year period, interest rates went from 0.25% to 4.5%. Int erest rate hikes can affect everything from consumer spending and business activity to the stock market and unemployment rate. The theory is that as it becomes more expensive to borrow money, consumers and businesses should spend less. Rate hikes could ignite a recession, resulting in more people being laid off. This could create a growing concern about losing jobs, which could result in people pulling back on spending and harming economic growth.

Increased interest rates also affect the Stock Market. Understanding the relationship between interest rates and the stock market can help investors understand how changes may impact their investments. By increasing the interest rate, the FED is effectively attempting to shrink the supply of money available for making purchases. This, in turn, makes money more expensive to obtain. Because it costs financial institutions more to borrow money, these institutions often pass these increases onto their consumers. These consumers still have to pay their bills. When those bills become more expensive, households are left with less disposable income . When consumers have less discretionary spending money, businesses' revenues and profits decrease . This not only affects the price of stocks, but the ability for consumers to invest in the stock market.

If enough companies experience declines in their stock prices, the whole market, or the key indexes many people equate with the market—the Dow Jones Industrial Average, S&P 500, etc.—will go down. With a lowered expectation in the growth and future cash flows of a company, investors will not get as much growth from stock price appreciation. This can make stock ownership less desirable. Furthermore, investing in equities can be viewed as too risky when compared to other investments.

Tickers to consider: CEI & MARK

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Crypto v. Equities

Thu, 08 Dec 2022 22:35:29 GMT

Cryptocurrencies (also known as Crypto) are digital currencies designed to be a medium of exchange . There are different types of cryptocurrencies. Bitcoin ( BTC ) is probably the most well-known cryptocurrency, but several others have developed over time. Cryptocurrencies are notably different from fiat currencies like the United States dollar or the British pound because they are not issued by any central authority or central bank. This makes Crypto potentially unaffected by government intervention or manipulation.

Interest in BTC and cryptocurrencies as an investment asset class emerged sometime around late 2016. Investors began to get very interested in Crypto in 2020 as a result of slowing economies and government shutdowns. Many corporations had already begun to invest into cryptocurrency, and Bitcoin's performance during the pandemic reinforced their positions and outlooks. By the time the economy had recovered to pre-pandemic levels, investors were convinced that Bitcoin was a new asset class that could be used to realize returns under some of the most somber market conditions.

In late 2021 and into mid-2022, cryptocurrency prices rose and fell similarly to equity prices. Cryptocurrency's price correlation with equity could be a coincidence or indicate that cryptocurrency prices are indeed following trends in equity prices. It is possible that because investors appear to be treating cryptocurrency like stocks, digital assets can respond to the market just like equities do. There is also the theory that investors, as a whole, are treating cryptocurrency the way they treat equities temporarily. Cryptocurrencies are still in their price discovery phase, where the market is determining the role they will play.

Since it was first introduced, Bitcoin has had a choppy and volatile trading history. In July 2010, BTC began trading at $0.09. Eleven years later, it hit an all time high on November 10, 2021 at $68,789.00 before closing at $64,995.00. On December 7, 2022, BTC closed at $16, 841.11.

The massive volatility of cryptocurrency assets tends to scare off conservative investors. An investment in cryptocurrency does increase the overall volatility of a portfolio. A 3% investment in Crypto resulted in a rise in overall volatility by 18%. Yet, according to a historical review of the past five years, that same 3% investment in Crypto yielded a 42% return.

It’s important to remember that cryptocurrency has only been around for 12 years. Therefore, its long-term return and behavior are relatively unknown compared to the bonds and stocks that have been around for hundreds of years. Given the instability of Crypto, this may cause equity investments to boost.

Tickers to consider: CEI & FRSX

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Hard or Soft Landing

Tue, 08 Nov 2022 22:21:24 GMT

Central bankers have raised interest rates considerably in an attempt to slow inflation. To date, the Fed has raised its benchmark interest rate five times this year. While business activity is slowing, it is not falling off a cliff. Employers continue to hire, wages are rising, and inflation is stubbornly sticking around.

While the job market might be cooling slightly, the main question for business owners, policy makers and economists is how cool does the job market need to be for the Fed to ease up on their aggressive interest rate hikes? Jerome H. Powell, chairman of the Fed, has acknowledged that the fight against inflation could be a painful process. Higher interest rates offset inflation by making it more expensive to borrow money, discouraging both consumption and business expansions, potentially bringing down wages and raising unemployment.

That central bank has emphasized that it has an obligation to get inflation back in check. The two main economic goals of the Fed are maximum employment and stable inflation around 2 percent. While unemployment is currently very low, prices are increasing at more than three times the Fed’s target rate of 2 percent (2%).

Despite the continued aggressive rate hikes, some economists remain hopeful that the Fed will still manage to achieve a so-called soft landing: Fed officials want to adjust policy with enough strength to bring inflation under control but without tipping the economy into a recession. A recession can be defined as a sustained period of weak or negative growth in real GDP (output) that is accompanied by a significant rise in the unemployment rate.

The national unemployment rate is extraordinarily low at 3.7%. With the high amount of jobs available in today’s labor market, economists are forecasting that unemployment will remain relatively low. According to the US Bureau of Labor Statistics, the number of job openings as of September 30, 2022, increased to 10.7 million, which means that there are plenty of jobs available for people who want to work. Therefore, it does not appear that unemployment will rise anytime in the near future. Furthermore, while the GDP had a negative growth rate for the first two quarters of 2022, it did have a 2.6% increase in the 3rd quarter . Low unemployment and a positive GDP are factors pointing toward a relatively soft landing in the Fed’s fight against inflation.

Tickers to consider: CEI, & FRSX

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Small Cap Stocks and the Inflationary Market

Thu, 06 Oct 2022 16:52:32 GMT

In February 2022, the Fed’s focus shifted from liquidity to curbing runaway inflation. This transition ignited a good deal of market volatility. To date, in 2022, small caps have not been immune to this volatility. The small-cap Russell 2000 Index started the year with its worst performance since 2009. Be that as it may, history shows that small caps have had an impressive record of rebounds from declines of 20% or more from previous peaks.

Performance data from the Russell 2000 (small cap stocks) and the S&P 500 (large cap stocks) from 2007-2021 showed that small cap stocks underperformed large cap stocks over the last one (1), three (3), five 5), ten (10, and fifteen (15) years . However, when researching stock performance data over the last fifty (50) years, the results show that small cap stocks outperform large cap stocks by about one percent (1%) per year. The reason for this could be that many small-cap companies operate in specialized markets and can show earnings growth driven by favorable supply/demand dynamics of their industries. This leaves them relatively insulated from broader inflationary trends.

According to Strategas Research Partners, small-cap value has outperformed inflation over every decade dating back to the 1930s. In contrast, small-cap growth stocks failed to do so over two decades: the 1970s and the 2000s. Additionally, Furey Research Partners LLC, pointed out that when inflation equals or exceeds 2%, then small cap value’s outperform small cap growth stocks.

In general, because of their size, small caps tend to be more agile than large caps. This allows them to potentially act more quickly in a volatile inflationary climate. Their historical track record shows that even when small caps are down, they are not out. Somehow the small cap always bounces back stronger than ever.

Tickers to consider: CEI, FRSX , & RNAZ,

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Midterm Elections and the Stock Market

Wed, 21 Sep 2022 02:01:41 GMT

Every four years, midterm elections for the The Senate and The House of Representatives have the potential to shift control of Congress. While congressional control can have a direct impact on policy, laws and foreign relations, do these elections affect the stock market?

The correlation between stock market performance and midterm elections is well documented. Since 1946, in 17 out of 19 midterm election years, the market performed better in the six months following an election than it did in the six months leading up to it.

The S&P 500 historically underperforms in the year leading up to the midterm elections. Over the past 60 years, the S&P 500 has performed at an average of 8.1%. However, in the 12 months prior to a midterm election during the past 60 years, the S&P 500 has only averaged 0.3%. Ironically, the opposite occurs post-midterm elections. Over the past 60 years, the S&P 500 has outperformed the market with an average of 16.3% in the 12 months following a midterm election.

According to US Bank’s analysis of the Stock market’s performance during election seasons over the past 60 years, the strength of the economy is a much more important factor than the midterm election results. The last time the S&P 500 Index produced negative returns during the 12 months after a midterm election was 1939, which was during the Great Depression. Rising inflation creates a valid concern for the market. Stocks are likely to feel the weight of the Fed’s policy to slow down economic growth.

Liz Ann Sonders, Chief Investment Strategist with Charles Schwab, is doubtful about the market’s post-election performance. According to Sonders, "The combination of high inflation, the war in Ukraine, and a lingering pandemic has already made this cycle unlike prior midterm years.” With so many other forces at play in the market, Sonders cautions against putting too much weight on historical midterm-year performance.

Markets do not like uncertainty, often election results provide the clarity that allows volatility to settle down and markets to settle up. In short, history suggests investors shouldn’t allow political preference or political uncertainty to dictate their investment decisions.

Tickers to consider: AAU.V, SSVR.V, CEI, FRSX , RNAZ, PPCB & TZA

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Up The Interest Ladder We Go

Thu, 04 Aug 2022 15:47:58 GMT

O n July 27, 2022, the Federal Reserve raised interest rates by 0.75 percentage points, taking its benchmark rate to a range of 2.25%-2.5%. While the fed funds rate most directly impacts what banks charge each other for short-term loans, it feeds into a multitude of consumer products such as adjustable mortgages, auto loans and credit cards. The increase takes the funds rate to its highest level since December 2018.

Markets expect the Fed to raise rates at least another half percentage point in September. According to CME Group Data, Traders are expecting the central bank to go further and have rates increase another 0.75 percentage points or 75 basis points in September.

What does all of this mean for homeowners? With regards to real estate, conventional wisdom says that rising interest rates make buying or selling a home more difficult. From a home buyer's perspective, as mortgage rates increase, affordability decreases. For example, Homebuyer Bob qualifies for a $400,000 home loan at a 4% interest rate. If that interest rate raises just 1% to 5 %, then lenders will only offer Homebuyer Bob a $355,000 loan based on the same qualifications. That 1% increase reduces Homebuyer Bob’s purchasing power by $45,000.00 .

Here’s another example. Homeowner Owen’s monthly mortgage on a 30- year fixed rate loan on a $400,000 home at 4% would be $1900/ month. The same loan at 5% interest rate would bump his monthly mortgage payment up to $2138/ month. The 1% increase in interest is actually raising his monthly payment by 13%. When you are working with a strict budget, most people simply cannot afford a 13% increase in their monthly bills.

How does increased rates affect home sellers? Rising interest rates negatively affect home sellers as well. Homeseller Sam wants to sell his home for $400,000.00. However, due to the 1% rising interest rate (from 4%-5%) potential buyers can now only afford to buy Bob’s home for $355,000 because that is all the bank will loan to them. That 1% interest rate increase essentially diminished the market value of Bob’s home by $45,000.00.

When interest rates go up, mortgages become more expensive as the interest rate on mortgages also goes up. This makes it more costly for consumers to purchase a home. When homes are more expensive, the demand for them decreases. This results in sellers having to reduce the price of their homes in order to attract buyers.

In summary, the Fed is not doing potential homebuyers or homeowners any favors by raising interest rates. Higher interest rates means buying a home will get more expensive , selling your home will be more difficult and refinancing your home will be more expensive all because you will be paying more in interest.

Tickers to consider: AAU.V, SSVR.V, CEI, FRSX , RNAZ, PPCB & TZA

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Prepare for the Blow

Sat, 09 Jul 2022 23:40:26 GMT

T he U.S. housing market is slowin g down at a fast rate. The destructive combination of record appreciation in home prices and spiking rapidly mortgage rates has brought the housing boom to an end. It appears as though the country is staring down the sharpest decline in housing "activity" since 2006 .

High mortgage rates can deter people from buying, yet what really determines how the real estate market is affected is the impact on demand and affordability. Today's median income is around 30% of the median home price. In 1980, when interest rates were as high as 18%, the median income was around 45% of the median home price. The lower the percentage of income as it relates to the cost of housing, the less affordable housing is.

The Federal Reserve usually lowers interest rates during a recession to help make the cost of borrowing more affordable and spur more economic activity, particularly within the housing market. Instead, the Fed has aggressively raised rates to supposedly combat inflation. However, the Fed seems to be losing the battle against inflation as we see continued increase in energy, gas, and food costs. All of which are factors indicating a recession is coming.

How can you prepare for the next recession and come out safely on the other side? Personal Financial expert, Dave Ramsey, has a plan that seems simple, but has proven to work:

1. Live on a budget,
2. pay off debt,
3. save for emergencies,
4. invest for retirement, and
5. live and give like no one else.

When the stock market goes down, people tend to be tempted to sell their mutual funds and stocks at a loss and put the money into something safe to weather the storm. Ramsey instead recommends waiting and riding out the storm. According to Ramsey, “Stocks rise and fall all the time. Even if you’ve seen a loss in your investments, you’ll only feel that loss if you take the money out. So don’t pull your money out right now. Keep your investments where they are, and wait for the upswing to happen.” Ramsey further explains, “Stocks are basically on a huge clearance sale right now. If you keep investing, you’ll be buying stocks at crazy low prices.” Therefore, it is reasonable to conclude that when the market picks back up, the investor will see the big returns roll in from the purchase of “clearance” stocks.

Paying off any credit card debt is a must if a recession is looming. Matt Schultz, chief analyst at Lending Tree states, “Job number one for anyone with a credit card is to pay off their balances as soon as possible.” S chulz further concludes that this is even more important when a recession is on its way and interest rates are rapidly rising.

Putting money into savings while you can is also extremely important to minimize the collateral damage of a recession. Mark Hamrick, senior economic analyst for Bankrate.com , recommends saving while you have extra money, because a recession can drastically change your circumstances. Hamrick states, “You don’t want to have to resort to debt if you lose your job or because your wages aren’t keeping up with historically high inflation.” Having an emergency savings fund will help prevent you from accruing overwhelming debt during a financial recession. It is also important to consider that with the high inflation our country is experiencing, the standard advice of having three to six months’ worth of living expenses may not be enough.

Finally, living within your means is a no brainer. People who get hurt the worst in a recession are those who live beyond their means. Spending more money than you bring in is a recipe for a disaster. If you need to get a second job, to make sure your necessary expenses are covered, then do it. There are “We’re Hiring” signs all over the country. Employers today will certainly appreciate hard working individuals who show up with a good attitude. Even if you are living within your means, it may be a good time to get a second job to boost your income and savings. Now’s the time to prepare for the worst and hope for the best.

The Red Wave

Fri, 10 Jun 2022 00:40:09 GMT

Midterm primaries are underway. Although the midterm elections are still five (5) months away, it is apparent that a Republican or “Red” wave is spreading across the nation. The Cook Political Report with Amy Walter is forecasting that the GOP will gain between 20-35 seats in the House of Representatives. Additionally, a recent national poll from Quinnipiac University showed Republicans with a four-point edge on the generic ballot. Furthermore, although the Democrats currently control the Senate; it is by the narrowest of margins. Presently, fifty (50) Republicans , forty-eight (48) Democrats and two (2) Independants (who caucus with the Dems) make up the Senate. In the event of an even vote, Vice President Kamala Harris currently breaks any tie, giving the Dems a miniscule advantage. Come November, thirty-five (35) Senate seats will be up for grabs. Of these, fourteen (14) are held by Democrats and twenty-one (21) are held by Republicans. The GOP is feeling confident that they will be able to maintain their seats and win over some of those Democrat seats due to President Biden’s low approval ratings. This will allow the Republicans to regain control of the Senate. The reality is that things appear to be getting worse for Democrats the closer we get to the election.

What does this mean for the stock market and the economy? According to Jeremy Siegel , the Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania, “The most favorable outcome for markets would be a Republican win in both the House and the Senate….If Republicans take the House and not the Senate, that would also be a relatively favorable outcome.” Forbes analyzed market data going back to 1945 to review how election results impact the stock market. According to the data, best returns have come under a Democratic President that is kept in check by a Split or Republican Congress , with the S&P 500 average gain being 13.6% under a Split Congress and 13.0% gain under a unified Republican Congress. If history is an indicator, the Dems loss in the midterm elections could mean a huge win for investors.

Voters also express a favorable advantage in Republicans on a range of economic issues. In a poll taken earlier this year, forty-eight percent (48%) of respondents said that they had more confidence in Republicans handling the economy compared to thirty-eight percent (38%) favoring Democrats. This comparison is significant as the poll also found that the economy was the top concern among registered voters. Voters also expressed more faith in Republicans over the Democrats on the issues of gas prices (45% to 36%), jobs (45% to 41%), taxes (45% to 39%), inflation (46% to 34%), crime and safety (45% to 35%).

President Biden’s “plan” to fight inflation is actually a blueprint for more misery : more government spending, more labor regulations, more attacks on energy production, and massive tax hikes on businesses. A full economic recovery—including functioning supply chains—requires a full reopening across the world, unleashing of our fossil fuel energy resources here at home, and a cessation of using the central bank to finance deficit spending.

A“red sweep” of the midterms will bring accountability to President Biden and the Dems government irresponsible spending habits. Under these conditions, the stock market should thrive, and might be our country’s best chance at an economic recovery.

Tickers to consider: AAU.V, SSVR.V, CEI, FRSX , RNAZ, PPCB & TZA

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What Impact Does the Federal Funds Rate Have on the Consumer?

Wed, 18 May 2022 02:06:09 GMT

The term federal funds rate refers to the target interest rate set by the Federal Open Market Committee (FOMC). FOMC is the branch of the Federal Reserve System (FRS) that determines the direction of monetary policy specifically by directing open market operations (OMOs). The target is the rate at which the Fed suggests commercial banks borrow and lend their excess reserves to each other overnight.

After raising the target in March 2022, the Federal Reserve again raised the target for the fed funds rate by half a point to 0.75%-1% during its May 2022 meeting. This second consecutive rate hike was the biggest rise in borrowing costs since 2000 , and supposedly was aimed to tackle soaring inflation.

What impact will this rate hike have on the consumers? While that rate mostly affects banks, it will have some impact on consumers. The federal funds rate will affect banks’ prime rate, the interest rate they charge their best customers. A higher prime rate will affect auto loans, personal loans, and interest rates on credit cards, all of which are already extremely high.

A higher target means borrowing money for homeowners just got more expensive. Long term fixed mortgage rates have been creeping higher, as they are affected by the economy and inflation. According to Jacob Channel, senior economic analyst at Lending Tree, the average fixed rate mortgage is well above 4% and is likely to keep rising. Homeowners with adjustable-rate mortgages or home equity lines of credit, which are linked to the prime rate, will be more directly affected. In a nutshell, the higher rates go, the harder it will be to borrow.

Credit card rates will also head higher. Since most credit cards have a variable rate, there is a direct connection to the Fed’s benchmark. Matt Schultz, chief credit analyst for Lending Tree , stated, “A single quarter-point rate increase isn’t likely to flip cardholders’ financial world upside down. However, all rate hikes, even small ones, are unwelcome news for folks with credit card debt.”

The interest rate hike will also affect consumers who invest in the stock market. The soaring inflation does not bode well for stock investors. The combination of higher interest rates and higher inflation is usually bad for stocks since it reduces growth and, in many cases, companies’ profits.

One silver lining for consumers in raising the target might be found in their savings accounts (if they have any). The national average interest rate for savings accounts is a mere 0.06%, according to Bankrate’s May 11 weekly survey of institutions. Consumers will hopefully see a boost in their savings rate as a result of the rise in the target rate.

Tickers to consider: AAU.V, SSVR.V, CEI, FRSX , RNAZ, PPCB & TZA

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Funny Math

Tue, 05 Apr 2022 00:24:35 GMT

The median household income in the United States in 2021 was $79,900.00. This increased from 2020’s average of $78,500.00 by approximately $1400.00, or 1.7%. Currently, the average U.S. household income in 2022 is $87,864.00 , up $7964.00 or 9.9% from 2021. According to these stats, it appears as though the country is moving along just fine right? Think again. While the average household income has increased at an average rate of 5.8% since 2020, expenses have increased at a much faster rate.

According to Zillow the average home price in the United States in January 2020 was $246,000. In January 2021 the average price increased to $269,039, up 9.3% from 2020. In February 2022, the average home price in the United States was $331,533.00; an increase of 23.2% from 2021. So while the average income in the U.S. is increasing at an average rate of 5.8% since 2020. The average home price in the U.S. has increased at an average rate of 16.25% since 2020.

If the average U.S. household grosses $87,864,00 annually, that equates to $62,309.31 annual net pay , or $5192.44/month. Rule of thumb is that you should only spend approximately 25% - 30% (max) of your monthly net income on your mortgage/rent. 25% of $5192.44 is $1298.11 and 30% of $5192.44 is $1557.73. The monthly mortgage payment on a home that sold for $331,533.00 with a minimum 5% down payment and a 30 year fixed loan would be $1673.47/ month. What does this mean? A household netting $62,309.31 cannot afford the average U.S. home costing $331,533.00.

So let’s look at rent. The national average rent for a one bedroom apartment in the United States is $1683.00, up 22.1% from 2021. We have already shown that a household that makes the average net income of $62, 309.31 c annot afford to pay more than $1557.73/ month for rent. That means that in 2022, an average household that makes that average income, cannot afford to rent a one bedroom apartment.

We have only discussed the rate of inflation for housing. When you factor in other basic expenses such as average cost of gasoline is $4.24/gal (up 96% from 2020 ) , utilities $171.66 (up 48.6% from 2019) , and food. The average food cost per month can be a few hundred dollars for singles and over $1,300 for families. Finally, we cannot forget our cell phone bill. Most Americans are pretty helpless unless their smartphones are attached to their ha nds. The average monthly cell phone bill in the United States is $114/month.

When all is said and done, after paying your rent/mortgage that you cannot afford, and paying for your basic necessities (needs, not wants), there is not much left over for taxes, fun, and unexpected expenses. This does not bode well for the stock market, as there is definitely not much left (if anything) for investing.

With the record high inflation rate, how is the average American household supposed to survive, let alone thrive? It does not equate. It ends up being “funny math,” which is not good for our economy or our country.

Tickers to consider: AAU.V, SSVR.V, CEI, FRSX , RNAZ, PPCB & TZA

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The Great Unwinding

Thu, 10 Mar 2022 04:06:53 GMT

The Federal Reserve System (FRS ) , often called simply the Fed, is the central bank of the United

States. As a central bank, the Fed is given privileged control over the production and distribution

of money and credit in the United States. The critical feature of a central bank as opposed to

commercial banks is its legal monopoly status, which gives it the privilege to issue banknotes

and cash. Legal monopoly allows the Fed to operate as a monopoly (illegal for commercial

banks) under a government mandate. The Fed was officially established as the central bank of

the United States when President Woodrow Wilson signed the Federal Reserve Act in 1913. This

was enacted in response to the financial panic of 1907. The purpose of the Fed is to provide the

country with a safe, flexible, and stable monetary and financial system.

The Fed can increase or decrease the amount and scope of assets or liabilities on its balance

sheet, which in turn, increases or decreases the money supply within the economy. In June 2017,

The Fed announced that it would begin unwinding their balance sheet. Just prior to the “Great

Recession”, the financial crisis that spurred the adoption of somewhat unorthodox monetary

policies, multiple central banks began participating in an unconventional policy known as

Quantitative Easing (QE). Under QE, central banks purchase longer term securities from the

open market in order to increase money supply and encourage lending and investment. Fast

forward more than ten years later, central banks now find themselves in an entirely different

global economic climate. As a result, monetary policies are shifting around the world with

central banks considering shrinking their balance sheets, rather than growing them. Unwinding

the Fed balance sheet means the Fed is allowing bonds to “roll off,” instead of reinvesting the

proceeds of bonds as they mature. The Fed reduced its balance sheet starting in late 2017 by a

pace that grew to as much as $50 billion per month. Normally, a bigger balance sheet is viewed

as better for the stock market. As the Fed unwinds its asset holdings, some potential demand for

equities could be diverted to Treasuries and government-backed mortgage securities. The greater

supply for bonds might also contribute to higher interest rates and inflation.

There may be longer and more profound changes in the economy. According to Bloomberg, the

reducing the Fed’s balance sheet will usher in higher volatility and higher bond yields,

effectively making it harder to employ leverage.

Bloomberg also reports that the Great Unwinding may also impact corporate bonds. Though the

Fed didn’t buy corporate debt, QE pushed yields lower on debt, making it cheaper for companies

to borrow. This opened the floodgates for high-grade corporate debt, pushing the U.S. stock

market to all-time highs. As more retail exchange traded products track the corporate bond

market, investors may bail when yields rise and prices fall.

The unwinding of the Fed’s balance sheet will most likely have far-reaching consequences.

Quantitative easing’s injection of cheap money into the global financial system had a lot of

effects that contributed to record high-grade debt issuance and a never-ending bull market in

stocks. Now, as the central banks around the world attempt to shrink themselves, it’s not entirely

clear what the future holds. The only thing that seems certain is that interest rates and volatility

will rise, which is not usually a formula for a strong and stable economy.

Tickers to consider: AAU.V, SSVR.V, CEI, FRSX , RNAZ, PPCB & TZA

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Is Biden's Clean Energy Program Good for America?

Wed, 09 Feb 2022 21:50:18 GMT

In December 2021, President Biden signed an executive order that will reduce emissions across federal operations, invest in American clean energy industries and manufacturing, and create clean, healthy, and resilient communities. The President’s order directs the federal government to use its power to achieve the following goals:

100% Carbon Free Electricity (CFE) by 2030;
100% zero-emissions vehicles (ZEV) by 2035;
Net zero emissions from federal procurement by 2050;
Net zero emissions building portfolio by 2045; and
Net zero emissions from overall federal operations by 2050.

The philosophy behind this order is that by transforming how the federal government builds, buys, and manages its assets and operations, the federal government will support the growth of America’s clean energy and clean technology industries, while accelerating America’s progress toward achieving a carbon pollution-free electricity sector by 2035.

Sounds great, right? But how will this get accomplished, and more importantly, what impact will this idealistic plan have on the economy? Under this order, the government will spend its annual buying power of $650 billion to upgrade the emissions and carbon footprint at its 300,000 buildings and replace its fleet of 600,000 cars and trucks with electric vehicle s .

On January 24, 2022, the Associated Press reported that the Biden Administration issued its first clean energy loan guarantee. The Department of Energy said it would guarantee up to $1 billion in loans to help Monolith, a Nebraska company, scale up production of “clean” hydrogen to convert natural gas into commercial products used in manufacturing and agriculture.

This loan guarantee revives a program launched by the Obama Administration that helped launch the country’s first utility-scale wind and solar farms a decade ago. President Obama’s program boosted Tesla’s efforts to become an enormous organization in the electric cars industry. The program stumbled after the California solar company Solyndra failed soon after receiving federal aid. This resulted in a cost to the taxpayers of more than $500 million. Jigar Shah, who took over as director of the loan program office last year, said the loan guarantee program " is not intended to be a subsidy. It’s intended to be market-rate debt.''

The Biden administration will continue to wage war against America’s oil and gas producers. As such, oil and gas prices will increase which will open the door to alternative energy and clean energy sources which, at the moment, are more expensive than fossil fuels.

Tickers to consider: AAU.V, SSVR.V, CEI, FRSX , RNAZ, PPCB & TZA

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The COVID Vaccine Report Card

Mon, 24 Jan 2022 19:54:03 GMT

In 2020, America’s medical personnel were celebrated as frontline heroes in the battle against COVID-19. Under President Biden, tens of thousands of these same heroes are labeled as conspiracy theorists, and potential domestic terrorists. Massive numbers of police, firemen, first responders, pilots, air traffic controllers, military personnel, and other essential Americans join these same medical heroes to now be considered so dangerous as to merit termination. The personal lives of these heroes have been scrutinized due to their decision to not be injected with the experimental COVID shots. The vaccine and mask mandates promoted by the Biden Administration threaten to cripple American society. The potentially destructive outcome to the economy as a result of these mandates gives a person reason to evaluate whether the COVID vaccine and mask mandates are doing their job. Let’s see how effective the vaccines and mask mandates are holding up in the fight against COVID.

The UK government produces COVID statistics on a weekly basis. For 30 to 70 year-olds in the UK, vaccination dramatically increases the rate of COVID infection. Additionally, for those in the age group of 40 to 49 year olds, the infection rate of the vaccinated is 2.2 times that of the unvaccinated. While the vaccines may be providing some protection against death from COVID, it appears that the vaccines, at least in the UK, are making people more susceptible to infection.

Israel was the first country to vaccinate the majority of their population. Their country has some of the strictest COVID rules, including the Green Pass. Under the Green Pass outline, only people who are vaccinated, recovered or tested in the previous day – or 72 hours in specific cases – can access certain activities and venues, and in some instances, their workplace.

An Israeli study showed that vaccination for one strain of the COVID virus increases the susceptibility to infection by a subsequent strain of the virus. According to this study, those vaccinated with the Pfizer mRNA (BNT162b2) had a 13.06-fold increased risk of infection and a greater likelihood of symptomatic disease and hospitalization by the Delta variant. The results of this study support the rising COVID numbers in Israel showing 68,513 new COVID cases in Israel as of January 20, 2022.

On January 10, 2022, the United States reported 1.34 million COVID cases. According to NBC News tally, this beat the previous record of 1,044,970 U.S. COVID cases reported on January 3, 2022, by nearly 300,000. This number suggests a dramatic rise in cases in the U.S. as the highly transmissible omicron variant continues to spread.

So the question to be answered is, “If the COVID vaccines are really effective, then why are the COVID numbers still rising?”

Dr. Robert Malone, inventor of mRNA technology that was used to develop the mRNA vaccine, gives an explanation to this question in a video address . Dr. Malone states that the mRNA vaccine is evolving the virus, training it to escape vaccines. In other words, the mRNA vaccine itself amplifies variants that cannot be prevented by vaccines . . Dr. Malone’s theory is supported by a landmark Israeli study conducted over the past month finding that a fourth Pfizer booster shot is only partially effective in protecting against the omicron variant of the virus that causes COVID-19. Additionally, at the beginning of January 2022, Pfizer CEO, Albert Bourla acknowledged that two doses of the vaccine his company produces with BioNTech "offer very limited protection, if any" against the dominant omicron variant. Finally, data from the Canadian province Alberta shows a spike in COVID-19 cases after vaccination.

Let’s take a look at what the countries where COVID numbers have decreased (Yes, they exist), are doing. In the Indian state of Uttar Pradesh, new COVID cases peaked at 35,311 in April 2021. As of December 2021, cases in Uttar Pradesh (population of 204 million) were down to 10 per day. On July 29, 2021, there were 569,901 reported active COVID cases in Indonesia . As of January 21, 2022, the number of active COVID cases in Indonesia is down to 14,119. Even more interesting is that in July 2021, daily deaths from COVID in Indonesia peaked at 2069 deaths. As of January 21, 2022, those daily deaths are down to 6 deaths. In Japan, the daily death rate from COVID peaked at 227. As of January 21, 2022, that number has reduced to 12. Why are these countries seeing a decrease in COVID cases and COVID deaths? The answer is simple, these countries allow their COVID treatments to include Ivermectin and Hydroxychloroquine. Unfortunately these two drugs are not FDA approved to treat COVID in the United States, and in fact have been “blackballed” by the mainstream powers that be. However, even though Remdesivir is not FDA approved, Dr. Fauci stated that doctors and hospitals must use Remdesivir to treat COVID patients, despite the fact that studies have shown Remdesivir to cause kidney and organ failure in patients. It is not just coincidence that in August 2020, Pfizer partnered with Gilead to manufacture Remdesivir. You don’t have to be a genius to see the facts; the expensive drugs that the mainstream media narrative is promoting are not working, and the affordable drugs that are “blacklisted” are working.

It appears to all come down to money. Mainstream narrative has been pushing either the Pfizer or Moderna vaccines. Pfizer stock rose 50% in 2021 and Moderna stock rose 22%. In contrast, Merck’s stock, the company that produces Ivermectin, only rose 7.69%. and Sanofi’s stock, the company that produces Hydroxychloroquine, rose only 3%.

How are these ineffective vaccines affecting our economy? Biden’s vaccine mandates have caused hundreds and thousands of individuals to lose their jobs, or be put on “unpaid leave.” While the Supreme Court recently ruled Biden’s federal vaccine mandates as unconstitutional for most employers, they did uphold the mandates for healthcare facilities who receive medicare and medicaid funds. Additionally, each state and employer still has the “freedom” to continue to impose vaccine or mask mandates if they so choose. Finally, our government is “blacklisting” or preventing doctors and hospitals from prescribing affordable medications that are effective.

With the nationwide labor shortage, these ineffective mandates can only harm small businesses and the overall economy. Employees are being laid off, or put on unpaid for choosing not to get the COVID shots. Employees who test positive for COVID are required to quarantine for a certain number of days (that keeps changing) that the CDC recommends. This prevents employees from being able to do their job regardless of whether or not they are symptomatic. Employers are shooting themselves in their foot by requiring these ineffective mandates and imposing these arbitrary and archaic requirements. In summary, COVID mandates with a failing grade combined with a severe labor shortage is a sure recipe for a very crippled economy.

Tickers to consider: AAU.V, SSVR.V, CEI, FRSX , RNAZ, PPCB & TZA

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Political Polarization

Thu, 23 Dec 2021 01:41:06 GMT

The political divide in this country has been increasingly getting worse over the last few decades. Some researchers are saying that the rift in the United States is reaching the point of no return. According to the Proceedings of the National Academy of Sciences , “the pandemic failing to unite the country, despite political differences, is a signal that the U.S. is at a disconcerting tipping point.” Boleslaw Szymanski, a professor of computer science and director of the Army Research Laboratory Network Science and Technology Center at Rensselaer Polytechnic Institute states, "If the polarization is too extreme...we cannot unite even in the face of war, climate change, pandemics, or other challenges to the survival of our society." In order to determine the long term effects of this political polarization, we need to look at some of the hot topics implemented by the current administration, that are dividing our nation, and what the potential long term consequences could be.

Federal Vaccine Mandates:

The Biden administration’s COVID-19 vaccine mandate for federal workers went into effect Nov. 22, 2021. More than 20 House Republicans voiced their opposition to what they are referring to as an “unconstitutional” mandate. This mandate could result in more than a hundred thousand people being disciplined or fired for refusing to comply, even if those workers are otherwise excellent employees or if their loss will severely disrupt the government’s ability to function. Dismissing workers, based on a personal health decision to not get an experimental COVID-19 shot, without regard to their performance is not an effective way to run a business or a government. President Biden’s action could cause significant delays and disruptions in federal services and increased costs for federal taxpayers.

Lack of Labor Force:

The Biden administration enacted several COVID stimulus packages that allowed individuals to continue to receive compensation (through extending unemployment benefits and removing the requirement of actively looking for work in order to receive benefits) despite the fact that they were no longer looking for work, or wanted to return to work. The result of the ongoing “extension” of these benefits have resulted in individuals refusing to return to work, because they can stay home, not work, and still get paid. Although several states have recently reinstated the requirement to “actively look for work” in order to receive benefits and have ended the unemployment extensions, the damage has been done. People have gotten complacent, lost the motivation to work and provide for their families, and are hoping that the government will still take care of them. Finally, Biden’s vaccine mandate will worsen the nation’s labor shortage. All this to say, the lack of a labor force will have an extremely negative impact on the overall economy of our country.

Empty Shelves and Shipping:

The ports of Los Angeles and Long Beach process about 40% of all containers of goods entering the United States. At the beginning of November, more than 70 ships were awaiting anchor off the coast of LA. Thousands of containers are onboard, full of everything from car parts to baby diapers. New ships arriving at the ports are facing up to three-week delays in unloading and processing. Yet Americans are facing nationwide shortages.

The Biden administration likes to attribute these delays and shortages to worldwide factory disruptions during the pandemic and increased consumer demand. While these factors do play a role, that is not the complete story. Government regulations and restrictions at both the state and federal level have prevented the market from responding efficiently to the demand for processing at the L.A. ports. Without those regulations, the market would have been able to respond more quickly to the rising number of ships, additional workers and shifts could have been implemented, and 24/7 would mean what it says. With fewer restrictions, available trucks would be able to come from neighboring states to get containers and goods out of the overloaded ports—and into the hands of frustrated Americans.

The California ports should start running 24/7 today. The federal government and California should remove labor and environmental regulations that dis-incentivize work and make it more difficult for goods to get from the ships to our shelves. And they certainly should refrain from imposing new ones that make it worse.

Inflation:

Economic indicators showed that inflation hit a nearly 40-year high i n November, 2021. According to Joel Griffin, research fellow for Roe Institute for Economic Policy Studies, Biden’s economic policies have contributed to the rising inflation. Per Griffin, the cost of living has increased at the steepest rate in more than three decades under Biden’s leadership. Furthermore, Biden’s tax and spend package, currently being pushed in Congress, would exacerbate the economic problems hurting working Americans, including inflation, labor shortage and supply chain.

Historically, the stock market has reacted positively to a politically divided country. However, the current political polarization is unprecedented and could potentially make the market very unstable. Should the market waiver into a constant state of instability, the current administration may come under fire.

Tickers to consider: AAU.V, SSVR.V, CEI, FRSX , RNAZ, PPCB & TZA

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Is the "Santa Claus Rally" Coming to Town?

Tue, 09 Nov 2021 23:12:57 GMT

A “Santa Claus Rally” is a seasonal phenomenon that occurs in the stock market the last five trading days of the current year through the first 2 trading days of the new year. During a Santa Claus Rally stocks yield a positive return each day of the rally. According to the 2016 edition of the Stock Trader’s Almanac , "since 1969, the Santa Claus rally has yielded positive returns in 34 of the past 45 holiday seasons with returns averaging 1.4%.

There are several theories that try to explain the Santa Claus Rally. These include the following:

Optimism fueled by the holiday spirit;
Increased holiday shopping;
Investing of holiday bonuses;
When institutional investors go on vacation, the market is left to retail investors, who tend to be more aggressive;
Increasing their stock portfolio to avoid The January Effect , the seasonal perceived increase in stock prices in the month of January; and
Research has also shown that value stocks tend to outperform growth stocks in December.

According to Stock News , this year’s rally may provide an even bigger return, due to the following reasons:

S&P is up more than 20%; and
Fund managers are underperforming and underinvested.

This means that fund managers will become aggressive buyers of stocks at the end of the year. These funds will need to increase their equity exposure to ensure that they don’t end the year underperforming their benchmark and risk losing their capital and potentially their jobs.

Whether the Santa Claus Rally is coming to town or not this year, is yet to be seen. However, per Reuters, marrying a solid S&P with solid savings and earnings, usually bodes well for the year end market.

Tickers to consider: AAU.V, SSVR.V, CEI, FRSX , RNAZ, PPCB & TZA

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The Four C's - Carbon Capture and Climate Change

Tue, 19 Oct 2021 00:19:01 GMT

Carbon Dioxide (CO2) is a natural gas that allows sunlight to reach the Earth, and also prevents some of the sun’s heat from radiating back into space. This process warms the planet and is known as the greenhouse effect. Natural warming of the planet allows life to be sustained on Earth. While C02 and the greenhouse effect are necessary for sustainable life on Earth, problems occur when human inventions designed to burn fossil fuels such as power plants and transportation vehicles release huge quantities of additional CO2 into the atmosphere.

Carbon capture and storage (CCS) is viewed as a critical technology for reducing atmospheric carbon emissions of CO2 from power plants and other large facilities. CCS involves trapping the carbon dioxide at its emission source, transporting it to a storage location (usually deep underground) and isolating it. This means that excess CO2 could potentially be blocked from entering the atmosphere. CCS involves three major steps:

Trapping and separating the Co2 from the other gases;
Transporting the captured Co2 to a storage location; and
Storing the Co2 far away from the atmosphere, typically underground or deep in the ocean.

Global climate change has been a hot topic of concern nationally and internationally. Worldwide interest in CCS stems from three factors:

Recognition that reduction of large amounts of Co2 is necessary to avoid serious climate change;
Realization that large emissions reductions will not happen simply by using less energy or by replacing fossil fuel with alternative sources of energy that emit little or not Co2; and
Adding CCS to other greenhouse gas (GHG) emission reduction measures significantly lowers the cost of mitigating climate change.

Mitigating climate change is one of the major reasons why Camber Energy, Inc (NYSE American:CEI), chose to partner with ESG Clean Energy, LLC (“ESG”). The ESG Clean Energy System is designed to generate clean electricity from internal combustion engines and utilize waste heat to capture ⁓ 100%of the carbon dioxide (CO2) emitted from the engine without loss of efficiency, and in a manner to facilitate the production of precious commodities (e.g. distilled/ de-ionized water; UREA (NH4); ammonia (NH3); ethanol; and methanol) for sale. According to James Doris, the President and CEO of Camber, partnering with ESG positions Camber as an “industry leader in terms of being able to assist with the power generation needs of commercial and industrial organizations while at the same time helping them reduce their carbon footprint to satisfy regulatory requirements or to simply follow best ESG-practices.”

Although carbon capture and storage may seem like a miracle solution, it's important to remember that CCS is not a license to continue emitting CO2 into the atmosphere. Whatever the future holds for CCS, other emission-reduction efforts will still be necessary in mitigating climate change.

Tickers to consider: AAU.V, SSVR.V, CEI, FRSX , RNAZ, PPCB & TZA

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We're Hiring

Tue, 07 Sep 2021 23:19:19 GMT

The most critical and widespread challenge facing businesses right now is the inability to hire the qualified workers they need. When businesses do not have enough employees, they are forced to turn down jobs, reduce hours, scale down their operations, and in the worst cases, permanently close. The latest data and surveys reveal a national economic crisis that is getting steadily worse. More than 90 percent of state and local chambers of commerce say worker shortages are holding back their economies. Additionally, most economists say employers in their sectors are struggling to find qualified workers for open jobs.

According to some business owners and Wall Street experts, US employers can’t hire enough people because unemployment benefits are too high. The government is paying people not to work. According to the Bureau of Labor Statistics (BLS), in April only 266,000 jobs were created, falling well short of industry analyst expectation of 1 million new jobs. A major reason for the shortage was workers’ reluctance to return to work and fill open positions.

Economists and labor market experts feel that after the pandemic disruption to the economy, a new normal may be forming. "The decline in the official unemployment rate should be seen as very troubling," said Michael Farren, economist at the Mercatus Center at George Mason University. "Unemployment should actually be rising as workers re-enter the workforce, given that vaccines are widely available and most lockdown measures have been repealed."

A U.S.Chamber of Commerce poll released in June 2021 of unemployed Americans found 30% saying they do not intend to return to work this year and 13% saying they never expect to go back. While companies generally reported positive outcomes of remote work during the pandemic, many still believe workers should return to their offices now the pandemic is under control. Ninety percent reported “lack of available workers” as the main factor slowing the economy in their area—with two-thirds reporting it was “very difficult” for employers to hire workers. Respondents were more likely to attribute the stalling economy to a lack of workers and not COVID. The government needs to stop the extension of all unemployment benefits and not make it so easy for people to “not go to work.” The pandemic is under control. Vaccinations are readily available for those who choose to be vaccinated. There is no reason for people to not return to work. Continuing to unnecessarily extend unemployment benefits only keeps individuals from maximizing their potential and hurts the overall economy.

Tickers to consider: AAU.V, SSVR.V, CEI, FRSX, JAGX , RNAZ , PPCB & TZA

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What Impact Does a Fiscal Deficit Have on the Economy?

Wed, 18 Aug 2021 20:23:44 GMT

The fiscal year is a one year period used by governments and companies for financial accounting and budgeting. Fiscal deficits are negative balances that occur whenever a government spends more money than it brings in during the fiscal year. This negative balance or budget deficit is common in most governments, in fact, since 1970, there has only been 4 years where the U.S. government has NOT had a negative balance. In most recent years, the U.S. has shown a fiscal deficit of more than $1 trillion.

Spending more money than you bring in is usually a recipe for disaster for any household, or business. How does this formula affect the economy of governments and countries that appear to make this a regular practice?

When the government runs a budget deficit, it is said to be engaging in fiscal stimulus or spurring economic activity. The supposed purpose of this practice is to kickstart growth during a difficult economic period. Increasing government spending can encourage economic activity through the following ways: 1) the purchase of additional goods and services from the private sector or 2) indirectly by the transfer of funds to individuals who may then spend that money . Decreasing tax revenue tends to encourage economic activity indirectly by increasing individuals’ disposable income, which can lead to those individuals consuming more goods and services. The 2020 stimulus checks, increased benefits welfare, unemployment, etc, are examples of this type of increased government spending. The theory behind running on a fiscal deficit is that consumer spending and private investments will increase as more money is funneled back into the private sector.

All deficits need to be financed. This is initially done through the sale of government securities. Individuals, businesses, and other governments purchase government securities such as Treasury bonds and lend money to the government. This type of financing has a direct impact on interest rates. Fiscal deficit can lead to cost-push inflation. The sale of government securities to finance fiscal deficits makes the government a competitor with other financial institutions who lend money. Financial institutions must pay a higher interest rate than the government on their investments in order to lure people away from government bonds. Higher interest rates increase production cost, which is passed on to consumers, thereby leading to higher prices.

When the federal government runs large deficits, it lowers national savings , and thus also investment. The result is more consumption today, and slower economic growth and lower incomes in the future. As deficits and debt continue to grow, there is an increased risk that creditors will eventually demand a much higher premium to buy U.S. treasury securities. If that were to occur, interest rates on the debt would surge, benefits would be cut and taxes raised to cut deficits and restore investor confidence in the ability of the government to meet its obligations..

Keynesian Macroeconomics argue that fiscal deficits are necessary to stimulate the demand for goods and services. Other economists argue that deficits crowd out private borrowing and distort the marketplace. Finally, there is the argument that borrowing money (or increased government spending) necessitates higher taxes in the future; thereby unfairly punishing future generations to service the needs of the current culture. Ultimately, while fiscal deficits may have some short term benefits such as kickstarting a sluggish economy, over the long term, running on fiscal deficits as a regular practice can have serious consequences. No country can borrow forever without consequence. It defies common sense to believe the U.S. will be just as strong and secure in 30 years with a debt-to-GDP ratio that is double what it is today.

Tickers to consider: AAU.V, SSVR.V, LORD.V , CEI, FRSX , JAGX , RNAZ, PPCB & TZA .

What Impact Does Inflation Have On Precious Metals?

Tue, 13 Jul 2021 01:20:45 GMT

Many investors get concerned when they see their assets in the stock market decrease in value. As a result, they turn to gold, silver and other precious metals as a possible answer to hedge against asset volatility and inflation. In short, inflation is the rise in prices of nearly everything and the devaluation of currency.

History shows that significantly rising price inflation stimulates demand for precious metals and especially gold and silver. The actions by the Federal Reserve over the past year have led many to assume that much higher inflation is a foregone conclusion. Many central banks, but most importantly the Federal Reserve, print more and more money to create the feeling their economies are doing fine. In order to combat the large quantities of dollars being pumped into the economy and the decreasing value of money, central banks often confront inflation by increasing interest rates. While increased interest rates may seem to boost savings, inflation continues to harm bond funds and savings accounts over a long period of time.

The precious metal space has a unique relationship with inflation. Precious metals are resilient to inflation because they derive their value differently than paper currency. The value of the dollar is determined by the actions of the federal reserve , central banks, global factors, and the general health of the economy. Central banks print more currency in order to stimulate loans and growth. Circulating more paper currency means a considerable increase in the supply of dollars in the economy. However, without a subsequent rise in demand for more dollars in a more successful economy, the value of each individual dollar gradually decreases over time.

In contrast, gold for example has value because of its scarcity and many modern uses . During times of economic instability or recession when the value of the dollar plummets, investors flock to stable, solid investments like physical gold and silver as a way to store their wealth. As a result, this demand boosts precious metal prices and helps give investors a hedge against inflation and the devaluing of the dollar.

According to Maxim Manturov, the head of investment research at Freedom Financial Europe, investing in precious metals like gold or silver could help outpace inflation. “Assets like precious metals are great safe havens for your finances because their value generally appreciates to account for inflation…”

Additionally, Robert Kiyosaki, author of the best selling book, “Rich Dad, Poor Dad” encouraged investors to buy more gold and silver “while you still can.” On June 28, 2021, Kiyosaki tweeted t hat financial markets are headed for a drastic downturn and investors should bank on cryptocurrencies and precious metals to weather the fallout. Kiyosaki’s best selling book encourages people to understand their finances, note to rely on others for money, but to accumulate wealth by investing. Finally, Sprott Market Strategist, Paul Wong, stated, “If a high inflation scenario takes hold, gold has more positive convexity or right-tail upside than any single liquid asset.”

Inflation can harm a portfolio just as much as any other form of risk. The declining value of the dollar can put pressure on stocks, savings accounts and bond holdings. Gold, silver, and other precious metals can be a safe way of keeping a wise investor immune from the forces of hyperinflation and inflation.

Tickers to consider: AAU.V, SSVR.V, LORD.V , CEI, CURR , FRSX , JAGX , RNAZ, PPCB & TZA

The Great Migration to Cryptocurrencies

Wed, 05 May 2021 16:41:51 GMT

The economic crisis of 2008 showed us that traditional banking systems are flawed. The flaws of the traditional system were re-confirmed in 2020 when COVID crippled global economics. More and more people are seeing the need for viable alternatives to the conventional banking systems. Crypto offers that alternative — a secure, decentralized form of banking, that takes governments and banks out of the equation.

A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Since digital currency is decentralized, every transaction is stored in blocks of computers known as blockchain technology. Blockchain technology infrastructure is used to overcome the financial challenges presented by the established banking system. The concept of investing in cryptocurrency has exponentially increased. According to financial experts, cryptocurrency is here to stay. Research shows the following are reasons for potential increases in crypto investments:

Amazing Returns : Crypto currencies have proven their strength. Investing in crypto currencies appears to be an easy way to earn a huge profit in a short amount of time.
Innovation Potential: Cryptocurrencies prices can change within the blink of an eye. Today, many crypto trading tools are utilizing artificial intelligence to predict future trends. This indicates the potential of future cryptocurrency advisory tools that will both save time and also suggest the best time to invest.
No Government Interference: Cryptocurrencies are not controlled by any government. This is a big reason why more people have decided to invest in cryptocurrencies. Identities remain discreet and business is conducted with complete anonymity.
High Liquidity: It is very easy to sell and purchase cryptocurrency, at any time. On some trading platforms, users will get the chance to auto trade, which makes the process even more convenient.

According to Germany’s Deutsche Bank’s “Imagine 2030” report , the traditional money system is fragile. The report projects that by 2030, over 200 million people will be using digital money. Furthermore, it suggests that the traditional money will already be on the way out.

Crypto also protects from inflation. The problem with traditional money is that it’s always going down in value. This isn’t by accident. Governments and central banks are intentional about this, especially during financial crisis years like 2008, and 2020. During times of financial crisis there’s a shortage of money. Governments try to get around it by just printing more. In fact, 22% of all dollars that exist today were created in 2020, when the Federal Reserve injected $2 trillion into the economy. Making money appear out of thin air sounds good, until you figure out the catch. There may be more printed money, but the amount of goods and services stays the same. The value of money goes down compared with the value of the goods and services, resulting in inflation.

When there’s an economic crisis, Crypto currencies, just like precious metals, don’t get created by a magic wand. They do not offer a short-term fix to financial problems and as such Crypto holds its value and appears to be inflation- proof. This is why Crypto has increased in value and may likely continue to increase in value through the remainder of 2021.

Tickers to consider: AAU.V, SSVR.V, BYOC , CEI, CURR , FRSX , JAGX , GBS, PPCB & TZA .

How Will Inflation Affect Stocks?

Wed, 14 Apr 2021 19:11:56 GMT

The 10-year Treasury note is a debt obligation issued by the United States government with a maturity of 10 years upon initial issuance. A 10-year Treasury note pays interest at a fixed rate once every six months and pays the face value to the holder at maturity. The U.S. government partially funds itself by issuing 10-year Treasury notes.

The benchmark U.S. Treasury yield rose to 1.662% on April 9, 2021, after the March producer price index (PPI), showed a larger-than-expected increase. Economists and Federal Reserve officials have repeatedly warned that inflation data will show rising prices in the spring and summer months as the economy rebounds from the pandemic. Treasury yields moved rapidly moving higher earlier this year over concerns about inflation and the economic recovery from the coronavirus. The Federal Reserve has said it will let inflation run hotter if this helps achieve full employment.

What impact does all of this have on the stock market? Numerous studies have looked at the impact of inflation on stock returns. Unfortunately, the results of these studies are not conclusive. Most studies conclude that expected inflation can either positively or negatively impact stocks, depending on the investor's ability to hedge and the government’s monetary policy.

Unexpected inflation showed more conclusive findings. Studies showed a strong positive correlation to stock returns during economic decline. This demonstrates that the timing of the economic cycle is important for investors in determining the impact on stock returns. Finally, higher inflation was correlated with higher volatility in the stock market.

Growth stocks are companies that are expected to grow sales and earnings at a faster rate than the market average.

Value stocks r efers to shares of a company that trade at a lower price relative to its fundamentals. Growth stocks tend to be more negatively impacted by inflation than value stocks during periods of high inflation. Income stocks pay regular, often steadily increasing dividends. Most income stocks have lower levels of volatility than the overall stock market, and offer higher-than-market dividend yields. When inflation increases, purchasing power decreases. The impact of high inflation makes income stocks less attractive since dividends tend to not keep up with inflation levels.

Bottom line, inflation will affect portfolio performance. In theory, stocks should provide some hedge against inflation, because a company's revenues and profits should grow at the same rate as inflation, after an adjustment period. However “in theory” is not the same as “reality.” Inflation's inconclusive impact on stocks muddies the waters and confuses the decision to trade, hold or to take new positions. Historically, in the U.S. market, there has been a correlation to high inflation and lower returns f or the overall market in most periods.

Tickers to consider: AAU.V, SSVR.V, BYOC , CEI, CURR , FRSX , JAGX , GBS, PPCB & TZA

COVID-19 DID NOT SHUTDOWN THE RUSSELL 2000

Thu, 01 Apr 2021 17:52:09 GMT

The Russell 2000 tracks the roughly 2000 securities that are considered to be US small cap companies. The Russell 2000 serves as an important benchmark when investors want to track their small cap performances versus other sized companies.

Contrary to the performance of most small businesses in the United States, 2020 was a good year for the Russell 2000, with its overall performance up 20% from 2019. The small-cap index surged more than 26% in Q4 of 2020 , significantly eclipsing the Russell 1000, it’s large-cap counterpart, as vaccine breakthroughs and steadfast monetary and fiscal support spurred economic recovery hopes for the coming year. This year's record M&A activity also helped smaller stocks, which are often takeout targets.

The Russell 2000 index was up approximately 90% from March 2020 to March 2021. It hit a low of $1035.39 on 4/3/20, but has since bounced back 112% with a close of $2195.80 on 3/30/21. In 2021, the Russell 2000 Index has jumped approximately 11% year to date as of March 30, 2021. The possibility of a faster-than-expected reopening of the U.S. economy and unprecedented fiscal and monetary stimulus seems to have restored market participants' confidence in small businesses.

Why did the Russell 2000 perform so phenomenally when small businesses seem to be crashing everywhere in 2020? First and foremost was the aid provided by the US government provided to small businesses in excess of $800 billion in 2020 as a part of the CARES Act. Forgivable PPP Loans made it possible for several eligible small businesses to stay afloat. Additionally, Operation Warp Speed has accelerated COVID-19 vaccinations. The speeding up of the vaccination process implies chances of a faster-than-expected reopening of the U.S. economy. The reopening of the economy with the easing of the pandemic will significantly ramp up small business activities.

The question remains, will this trend continue? According to Todd Salamone , Senior Senior Vice President of Schaeffer’s Investment Research, the technical picture of the Russell 2000, along with ETF’s like the iShares Russell 2000 ETF, suggest that the rising trend will likely continue.

Small Cap companies to consider: AAU.V, SSVR.V, BYOC , CEI, CURR , FRSX , JAGX , GBS, PPCB & TZA

Retail Power or Hedge Fund Gamesmanship? The Game Stop Circus

Fri, 19 Feb 2021 01:19:54 GMT

Is what happened with GameStop a depiction of the power of retail investors or was it simply hedge funds manipulating the narrative? If you guessed the latter, you are in the same camp I am. Having worked in the hedge fund industry, I can tell you that there is no industry I know of that is more competitive, packed with brilliant people and ruthless. Hedge fund behemoths are entrusted with billions of dollars by people who run the country and run the world. Hedge fund behemoths have access to just about anything they desire. In the case of GameStop, they had (and still have) access to retail investor trades before they were executed. Hedge funds pay hefty sums of money to retail brokerage firms to gain access to their clients order flow. Why? These hedge funds want to front run you with their algorithms and do; it is a gold mine for them. You want to buy MSFT or GOOG or whatever, you enter the number of shares you want to buy and then click “submit trade.” That trade is routed to the algorithms operated by the hedge funds first and to the exchange second. The funds clip fractions of pennies billions of times a day.

In the case of GameStop, there sure seemed to be a grudge in play. My guess is Gabe Plotkin of Melvin Capital Management did something to irritate Steve Cohen and/or the people behind Citadel. Plotkin learned quickly that he should never mess with behemoths like Steve Cohen and Citadel. Citadel has access to retail brokerage trades and in my opinion worked with Steve Cohen to blow up Plotkin. I believe a short squeeze was orchestrated by a series of large funds causing Plotkin and others short GameStop, financial pain. Let’s be honest, GameStop is a joke of a company. I know many people who are/were short GME and they didn’t deserve to get their bells rung. They unfortunately fell into the firing line of a beef that they likely didn’t know existed. A similar outcome occurred when Bill Ackman irritated Carl Icahn and Carl Icahn took Bill Ackman to the cleaners on Herbalife.

So what really happened? What happened, in my opinion, was Icahn and Citadel initiated a short squeeze by enrolling some members of the media into pushing a false narrative. This false narrative was that of retail investors taking it to the “big bad” hedge funds. Retail investors do not have the firepower to take it to multi-billion dollar hedge funds which have access to pretty much unlimited credit. Once the pain was too great for Plotkin, he folded and accepted a bailout from Citadel and Steve Cohen. Steve Cohen and Citadel gained access to Plotkin’s client list and also received some sort of revenue cut from the fund. My guess is the clients Plotkin have/had are jumping ship given how publicized the GME circus has become and Plotkin learned a life lesson. The media of course is still running with the “David v Goliath'' narrative which is great.

So there you have it. Fun stuff right?

As for tickers I am watching: AAU.V, SSVR.V, CEI, FRSX , JAGX , GBS, CURR , PPCB & TZA

Party Like It's 2020...Again?

Fri, 08 Jan 2021 00:48:13 GMT

What a year for small caps in 2020! The Russell 2000 Index was up over 20% in 2020 and shows no signs of slowing in 2021. How could small caps rally so significantly in a year that saw COVID infect over 85 million people globally and kill nearly 350,000 Americans? How could small cap stocks rally in the face of stay at home orders causing thousands of small business owners to close their doors… forever? I could go on and on but the answer is a simple one. 2020 was the year of the speculative investor; much like 1999 was (cue Prince’s song). Many retail investors I know, and their teenage children, made money hand over fist in 2020 in the stock market. A friend of mine has a 16 year old son who is an investor. His son told me making money in stocks is as simple as buying Tesla and any vaccine stock. He has been right and continues to be right. I have been investing since I bought my first shares of Walmart & Walgreens back in 1987. I have never in my investing career seen an equities market for small cap stocks this hot. Take a look at the charts of these stocks: JAGX , FRSX or NNDM . This is amazing! Will this last?

Obviously, nothing goes up forever. However, in the going up process I believe it is important to ensure there is a “there, there” when it comes to the core business of these rocket ship stocks. For example, cryptocurrencies are soaring in value and as such, a number of companies have pivoted from their core businesses to become somehow involved in cryptocurrency. This frightens me as I know these companies are simply trying to latch on to the mania that is cryptocurrency with no underlying ability to make money other than via share issuances for cash from investors. Another mania is small cap companies adopting a COVID product development strategy. While I think it is great that companies are looking to solve the riddle that is COVID, I question companies with a history of consistent dilution and minimal progress suddenly latching on to the COVID madness.

Be smart and do your homework. Trusting the masses works until it doesn’t and I have seen many people blow up their lives chasing steam. I wish you a safe and healthy 2021 and happy hunting for returns in 2021!

Tickers to consider : SSVR.CN , AAU.V , CEI , FRSX , TZA , PPCB , & JAG X

The Great Snipe Hunt

Thu, 01 Oct 2020 21:58:46 GMT

The Great Snipe Hunt

By: Ross Silver

When I was 11 years old I went to a summer camp on Catalina Island which is an island off the coast of California. We slept in cabins with no windows or doors and everyone was in a bunk bed. Wild boar and other animals would run through our cabins at night searching for food, scaring the newly arrived campers half to death. It would not be an aberration of the truth to suggest I may have left food and candy on the floor of the cabin at night in order to attract the aforementioned animals. I was at the camp for two months and entertainment in the form of scaring the daylights out of someone has always been ranked #1 on my list of enjoyment. I apologize to anyone reading this that likely has to sleep with a light on as a result of attending camp with me and staying in the same cabin I slept. I of course slept in a top bunk, far away from the floor and the wild boars who thrashed about in the cabin.

My counselor at the camp quickly realized I was one of the “hooligan” kids and wanted to teach me a lesson for constantly scaring my fellow cabin mates. One day my camp counselor spoke of a mysterious animal that caught my attention while we were all at dinner. The Great Snipe is what the counselor called it. The Great Snipe was described to 11 year old Ross Silver as being 12 feet tall, had tusks, could run 45 mph and knock down trees with one punch. I needed to see the Great Snipe, understand it, and possibly even capture it.

My camp counselor and other camp counselors promised me, my brother and some other “hooligan” kids that we would search for The Great Snipe; which we referred to as The Great Snipe Hunt. I volunteered to have the honor of carrying a garbage bag full of garbage to the hunting grounds and my brother carried a special flashlight. This was only to be turned on when we found The Great Snipe. When we arrived at the place where The Great Snipe lived, my brother and the other “hooligan” kids were told to whistle and shake the bushes in order to attract The Great Snipe. After about 45 minutes I realized this was a ruse and I told everyone we need to walk back to the camp. The moonlight served as our only source of light given the special flashlight had no batteries.

I mention The Great Snipe story because I recently sat in on a presentation to some high net worth investors by someone seeking to manage their capital. In the presentation there was a lot of talk about how markets will continue to move higher over time and that money in equities, specifically long equities has ALWAYS and will ALWAY do well. I interrupted the presentation and highlighted that while the major stock indexes are up over the past 20 years, there have been periods of negative returns. Asset selection is critical in those times versus just buying anything with a ticker symbol. Don’t fall for a Great Snipe story which at the moment features a thesis that equities can only go up. Equities do go down. In an environment with historically low borrowing costs; you may want to consider having exposure to companies that will benefit. Junior resource companies, specifically one like Summa Silver (ticker: SSVR.CN ) is one I thought to highlight.

Tickers to consider : SSVR.CN, CEI, FRSX , ARPO , TZA , PPCB & POAI

The Rain Dance

Wed, 09 Sep 2020 22:48:28 GMT

The Rain Dance?

By: Ross Silver, CEO

I am not sure how many of you reading this has ever done a rain dance. Rain dances are viewed by many as hocus pocus, nonetheless, there are some like myself who will attempt to summon water from the sky every so often. It was about 100 degrees here in the high desert recently and my children and I were forced indoors due to the dry and unsavory heat. I told my children I would perform a rain dance and if the right ears were listening, rain would fall. They laughed at me and said there is no way I could make it rain. About 30 mins later, Mother Nature decided to cool things off with a swiftly moving thunderstorm that dropped the temperature about 30 degrees. My children looked at me in amazement when the rain

started to fall. Dad was king for a moment and the only reason Dad was king is because Dad checked the weather forecast. As the old saying goes, “The success of a rain dance depends a lot on timing.”

Why do I mention this? If you are going to make “impossible”, possible, it is probably best to ensure the “impossible” has a strong chance of happening based on some cold hard facts or data. Many investors come into stocks thinking the rain aka profits will come for sure. Those investors are the same people who look to the skies and ask for rain thinking someone is listening and will grant them their request. The success of investing depends a lot on timing and facts.

From this keyboard, large cap equities look overvalued but then again when money is available to large cap equities for dirt cheap, it is hard to beat that. At some point the reality of what COVID-19 did and is doing to the economy will be reflected in equites, the million dollar question is when?

On a personal note, it is downright laughable that bars are open, restaurants are open, hotels are open but yet schools are closed. The parents of children can go to a bar, drink with no mask on for hours, board an airplane, stay in a hotel and then ultimately return home to their children and this is somehow deemed safe? As Yoda says, “do or do not, there is no try.”

Some stocks to consider: FRSX , POAI, CEI , TZA, ARPO & PPCB.

Have a great month!

Hypocrisy Knows No Bounds

Thu, 06 Aug 2020 20:27:50 GMT

Hypocrisy Knows No Bounds

By: Ross Silver, CEO

I think most people believe humans today are “smarter” than previous generations due to scientific advancements and specifically technological efficiencies. We have smart gadgets and artificial intelligence making intelligent decisions without human interference. Our lives are controlled by a 4 inch by 2 inch computer, aka cell phone, which each of us keeps within arm’s reach daily to keep us “connected” to knowledge. Personally, I think all these “advancements” are making humans commodities, less intelligent and enabling the destruction of interpersonal communication; but I will save that essay for another day. Given we are so smart, it should be shocking to all at how poorly managed the COVID-19 pandemic is being handled, right?

Let’s first think about social distancing and the hypocrisy that is social distancing. We have been told that if we are all to wear face masks and keep 6 feet away from other humans this will stop the spread of this virus. What science is backing this assertion? None. We have been told that it is safe to eat in restaurants, fly on airplanes and drink at bars as long as we wear a face mask, adhere to social distance guidelines (on an airplane, huh?) and limit touching our faces or any objects around us. Again, the science supporting this assertion? Doesn’t exist. Schools are closed for “distance learning” in order to help stop the spread of the virus, why? Because it is “safer” for the children to not be in school but at home according to non-existent science. The hypocrisy of the world we live in today and the sheer stupidity being demonstrated by our leaders is frightening.

This virus whether we like it or not will infect all of us across the planet. The death rate of this virus as of today is 3% of people infected globally as well as here in the U.S. That is a very concerning number but not as concerning as the estimated 606,520 people that will die of cancer in the United States this year. Why haven’t we eliminated any and all cancer causing agents in our daily lives? Heart disease killed 647,457 people in the U.S. in 2019, https://www.cdc.gov/nchs/fastats/leading-causes-of-death.htm. Why haven’t we eliminated any and all foods which lead to or cause heart failure? The answer, because we are hypocrites, a sad but true fact and one that needs to change. We are not challenging our elected officials to make informed decisions or even smart decisions. We are relying on “science” that lacks data and we are adhering to a herd mentality also known as “well if they say so.” Use your brains, think outside the box and do not assume elected officials are intelligent and will do what is best for you or us. Most elected officials are puppets to the consortium that put them in office; somehow people are forgetting this and it is frightening.

Last but not least, the equity market is massively disconnected from any semblance of logic. Retail investors are opening up accounts at discount brokerages en masse and buying equities with two hands. I keep hearing “It’s different this time Ross, you don’t get it,” and that makes me cringe. There is no question the elevator down is coming to a theater near us, the only question is when. I don’t like seeing people get fleeced but this will be a fleecing. A monetary policy of “keep printing money” will not and cannot work. Why? Let’s say you purchased a baseball card that was worth $40 because there were only a certain number of those cards and the card was in demand. What happens when billions of those baseball cards are printed after you bought the card and just about everyone has one and as such demand evaporates? The answer, the card drops in value like a rock. It is only a matter of time until the world “unpegs” itself from the U.S. dollar and we are already seeing the value of the dollar evaporate: https://www.marketwatch.com/investing/index/dxy/charts

Some tickers to consider: FRSX , POAI , ARPO , TZA , JAGX , CEI and TVIX.

A Mirror For the Sun

Thu, 09 Jul 2020 21:52:57 GMT

A Mirror for the Sun?

By: Ross Silver

One of my favorite bands, Red Hot Chili Peppers, has a song named “Road Trippin” that has meaning to me given I grew up near the ocean. In the song, a portion of the lyrics state, “Blue you sit so pretty west of the one. Sparkles light with yellow icing, just a mirror for the sun.” Blue is the Pacific Ocean that lies to the west of Pacific Coast Highway aka Highway 1. The ocean sparkles from sunlight and the yellow icing is kelp laying on the surface of the ocean. I have spent thousands of hours in various surf breaks along the California coast and there is nothing more beautiful in nature than the Pacific Ocean in my opinion. The part that intrigued me about this song is the fact that Anthony Kides, lead singer of Red Hot Chili Peppers, references the ocean as a mirror for the sun. A mirror for the sun can go a lot of different directions when extracting meaning. Not to get cryptic, but I am thinking the ocean is serving as a blocker of the light from the dark. Kides’ only references the ocean surface, “sparkles light with yellow icing…” but fails to mention what is below the surface of the ocean which is darkness. These lyrics made me think about equity markets and the massive mirror being placed on the surface of equities by retail investors and more significantly the Fed so that we may only see the sun and not the darkness. The mirror concerns me.

In the past 3 weeks equity funds have had a whopping $40B of outflows: http://www.lipperusfundflows.com/#create:home:Home:/php/signup_trial.php

Despite the fact equity funds are returning money to investors, equities have moved higher. How can equity markets rise when funds are being pulled out of equities by institutional investors? One answer is retail investors. Retail investors have been buying stocks with two hands. Fascinated with industries that fell most in the coronavirus crash -- airlines, cruise operators, auto sellers -- and egged on by Twitter impresarios and in chat rooms, tiny day traders are betting big on the recovery. Their trading has been at the very least prescient. Lured by zero trading fees, a historic selloff and probably boredom while stuck at home, the group often viewed as “dumb money,” opened record new trading accounts in the first quarter. While Wall Street icons denounced the rally, retail traders kept on buying -- a decision that paid off as the S&P 500 jumped more than 40%.

The other reason equities have been rallying is the Fed. The worse things get economically, the better it is for markets as the Fed will intervene even more aggressively; and vice versa. The stronger the economy, the tighter financial conditions will get until we get a Q4 2018-type crash. That's really all there is to "fundamental analysis" today. So, for those of you wondering how on earth equities are rallying in the middle of a pandemic, there is your answer.

We are in an equities utopia fueled by rampant Fed purchases and retail investors potentially forcing institutional investors off the sidelines and back into equities which may drive equity prices even higher. As such, the en vogue theme is to buy highly speculative stocks and watch them rip. Caveat emptor.

Tickers to consider: FRSX , JAGX , POAI , MYOV , ARPO, PPCB , CEI & TZA (if you think the sky is falling)

Silver Sports Desk

My two older boys are in sports camp this summer and both are opting to play football which means big things may come once the flag football season starts in September. I am going to be coaching a 1st & 2nd grade team as well a 3rd & 4th grade team this upcoming season and I am excited as are my boys. My daughter loves the movie Leap and as such I have enrolled her in ballet and she has the athleticism and drive to become a special ballerina. I wish I could coach ballet but I know nothing about ballet other than it looks extremely difficult. My youngest son may become a professional race car driver. I purchased an electric fire truck that he drives around my driveway and challenges his older siblings to race via the mini megaphone embedded into the fire truck.

Thank you for reading!

Three Black Swans

Wed, 03 Jun 2020 00:00:18 GMT

Three Black Swans

By Ross Silver, Principal

The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. The term is based on an ancient saying that presumed black swans did not exist – a saying that became reinterpreted to teach a different lesson after black swans were discovered in the wild.

The theory was developed by Nassim Nicholas Taleb to explain:

1. The disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology.

2. The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities).

3. The psychological biases that blind people, both individually and collectively, to uncertainty and to a rare event's massive role in historical affairs.

When the phrase was coined, the black swan was presumed not to exist. The importance of the metaphor lies in its analogy to the fragility of any system of thought. A set of conclusions is potentially undone once any of its fundamental postulates is disproved. In this case, the observation of a single black swan would be the undoing of the logic of any system of thought, as well as any reasoning that followed from that underlying logic. Hopefully you are still following.

In the past three months we have experienced not one, not two, but three black swan events. COVID-19, Oil prices turning negative and the social response to the atrocity that occurred to George Floyd are the three black swan events. Somehow the equities markets are moving higher despite these three black swan events seemingly defying all logic. Why?

There is a false sense of stability in the “the economic system” here in the U.S. That false sense of stability is leading to investment from investors in other countries who are too worried about their own economic systems and as such parking their money into U.S. equities. That is one pillar supporting and buoying equities prices. The second pillar is the “Fed Put” which in layman terms means the money printing press that the Federal Reserve has deployed to stabilize and buoy the economy. The U.S. Congress established three key objectives for monetary policy in the Federal Reserve Act, which created the Federal Reserve or “Fed” in 1913: maximizing employment, stabilizing prices, and moderating long-term interest rates. Well, unemployment is near historic highs, prices are volatile and long-term interest rates are a joke. This brings me to pillar number 3, the bond market. Anyone investing in bonds for yield is kidding themselves. The only purpose of bonds at this point, given yields are abysmal, is to serve as parking spots for those confused by the current economic environment.

Let’s take a look at fund flow data: https://www.yardeni.com/pub/ecoindiciwk.pdf

Fund flow data is not painting a pretty picture. Will this change? Perhaps, but one data point I follow very closely is fund flows. When flows are up, usually a bullish sign, when flows are down, bearish sign, so what are we to do? If you believe in the economic system and those running it, long and strong is the way to go. If you are confused by the economic system and have little to no faith in those running it, time to get short and pray. Just remember the old cliché, escalator up and elevator down.

Tickers we are watching: FRSX, POAI , MYOV (huge move this week ☺), PPCB & JAGX

Powder Kegs

Thu, 07 May 2020 20:33:52 GMT

Powder Keg Stocks

By Ross Silver

As you can imagine, I receive a number of phone calls from investors, both professionals and amateurs, asking what my money is getting behind. I have never nor will ever answer the question because there is no positive outcome. If I gave out a stock pick and it worked, I have validated that I am not a moron. If the stock went down, I am a moron and the one responsible for financial ruin. Why do I mention this? The answer is simple. If someone is giving you a stock tip “for free” consider the source and the onus behind their generosity.

The people I spend my days speaking with seek “powder keg” stocks. Powder keg stocks are primarily small and micro-cap companies with massive potential, but little, if any, substance. Powder keg stocks can change lives for the good or bad, mostly for the bad. I have made my career around powder keg stocks and let me tell you, attention to detail is paramount and so is trust. The most critical part of my diligence process when evaluating a powder keg stock is management. Management has a massive impact on the outcome of a powder keg stock. If I find a management team that is driven to succeed, has their own money in the company and makes a rational case as to why they can disrupt or augment the market they are competing in or will compete in; they have my attention. I write down or memorize every detail management provides, which is also in the public domain, and hold management accountable for any and all deliverables. By evaluating every detail management provides and comparing that to what is delivered, my trust is built or broken.

Given the financial turmoil that COVID-19 has caused, many investors seem more excited about powder keg stocks than usual as they want to get back what they lost when the market turned and they sold at a loss. Many I speak with lost 25-50% of their investment capital when the markets ripped lower in February and March. Why do I mention this? According to the AAAII Investor Sentiment Survey, https://www.aaii.com/sentimentsurvey? , only 23.7% of retail investors are bullish. That is extremely low, and yet, may present opportunity when these retail investors come out of cash and into stocks as they get more bullish. One way to play a potential move from bearish to bullish from retail investors is to look for opportunities in the index that houses many powder keg stocks. The Russell 2000 is the “small/micro-cap” index and is a favorite of mine. If you follow my tweets you will see I have been playing the triple leveraged Russell 2000 Index ETF’s.

Have a great month and hopefully the “experts” overseeing our “safety” will open the country soon. I won’t bore you with another civil liberty essay; you can read last month’s newsletter for that.

Companies to consider, by ticker: CEI , POAI, FRSX , GBLX , MYOV , PPCB , TRXC, ILAL & NVIV .

The Power of Fear

Tue, 07 Apr 2020 01:14:24 GMT

What you are about to read is fact and a topic I felt important to bring up. Some of you may walk

away from reading this and think I am a libertarian, neither understanding nor sympathetic to the

COVID-19 pandemic and you would be incorrect. My concern with this pandemic is the blatant

disregard to our rights as Americans.

“We the People, in order to form a more perfect Union, establish justice, ensure domestic

tranquility, provide for the common defense, promote the general welfare, and secure the

blessings of liberty, to ourselves and our posterity, do ordain and establish this Constitution for

the United States of America.” (Preamble to the US Constitution- emphasis added)

The preamble states one of the major responsibilities of the US government is to “promote the

general welfare and secure the blessings of liberty” for all individuals. After experiencing

persecution under the English Monarchy, securing the freedoms and liberties of individuals was

of utmost importance to the Founding Fathers when establishing this country. The first ten

amendments to the Constitution are also known as the Bill of Rights. Initially there was some

controversy over whether a “Bill of Rights” needed to be included in the Constitution. Thomas

Jefferson, author of the Declaration of Independence and third President of the United States,

wrote “A Bill of Rights is what the people are entitled to against every government on earth,

general or particular, and what no just government should refuse, or rest on inference.”

The following amendments are a part of the Bill of Rights and according to the Constitution,

outline the freedoms of what every individual in this country is entitled to.

Amendment 1- Congress shall make no law respecting an establishment of religion; or

prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the

right of the people peaceably to assemble, and to petition the government for a redress of

grievances.

Amendment 2- A well-regulated militia, being necessary to the security of a free state, the right

of the people to bear arms, shall not be infringed.

Amendment 6- In all criminal prosecutions, the accused shall enjoy the right to a speedy and

public trial, by an impartial jury of the state and district wherein the crime shall have been

committed....

The Founding Fathers took extreme care to outline and ensure these inalienable rights for all

individuals. It is amazing that something that took so much work to iron out and embed into the

foundation of this country can be erased in a moment without question due to an emotion, FEAR.

Politicians and the public are alarmingly willing to violate our civil liberties in the name of

fighting the COVID-19 epidemic. To date, forty-one (41) states have issued “Shelter in Place” or

“Stay at Home” orders to its residents. These orders prohibit gatherings (or assemblies) of more

than ten (10) people or of any size where social distancing (at least 6 feet apart) cannot be

maintained. Last week a pastor in Florida was arrested for holding a church service in a park.

Both the “Shelter in Place” orders and the arrest of the Florida pastor violates the basic rights to

peaceably assemble and exercise religious freedom provided for in the First Amendment.

California Governor, Gavin Newsom, was the first to order “non-essential” businesses to be

closed in response to COVID-19. He left it up to the local sheriffs to determine whether gun

dealers were considered “essential or non-essential.” This decision allowed Los Angeles county

sheriff Alex Villanuevea, to unilaterally ban the sale of firearms and ammunition. This is a direct

violation of our basic Second Amendment rights to bear arms. Additionally, this amendment

specifically prohibits the government from infringing on that basic right, which is what

Villanuevea’s ban did. This ban was subsequently rescinded due to new Federal guidelines that

were released defining “essential” businesses; however, it was not because of Second

Amendment rights.

The right to a speedy and public trial is provided for in the sixth amendment to the Constitution.

As it is listed in the Bill of Rights, it is also considered a basic and inalienable right that everyone

is afforded. With the COVID-19 mandates, the Courts have postponed all “non-essential”

hearings and jury trials indefinitely. Jurors cannot be called to serve as it would require more

than ten people to gather. Any hearings that are taking place (where the Courts have not closed)

are only taking place before a Judge. Therefore, the right to a speedy and public trial by jury does

not currently exist under the COVID-19 mandates.

Why isn’t anyone fighting for these basic rights that our Founding Fathers fought so hard to

ensure? Simple answer… FEAR. Fear can be very powerful. It can paralyze people from doing

what they should do and can also cause people to do things that they don’t want to do. Just look

at the Nazi regime during WWII, I am pretty sure the majority of Germany did not agree with

Hitler’s psychotic behavior, but people went along with it because they were afraid.

Law professors from the University of Chicago surveyed 3,000 Americans. They found a general

bipartisan consensus that “now is the time to violate the Constitution.” While the government is

using the COVID-19 pandemic as the reason behind the violations; there should be an

overwhelming concern that if people continue to allow their rights to be violated without

question, then those rights may never return. This should be the real fear. “After the threat has

subsided," the law professors conclude, "Americans must recognize any constitutional violations

for what they were, lest they become the new normal." By then, it may be too late.

As for my thoughts on the equities markets, simply put I believe we are going to rip higher.

Massive stimulus along with the end of captivity, err quarantine, by the end of this month may

lead to a “V” shaped recovery in stocks. I hope I am right!

March Madness

Wed, 04 Mar 2020 20:50:13 GMT

March Madness

By: Ross Silver, CEO

Let us please welcome Panic and her closest friend Uncertainty to the party. Since Feb. 12th, the DJIA has retreated by nearly 4,000 points or 13%. What is behind this drop and aggressive selling? The answers are panic and uncertainty. “Investors” are very concerned about COVID-19 (Coronavirus), the Democratic nominee and supply chain issues that may wreak havoc on the U.S. economy as a result of COVID-19. As I see things from my perch, COVID-19 sure looks like a nasty virus and I am surprised the WHO has not declared it a pandemic yet. The virus is not something caused by nature but instead seems to be leaked from a laboratory based on its molecular makeup. COVID-19 is a coronavirus which is a family of viruses that cause illnesses ranging from the common cold to highly fatal respiratory syndromes like SARS and MERS.

Dr. Li Wenliang, one of the first non-government medical professionals to speak openly about the new virus, initially assumed it was a mutated version of SARS, a disease that ravaged mainland China and Hong Kong in 2003 before being leaked again from Chinese labs in 2004.

While SARS killed around 10% of patients, COVID-19 kills around 2%. The difference is that COVID-19 is significantly more contagious. This may be due to HIV and Ebola-like mutations in the structure of the virus. Unlike other coronaviruses, COVID-19 attacks a protein called Furin – just like Ebola and HIV. Scientists believe this is the reason why the virus seems to be significantly more infectious than similar diseases like SARS and MERS.

To summarize, we have no solution to COVID-19 and until we do, expect equities to be highly volatile.

Adding to the volatility is the front runner for the Democratic Presidential nomination, Bernie Sanders. Bernie Sanders being elected President probably results in the DJIA giving up half its value. This is why the equity markets are nervous about him getting the nod over the more moderate, Joe Biden. As a humorous aside, it cracks me up that the Democrats, who supposedly stand for minorities and are the “progressive” party, have three white men as their presidential candidates, why no women or minorities?

Lastly, the mega factories in China being closed or working at 25% capacity is causing all sorts of supply chain issues. This predominantly affects tech companies, which explains why the NASDAQ is taking it on the chin. When will these issues be resolved? No clue. What is someone supposed to do with their equity investments in this sort of setting? My answer, play defense and pick off small cap stocks that have been beaten up severely. My guess is small cap will lead any rally from these lows and as such, it might be a good idea to have exposure.

Featured Company: Foresight Autonomous Holdings Ltd. (NASDAQ ticker: FRSX)

Take a look at some of the articles we have written on Foresight: https://www.sylvacap.com/foresight

Where is Easy Street?

Wed, 12 Feb 2020 17:02:40 GMT

Where Is Easy Street?

By: Ross Silver, RIA

I keep hearing about this Easy Street yet can’t see to find it. People familiar with Easy Street tell me it is easy to find and on Easy Street money is made hand over fist with ease. For example, when Coronavirus broke out and the world prepared for the worse, stocks sold off which lead to my friends who frequent Easy Street to tell me, buy the dips Ross, it is just that easy. Well, they were right again and have been right for the past 11 years. With the equity markets at record highs, those that frequent Easy Street say the good times will continue to roll, I am a bit more skeptical, but why?

According to Lipper: For the week ended 02/05/2020 ExETFs - All Equity funds report net outflows totaling ($2.916) billion, with Domestic Equity funds reporting net outflows of ($3.823) billion and Non-Domestic Equity funds reporting net inflows of $0.908 billion...ExETFs - Emerging Markets Equity funds report net inflows of $0.834 billion...Net inflows are reported for All Taxable Bond funds of $6.963 billion, bringing the rate of inflows for the $3.260 trillion sector to $7.969 billion/week...International & Global Debt funds posted net outflows of ($0.523) billion...Net inflows of $4.904 billion were reported for Corp-Investment Grade funds while High Yield funds reported net outflows of ($0.784) billion...Money Market funds reported net outflows of ($8.081) billion...ExETFs - Municipal Bond funds report net inflows of $1.493 billion.

Given the amount of money flowing out of equities, $33B in the past 5 weeks, I have no explanation why equity markets are at all-time highs other than me thinking irrational exuberance is also at an all-time high. Treasuries, specifically the 10 year, are trading near all-time lows. What will the Fed do in 2020? “There are a lot of possible scenarios. Base case, the Fed goes on hold. The next most likely scenario is slower global growth leads to an insurance cut. The third scenario is that something unexpected happens and the Fed cuts rates several times,” said Robert Tipp, chief fixed-income strategist for PGIM Fixed Income, in an interview. If the Fed cuts rates, I think that would be well received by equity markets even though the rate cut was done in order to preserve the stock market rallying in an election cycle , economic growth. The bolded text was meant as a joke and intentional.

Where do we go from here? No idea but I am looking for small companies that haven’t participated much in the rally, one of which is Foresight Autonomous Holdings (Nasdaq: FRSX). You can learn more about them here: https://www.sylvacap.com/foresight

Silver Sports Desk :

At the moment the Silver children are skiing and snowboarding. My oldest son is playing indoor flag football and is flourishing at the quarterback position. He has excellent mobility, is a very fluid mover and pinpoint accuracy and touch on his passes. It is amazing how much he has progressed over the past year in football, I am very proud of him.

Baseball season is around the corner so updates to follow once we get rolling there and I will be coaching my two older boys and their team.

Chasing Glitter

Wed, 15 Jan 2020 00:33:58 GMT

This is a subtitle for your new post

Chasing Glitter

By: Ross Silver, Principal Analyst

Happy 2020 and I hope you enjoyed your holiday season. 2019 was a monster year for equity investors as the major averages ended the year up 25%+. Will 2020 also bring outsized returns relative to mean returns over the past 100 years or will we revert to the mean or fall below? Let’s take a look at some factors that may contribute:

Cyclical Factors :

Presidential elections also tend to be favorable, with the market advancing in 17 of the past 19 years when White House campaigns were held, and 2020 will be one of those years.

This doesn't work perfectly, of course. The 37% slide in 2008, during the Great Recession, was one of the worst ever. Still, presidential campaigns tend to generate excitement, and optimistic election speeches often drown out the rancorous political divides along the way.

One wild card might involve income-tax changes, as several leading Democrats have advanced proposals to tax corporations and the rich more heavily. Such concepts might prove popular on Main Street, but they won't fly on Wall Street. If high-tax proposals gain serious traction, that could spook investors. But at this stage, they're just ideas.

Anticipation of Profits :

The market's performance last year was unusual in that the big gains came against a dismal earnings backdrop. Pending the release of financial reports for 2019's fourth quarter, earnings for S&P 500 companies will slip 1.7% on average for the year, according to Zacks Investment Research. That follows a 23.2% profit gain, on 9.2% higher revenue, for 2018, when corporate bottom lines were juiced by income-tax cuts.

Clearly, investors are looking beyond the chasm. Zacks sees earnings for large corporations rising about 8% in 2020 on roughly a 4% increase in revenue, based on the projections of analysts who follow S&P 500 companies.

In his blog, Sheran Mian, Director of Research at Zacks, concluded that investors appear to have accepted profit declines in 2019 in hopes that profit gains will resume this year.

Valuations :

A strong stock-market advance, coupled with weak earnings, is one way to stretch valuations. That scenario unfolded last year. For example, the market's price-earnings ratio based on forward or expected profits stood at 18.2 at the end of 2019, up from 14.4 one year earlier, according to JPMorgan Asset Management.

Similarly, the market's price-book value ratio rose to 3.3 from 2.7 and price-cash flow increased to 13 from 10.6. (These ratios compare the stock price to a company's assets and cash flow, respectively, also expressed per share. The specifics, in this case, aren't as important as the direction they're moving. Right now, that movement is toward stocks becoming modestly more expensive.)

Similarly, the average S&P 500 dividend yield, at 1.9%, was below the 2.3% year-earlier figure. Those numbers, and others, suggest stocks have gotten more costly. Still, most valuation measures aren't way out of line. For example, the average forward P/E ratio of the past 25 years is 16.3. That 1.9% dividend yield compares to similar or even lower payouts on bonds, such as the 1.9% yield on 10-year Treasury bonds.

Good luck in 2020!

The Jellyfish Never Dances with the Shrimp

Sat, 07 Dec 2019 01:34:46 GMT

The Jellyfish Never Dances With the Shrimp

By: Ross Silver, CEO

I was looking up Japanese proverbs and came across this beauty, “The Jellyfish Never Dances with the Shrimp.” Supposedly, it means enmity is inborn and natural, it can never be eliminated. Then I learned that shrimp can and will aid jellyfish, wherein a shrimp will eat parasites off a jellyfish and therefore they can co-exist together and even thrive together. So what are we to make of this? Whose side do we take? Seems like the shrimp is the obvious choice, but why?

Obviously, the answer is complicated and for those of you wondering if I am writing this from a mental institution, you would be incorrect. I am still here and kicking, pulse still intact while questions of mental acuity remain. In an event, the point of all this gibberish is the correlation between interest rates (the jellyfish), in particular the yield curve and its shape and equities (the shrimp).

Per an article on CNBC.com , “When the yield on the 10-year Treasury note earlier this year fell at a breakneck speed from 2.75% to 1.6% over six months, it triggered a host of alarms across Wall Street. The plunge was so severe that it sent the yield on the 10-year note under that of the 3-month bill and 2-year note, a rare phenomenon known as “inversion.”

Though the inversion between the 10-year and 2-year proved short-lived, the yield on the 3-month bill held above the 10-year for months. The spread widened into positive territory earlier in October for the first time since July.

Investors usually demand higher interest payments for agreeing to lend Uncle Sam money over longer time periods, so deviations from the status quo are thought to be reliable, though not perfect, recession predictors. Still, analysis shows there is often a significant lag before a recession hits and an economic downturn ensues.

Recessions are almost always preceded by a steepening of the yield curve, though not every instance of yield curve steepening leads to an economic downturn. Looking at the inversions of the US curve since 1978, a re-steepening (un-inverting) of the curve seems to occur during (1980, 1981) or preceding US recessions (1990, 2001, 2007). To me it sure looks like the yield curve is steepening and as such equities as a whole may be in their final inning of this amazing 10 year bull market we have experienced. With that said perhaps the yield curve is steepening as a result of growth and general economic health. Which is it? I think we will find out in 2020, be prepared for some volatility.

Silver Sports Desk

The Silver older boys are in basketball currently and they are having a lot of fun. I coach both of their teams which I love. My oldest is in 2nd grade and he is still learning that dribbling is necessary and his jump shot looks more like a heave than a shot but that heave goes into the basket. We are working on shooting and dribbling but his natural athleticism makes him a standout in the league. My kindergartner is also learning the nuances of the game and while he is still learning he is pretty dominant in his kindergarten league which features occasional passes and dribbling. Ski and snowboarding is up next for them and I have them enrolled in a weekend ski/snowboard class. 2032 Olympics here we come ☺

My daughter is going to get on skis for the first time this season and she is the most agile of the Silver pack. I expect her to be acing double black diamond runs by the end of the ski season. My youngest will be on the sled this winter and I fear he may ditch the sled for a snowboard before the season is over given he has no fear, he is 2 years old.

Featured Company

GB Sciences, Inc. (OTCQB: GBLX) (“The Company”) is a diverse cannabis company, focused on standardized cultivation and production methods; as well as biopharmaceutical research and development. The Company’s goal is creating safe, standardized, pharmaceutical-grade, cannabinoid therapies that target a variety of medical conditions.

The Company is dedicated to the discovery and development of important new cannabis–based medications. To date the company has achieved some impressive results because of their relentless attention to pharmaceutical methods and standards, enhanced by their culture of scientific innovation.

The Company’s two-pronged growth strategy is as follows:

To continue to explore the leading edge of biomedical research for the development of cannabis-based therapies; and

To take advantage of the recreational market for cannabis in Nevada.

According to Grand View Research, the global legal marijuana market size was estimated at USD 13.8 billion in 2018 and is projected to expand at a CAGR of 23.9% by 2025. Growing legalization in various countries is primarily driving the market. Additionally, the rising adoption of cannabis as a medical product for treating conditions, such as Parkinson’s disease, cancer, arthritis, and neurological disorders is expected to fuel revenue growth in the future. Furthermore, the increasing demand for pain management therapies due to chronic pain and significant side effects associated with opioid usage are expected to drive the demand for medical cannabis, which has proved to be a potent product for chronic pain management.

GB Sciences has several advantages over both pharmaceutical companies and academic researchers when it comes to the discovery and validation of new drug formulations from cannabis-derived compounds. Because GB Sciences holds licenses to grow; extract and sell cannabis under state-regulated programs, they can produce and use their own standardized cannabis materials in their products and in their research program. The Company’s state of the art, 28,000 square-foot cultivation lab can support approximately 7200 cannabis plants without sacrificing any quality or therapeutic efficacy. GB Sciences is a company that is informed by science, but inspired by patients.

Idle Hands Are the Devil's Workshop

Wed, 13 Nov 2019 01:22:43 GMT

Many of the fund managers I speak with as well as high net worth types seem to be sitting on their hands. I am not hearing from people I respect phrases like, “I am buying…” or “I added to…” Instead I am hearing funds are leaving and heading towards ETF’s. This is backed up by Morningstar’s most recent fund flow data which stated, “Overall, passive U.S. equity funds saw $22.9 billion in inflows while active U.S. equity funds had $19.1 billion in outflows in September.” The transition from active management to passive ETF’s is alarming to me also. I understand the equity markets have done nothing but go up for the past 10 years but there is a reason for money management professionals, just like there is a reason for doctors and lawyers. I am nervous and think we may be headed lower and with all the money out of professional’s hands, the acute nature of a potential downturn may be vicious.

An investor who I respect that makes a living shorting stocks (thinking stocks will move lower instead of higher) told me he can’t handle another margin call. A margin call is when an investor bets a stock goes one direction, yet goes the other and the investor made the trade on margin meaning they borrowed money. Margin calls are no fun and require a cash infusion into the account or else the brokerage firm will close your position and hand you a loss. This investor has made a career shorting stocks and he has had enough. I told him that likely means the top has arrived and nothing can go up forever, to which he responded “only a fool fights a battle he cannot win.” I get that this market is massively controlled by our government, but the thought that humans can control anything is a fallacy.

So, what is your point here Ross? My point is; idle hands are the devil’s workshop. If anyone thinks markets are just going to continue going up and not have some hedge built in, well, good luck to you. While having any sort of downside hedge has been a loser the past 10 years, it may not be a loser now. Don’t be complacent!

Silver Sports Desk

The flag football season just wrapped up and my 1st & 2nd grade team was a force. While we don’t keep official score in the league, the kids do and they knew that nobody came within three touchdowns of them. My oldest son transformed into a legitimate quarterback and was throwing all over the field and accurately towards the end of the season. When I say accurate, I am talking throwing a football into a mailbox accurate. My middle son had one of the coolest touchdown runs of the season and put a juke move on another kid that was incredible. They both were absolute monsters on defense and opposing teams scored one touchdown in our final 4 games. I am very proud of my boys and I am coaching them both in basketball starting this weekend.

My daughter and youngest son remain in the “Silver Athletic Incubator” but there are some serious signs of talent and fearlessness from both of them. My daughter can run like the wind and is the most agile of all my children. She is going to be a force come soccer season next year and when she is old enough to play flag football; she will be on the field. My youngest son may be a race car driver. I purchased an electric fire truck for him and he drives that thing like it is stolen. ☺

Featured Company:

One World Pharma Inc . (ticker: OWPC) or (“OWP”) is the U.S. parent company of One World Pharma S.A.S, a fully licensed cannabis and hemp producer with offices and operations in Bogota and Popayan, Colombia. One World Pharma planted its first crop of cannabis in 2018 at its cultivation site in Popayan, Colombia, for research purposes and expects to begin harvesting commercially in the first quarter of 2020. The company intends to supply the highest quality cannabis and hemp derivatives in crude oil, distillate and isolate forms with industrial scale production to serve global cannabis demand. Its products will be produced and tested to GMP and ISO standards.

OWP utilizes their extensive knowledge & research of the cannabis plant to cultivate specific strains from around the world - with 20+ registered strains at ICA and dozens more awaiting approval. Additionally, the company works closely with its customers in creating the ingredients for their products. Customers define what cannabis molecule combination they desire and OWP grows the plant that fully complies to the request. OWP then extracts and refines into oil, distillate and isolate, according to the order requirement. Customers can define their requirements in advance on a contractual basis or purchase off-the-shelf.

Since farming in the U.S. is highly regulated and costly, OWP discovered farms in Colombia that were run by indigenous locals. By partnering with local farmers and starting an outreach program with cannabis entrepreneurs, OWP was able to triple the amount of farmland they had. Their exclusive partnerships give power to marginalized communities by including them in the process and helping them create and maintain a new fruitful local economy.

OWP recently announced the upcoming launch of the cannabis industry’s first ‘Cannabis Futures’ program at their growing operations in Colombia, which if executed properly may be a game changer for the company and industry. OWP’s program is designed to support and fuel projected global cannabis industry growth by allowing manufacturers to fix their price in advance for cannabis and hemp derived ingredients produced by OWP at space specifically allocated to each specific manufacturer at OWP’s cultivation facilities in Colombia. The commoditized approach to sourcing hemp and cannabis ingredients anticipates and recognizes the natural maturity of the legal cannabis market and offers manufacturers of consumer-packaged goods (CPG) an easy way to enter the cannabis products market with a consistent supply of ingredients and predictable pricing.

One World Pharma’s mission is to be the most reliable global provider of consistent high-quality cannabis & hemp products as ingredients at the most competitive price.

Leaves of Change

Mon, 14 Oct 2019 22:02:15 GMT

The hay is in the barn and the leaves are changing colors, hello Fall. The equity markets are nervous and there seems to be a healthy amount of fear reflected in the tape. A friend of mine who runs a hedge fund believes we are headed a lot lower due to the economy looking frail. A friend of mine who runs a bond fund is loving life and thinks rates move lower leading bond prices higher and he is seeing some healthy inflows to his fund. Per Lipper, “For the week ended 10/02/2019 ExETFs - All Equity funds report net outflows totaling -$7.031 billion, with Domestic Equity funds reporting net outflows of -$5.395 billion and Non-Domestic Equity funds reporting net outflows of -$1.636 billion...ExETFs - Emerging Markets Equity funds report net outflows of -$0.382 billion...Net inflows are reported for All Taxable Bond funds of $0.641 billion, bringing the rate of inflows for the $3.065 trillion sector to $3.135 billion/week.” That fund flow data is likely not changing while the “risk off” trade is in effect. The questions my fellow “riverboat gambler” friends are asking are: do we take a shot on volatility in the hope the market swings lower (or higher) rapidly and/or do we buy out of the money puts (or calls), far out of the money, in the hopes we see a prolonged move higher or lower. The S&P 500 is flirting with the low it set near the end of July and the Russell 2000 is back to where it was on May 28th before it went on a 10% tear for the next three months. Buy on the dip has been an ATM machine for the past 10 years. My guess is funds looking to chase alpha may take the market higher this month so that they can close their books at the end of this month and collect fat bonuses in the New Year. If those funds create an artificial bounce from here leading to some hefty short squeezes, be prepared for a rapidly moving elevator on the way down in November. As they say in this business, the market moves on an escalator up and an elevator down.

What am I doing you ask? Well, I am buying high quality dividend stocks in an industry I know will experience growth. An example is Service Corporation International (ticker: SCI). Service Corporation runs funeral homes and is the largest funeral home operator in the U.S. I am also playing growth stocks in the cannabis, biotech, resource and tech industries because I want exposure to small cap high beta stocks that may work in any market environment.

I just looked back at my records and believe this is the 150th newsletter I have published. I have been publishing my monthly newsletter for nearly 13 years and I hope you have enjoyed reading them as much as I have enjoyed writing them. I still get nervous every time I write a newsletter in that I am convinced what I will write something that is not remotely interesting or informative.

Thank you for reading!

Silver Family Sports Desk

This past weekend my oldest son had another Pick 6 and he has been lighting up his 1st and 2nd grade flag football league with his arm and legs. His younger brother has been a force of nature on defense and had an awesome run in a scrimmage we played last week. The Silver boys are listening to any and all offers from universities. Should any recruiters be reading this, I encourage you to bring some Pokémon cards to get my oldest son’s attention and bring nerf guns in order to get his younger brother’s attention.

As for their sister and younger brother, they are both in the athletics incubator for the time being. My daughter is currently in gymnastics and loves it and I plan to unleash her athletic prowess come T-Ball season in the Spring. She will likely be the youngest player in the T-Ball league but may be the fastest given she spends a considerable time running from her two menace older brothers. Yes, I will be coaching her team and cannot wait. Skipper Silver will have 3 baseball / T-Ball teams to oversee in the Spring, pray for me!

Last but not least, my two year old son has absolutely no fear as evidenced by the fact he launched his stuffed animal frogs and then himself down a fairly large slide at a park I took him to yesterday. When I say launched, I mean he dove into the slide feet first while kids 4 years old and older watched in amazement. He also decided to scale a grassy hill that some 6 year olds were climbing leading me to chase him down so he didn’t jump off the rock the older kids were jumping off. He also has a cannon for an arm, he threw my daughters toy tea cup at least three feet and accurately when throwing it at me and smiling.

October Featured Company: Emerald Health Therapeutics, Inc. (ticker: EMHTF or EMH.V (Canada)

Canada Reveals Final Legislation for Edibles

The Canadian government recently announced new regulations for the cannabis market. With this regulatory change, edibles, ingestibles and topicals will be available for Canadians to purchase in late 2019 and early 2020. This change has major implications for the cannabis market, and the new wave of growth that is anticipated to occur.

In 2018, Canadians spent over $1.6 billion on legal cannabis. By the end of 2019, the Canadian cannabis market is expected to clear $7.17 billion. This estimate includes both medical and recreational cannabis products.

A recent Deloitte study suggested the potential economic impact of legalized recreational marijuana in Canada could clear over $22 billion by 2025. The Deloitte study further indicated that the edibles market could be a $2.7-billion in size, with tinctures and capsules at $116 million and $114 million respectively.

On the heels of such large estimates, many investors and companies search for the best way to ride the “second cannabis wave” in Canada.

Though the Canadian government is giving recreational edibles the green light this month, there are a few rules that must be met.

Cannabis producers must notify Health Canada 60 days in advance of their plans to sell new products. On October 17, the department will start accepting new product applications. Government officials added, “Provincially or territorially authorized distributors and retailers will also need time to purchase and obtain the new products and make them available for sale”.

Who Stands to Benefit?

If the legislation spurs a second wave of growth as expected, the companies that will benefit are those in the best position to produce, manufacture and distribute sufficient product to capture market share. Our longstanding favorite in the space is Emerald Health Therapeutics (EMHTF).

Emerald is a vertically-integrated cannabis company with a massive 1.1 million square foot Pure Sunfarms (PSF) greenhouse in Delta, British Columbia, which is a 50%-owned joint venture with Village Farms for large-scale, low-cost, quality cannabis production. With its Q2 2019 all in production cost at 0.65$/gram, Pure Sunfarms achieved its full production run-rate of 75,000 kg of dried cannabis in its 1.1 million square foot Delta 3 greenhouse this summer. PSF also provided impressive Q2 financial results with sales sequentially increasing 125% to CAD$32 million. Another same site greenhouse of 1.1 million square feet is on its way to be converted. This retrofitting operation will benefit from the first greenhouse experience with which PSF is setting a precedent in the Canadian cannabis industry with its pace of operational scaling and low-cost production.

Emerald has secured recreational cannabis supply agreements with the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec, Prince Edward Island, Newfoundland and Labrador and the Yukon territory.

Additionally, Emerald recently launched a wholly-owned organic operation in Metro Vancouver, British Columbia, which includes two 78,000 square foot greenhouses and 12 acres of outdoor land. The company’s Québec-based, 88,000 square foot licensed indoor cannabis production and processing facility, Verdélite, recently announced it had received from Health Canada its cultivation license amendment for its complete growing area, expanding its production from 4-21 grow rooms for year-round production and a focus on high-quality, craft-style cannabis products.

Emerald has also secured 1,000 acres of hemp, which can be used to manufacture CBD products, which are in strong demand. The company plans to primarily process this material through its partnership with Factors R&D Technology, Inc (“Factors”), Canada’s largest nutritional supplement marketer and manufacturer; a relationship that gives Emerald large-scale production capacity as Factors has extraction capacity of about 1 million kilograms of biomass annually combined with softgel production capacity of up to 600M capsules per year.

However, Emerald isn’t stopping there. The company has recognized that there is a significant segment of users with a deep interest in the health benefits of the endocannabinoid system but who do not necessarily want to use cannabis products or enter cannabis stores. To capture this market segment, Emerald has introduced, through its joint venture Emerald Naturals, a cannabis-free herbal and botanical endocannabinoid-supporting health supplement, the Endo product line.

The Endo product line, developed by Emerald’s independent U.S. sister company, is already award-winning and available for purchase in U.S. stores, such as Whole Foods and Amazon.com, and was recently launched in Canada. The proprietary active ingredient, PhytoCann® Complex, in the Endo products offers the potential to be incorporated into an array of supplements, foods and beverages.

Emerald continues to strengthen its intellectual property portfolio and is well-positioned to carve out a unique role as Cannabis 2.0 opens up new opportunities for the sale of products in different delivery forms. Part of Emerald’s strategy includes its Defined Dose™ program, which aims for consistent product characteristics and dosage for inhaled and oral consumption.

In our view, Emerald is one of the few companies well-positioned to benefit from the forthcoming change to Canada’s cannabis regulations. Investors looking for a way to play the second wave of cannabis growth in Canada should take a look.

Disclosure & Disclaimer

Sylva and/or Ross Silver (the sole officer of Sylva and a Registered Investment Advisor “RIS” in the State of Oregon) has been compensated for marketing services. This compensation constitutes a conflict of interest in Sylva’s ability to remain objective in the production of this newsletter. Sylva, or Mr. Silver via his personal accounts or affiliated accounts, such as VJRA Corporation, may be actively buying or selling securities on the companies mentioned in this newsletter.

This newsletter is based upon public information available about the topics mentioned. Sylva has not independently verified such information, and in addition, Sylva has been compensated by Emerald Health Therapeutics, Inc. for digital marketing services for up to a one-year period. Statements in this newsletter that are not historical facts are “forward-looking statements” that involve risks and uncertainties. Forward-looking statements can be identified by the use of words such as “opportunities,” “trends,” “potential,” “estimates,” “may,” “will,” “could,” “should,” “anticipates,” “expects” or comparable terminology or by discussions of strategy. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by such forward-looking statements. Additional risks, uncertainties and other factors are identified under the captions “Risk Factors” and “Special Note Regarding Forward-Looking Statements” in Emerald Health Therapeutics, Inc.’s reports filed from time to time with SEDAR. Sylva and Emerald Health Therapeutics, Inc. disclaim any intention or obligation to update publicly or revise any forward-looking statements, whether as a result of new or additional information, future events or otherwise. Emerald Health Therapeutics, Inc. is solely responsible for the accuracy of that information.

Acknowledging Gravity

Thu, 19 Sep 2019 22:02:01 GMT

I have been reading a lot about innovation lately and innovation gets a lot of press. Someone discovers a cure for cancer in a petri dish or creates an antenna that can harness the power of lightning, count on articles being published and for those people to get media attention and of course investor attention. While those articles are entertaining, what is disturbing to me is that reality gets ignored. Let me give you an example.

A little over 4 years ago, I was introduced to a company that supposedly had revolutionary technology that would change the way people experienced any electrical display, think a television screen, cell phone screen, etc. The technology was licensed from a university and in the laboratory setting, where controls such as temperature, dust, humidity, etc., are perfect, this technology was incredible. The companies convinced me that leaders in display were salivating to get their hands on this technology and were lining up to sign licensing agreements. I sat with the CEO and the company’s IR person and asked if in 2016, a year out from our meeting, if $10M in revenues was feasible. The CEO responded that that level of revenues sounded ULTRA conservative. The IR person jumped in and asked if the $10M in revenues was a quarterly estimate and said he would be shocked if they were doing ONLY that amount in revenues quarterly. Both were convincing and made it sound like this was a slam dunk. Enter one of my favorite words…HOWEVER.

After this brazen display of confidence, I asked the CEO and the IR person if they had borrowed every dollar they could get their hands on and emptied their life savings in order to buy the stock. I was met with blank faces. I asked them if this was such a sure thing how could they possibly lose. The CEO then told me he had millions of stock options and as such was invested in the future of the company. The IR person told me he had stock, to which I asked if he bought it in the open market, he said no and the stock was given to him for his services. I then asked both of them if they owned homes, they both nodded. I asked if they borrowed against their homes to buy the stock given this was a rocket ship headed to the moon, again blank faces and heads shook left to right repeatedly. Well, the confidence party came to a screeching halt right there and as they say, money talks and bullsh*t walks.

Perception is always different for everyone. Despite differences in perception stay grounded or acknowledge gravity.

Silver Family Sports Desk

The flag football season has commenced and I must say I am loving life. I coach both of my older boys and our team looked deadly this past weekend. I coach 1st and 2nd grade flag football just so that we are all on the same page and coaching children that age is a lot of fun. I am running a fairly sophisticated offense for 1st and 2nd graders, 7 plays in total, but what I have found is that the more your push children (and adults) to use their brains, you will be surprised by what can be accomplished. In our past game, my oldest son took a hand off deep in our territory to the house for a touchdown and he also caught a touchdown pass deep in our territory. He also had an interception returned for a touchdown and my youngest son ran for his first ever touchdown. I am not sure who has more fun with 5x5 flag football, them playing or me coaching ☺

My soon-to-be 4-year old daughter started gymnastics and loves it and my 2 year old is an absolute beast, stay tuned on updates on the younger two as the years progress!

September Featured Company:

Each month we will feature a company in the newsletter that we believe may offer a compelling narrative:

CleanSpark, Inc. (OTC: CLSK) provides microgrid solutions to military, commercial and residential properties. This is accomplished by providing advanced energy software and control technology that enables a plug-and-play enterprise solution to modern energy challenges. Their services consist of intelligent energy monitoring and controls, microgrid design and engineering, microgrid consulting services, and turn-key microgrid implementation services.

The Company’s products and solutions are ideal for commercial, industrial, mining, cannabis, defense, campus and residential users and ranges in size from 4KW to 100MW and beyond and can deliver power at or below the current cost of utility power. The Company’s services consist of turn-key distributed energy and microgrid implementation services, distributed energy microgrid system design and engineering, project development consulting services and solar photovoltaic installation and consulting. The work is performed under fixed price bid contracts, and negotiated price contracts.

The markets in which CleanSpark is operating may offer considerable future growth and these markets are large. According to Navigant Research, for 2016, the global advanced energy market surpassed $1.4 trillion in 2016, a 7% increase compared to an updated 2015 total of $1.3 trillion. Advanced energy has grown by nearly a quarter (24%) since Navigant Research began tracking for AEE in 2011, adding $257 billion in revenue over six years, counting only data complete for the entire period. Advanced energy is almost twice the size of the global airline industry, and nearly equal to worldwide apparel revenue. According to Navigant Research, the global microgrid market, is expected to be worth more than $40B by next year alone.

CleanSpark may prove to be a disruptive force in how we access our energy. The company’s microgrid technology ultimately ensures that when power is lost on the grid, customers don’t experience outages. Their software is uniquely capable of enabling a microgrid to be designed specifically to the user's needs and can be widely implemented across commercial, industrial, military, agricultural and municipal deployment.

The Equity Risk Premium

Tue, 13 Aug 2019 22:05:28 GMT

The Equity Risk Premium refers to the excess return that investing in the stock market provides over a risk-free rate. Most investment professionals consider the 10 year, whose yield is 1.74% as of 8/9/19, to be the risk free rate. The excess return over the risk free rate compensates investors for taking on the relatively higher risk of equity investing. The size of the premium varies depending on the level of risk in a particular portfolio and also changes over time as market risk fluctuates. As a rule, high-risk investments are compensated with a higher premium. The Equity Risk Premium is one of the bedrock principles of market theory. If you want safety, buy government paper. If you want growth, buy stocks.

The relevant question is this: How much of a premium is required to entice investors away from the safety of government paper and into the risky realm of the stock market? The Equity Risk Premium has varied widely over the last 119 years, which means that timing is important. If you leave the comfort and safety of government paper and begin to dabble in risky assets like stocks, how much of a return will you demand in order to embark on that journey into the unknown?

With equity markets selling off since the start of the month many professional investors have pointed to the attractiveness of the Equity Risk Premium. I agree with them as there is no chance I would want any part of my retirement in a fixed income instrument given yields are less than the rate of inflation, currently 2%. I think investors can use the recent selloff to their advantage given how attractive the Equity Risk Premium stands today.

Clockers Corner

Not much to report on here other than there are some exciting races coming up at Saratoga and of course my favorite race of the summer, The Pacific Classic at Del Mar. Baseball continues on with its too many games to matter season and football starts next month. Most exciting to me, if I am being honest is the start of my two son’s flag football season this month. This year my oldest son is in the 2nd grade and I am having my middle son play up a year and he will play on the 1st and 2nd grade with his older brother team despite being a kindergartner. Both boys are excellent athletes and love football and I coach their team, which is what I love. I will provide more details on the flag football team and my thoughts on the roster in the newsletter next month but for now, just know I am getting my chalkboard ready!

Enjoy the remainder of the summer!

Featured Companies

CleanSpark, Inc. (CLSK) is a fast-growing, well-funded company that provides that provides energy software and control technology in the United States. Their products and services allow organizations and governmental entities to create energy efficient and cost effective micro-power grids. The company’s technology is currently being used by commercial, industrial, mining, defense, campus, and residential customers. The company also provides turnkey microgrid implementation services, micro-grid design and engineering, project development consulting, and solar photovoltaic installation and consulting. In addition, the company offers mPulse software suite, a modular platform that enables fine-grained control of a Microgrid; and microgrid value stream optimizer that provides a robust distributed energy and microgrid system modeling solution. To learn more about CleanSpark, click here.

Emerald Health Therapeutics (EMHTF) is a Health Canada Licensed Producer of medical cannabis, and the company has recently secured recreational sales licenses with several provincial governments. Emerald is vertically integrated, seed-to-sale enterprise, with a 50-50 joint venture ownership in one of the largest indoor cannabis grow operations in the world. Emerald is also positioned to become one of Canada’s leading manufacturers of premium CBD products from hemp. The company has a stellar management team, that is driving the business towards creating cannabis-based formulations for proprietary consumer and medical products. To learn more about Emerald, click here.

One World Pharma Inc. (OWPC) is a global, fully licensed large-scale producer of high-quality cannabis and hemp products for the medical and commercial markets with headquarters in the United States and offices and operations in Colombia. One World Pharma Inc. has already built its first cultivation facility in Popayan, Colombia (135 km south of Cali) with more under contract, and has been granted four licenses for the cultivation of Non-Psychoactive (Low) THC, Psychoactive (High) THC, manufacture of cannabis derivatives & seeds. One World Pharma has a cutting-edge extraction and refinement facility using the most advanced machinery in order to produce high-quality crude oils, distillates and isolates based on customer's defined requests. Its first Colombian commercial crops are expected as soon as the 4th Quarter of 2019. To learn more about One World Pharma, click here.

Pick5 Media is sponsoring a fantasy stock picking contest, with a $10,000 grand prize, and no entry fee. The next contest begins on September 9th. Entry space is limited so click here to get your spot!

Outperforming the Market in Summer

Thu, 18 Jul 2019 04:45:16 GMT

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The Boiling Frog: June 2019 Newsletter

Thu, 20 Jun 2019 04:47:06 GMT

When I study the various inputs I use for making an investment decision, human psychology is the input I put the most weight into. For example, if I hear a CEO pitch me on a story that sounds compelling, the CEO seems genuine and I believe others will want to buy the stock after hearing the CEO speak; I may buy the stock on the spot. When I heard the Beyond Meat (ticker: BYND) story I knew others would be blown away and that stock would likely work and it has…so far. With that said, sizzle must come with substance because sizzle can only last so long. Speaking of sizzle…

The boiling frog is a fable describing a frog being slowly boiled alive. The premise is that if a frog is put suddenly into boiling water, it will jump out, but if the frog is put in tepid water which is then brought to a boil slowly, it will not perceive the danger and will be cooked to death. The story is often used as a metaphor for the inability or unwillingness of people to react to or be aware of sinister threats that arise gradually rather than suddenly. Many investors tend to get comfortable when things are working and as such often lose sight of the fact they may be playing a game that they have no chance at winning. An example of that, at least how I see it, is the market today. The Fed and our President are gaming this market like no other administration I have seen in my lifetime. Global economic data is not pretty and there is no question the global economy has slowed. Add in restrictive trade practices and new barriers of entry into U.S. markets and that slowing will be exacerbated, ultimately having a profound impact on U.S, consumers and businesses. Despite these facts investors continue to “buy the dips” given that strategy has worked for the past decade so why stop right? Don’t be like the frog who doesn’t notice the water has gone from tepid to a boil and is now laying belly up in the pot!

Sports Desk

The NBA and NHL playoffs have come to a close and as such we enter the sports low period. Yes, baseball is on but there are too many baseball games and 99% of them mean nothing so we sports enthusiasts are now forced to watch things like the Little League World Series or even worse, soccer. I am just joking around but in all serious, the major professional sports that I care about seem like a lifetime away (football and basketball). I was hoping the Warriors could pull off an upset but the Raptors were just too much. As for the NHL, I was glad to see St. Louis bring home its’ first Cup! I read that a bettor in Las Vegas placed a $400 bet on the Blues to win the Stanley Cup at 250-1 odds. Whoever you are, well done!

Featured Companies

Emerald Health Therapeutics (EMHTF) is a Health Canada Licensed Producer of medical cannabis, and the company has recently secured recreational sales licenses with several provincial governments. Emerald is vertically integrated, seed-to-sale enterprise, with a 50-50 joint venture ownership in a one of the largest indoor cannabis grow operations in the world. Emerald is also positioned to become one of Canada's leading manufacturers of premium CBD products from hemp. The company has a stellar management team, that is driving the business towards creating cannabis-based formulations for proprietary consumer and medical products.

Applied Biosciences (APPB) is a diversified CBD company, focused on delivering science-driven synthetic cannabinoid therapeutics, high-quality CBD products, and state-of-the-art testing operating in three business verticals: synthetic cannabinoid-based branded pharmaceuticals; synthetic cannabinoid-based OTC pharmaceuticals; and consumer wellness, which includes scientifically based CBD and non-CBD ingredients for consumers, women’s health, sports medicine and animal health. The company recently partnered with heavyweight boxing champion, Shannon Briggs, to promote the company’s “Camp Organics” brand of CBD products for recovery and pain management. To learn more about Applied Biosciences, visit (www.appliedbiocorp.com)

Inpixon (INPX) is a technology company that helps to secure, digitize and optimize any premises with Indoor Positioning Analytics (“IPA”) for businesses and governments in the connected world. Inpixon’s IPA is based on new sensor technology that finds all accessible cellular, Wi-Fi, Bluetooth and RFID signals anonymously. Paired with a high-performance, data analytics platform, this technology delivers visibility, security and business intelligence on any commercial or government premises worldwide. The Company’s customers include shopping malls, airports, government agencies, local publications, among others. Other potential sales channels include hotels and resorts, gaming operators, healthcare facilities, and office buildings. The company recently acquired Locality Systems, a company specializing in wireless device positioning and radio frequency (RF) augmentation of video surveillance systems. The acquisition gives Inpixon a more robust product offering that will allow businesses to track and identify persons of interest using RF technology. To learn more about Inpixon, visit (www.inpixon.com)

The Making of a Great Investor: May 2019 Newsletter

Thu, 16 May 2019 04:50:02 GMT

I was attending a dinner party just after the great crash of ’08, when a friend asked me what seemed like a very simple question, “what makes someone like Buffett such a great investor?”. Reflexively I responded with the obvious answer, “he’s just smarter than everyone else”.

The second the words left my mouth, I realized not only that I was wrong, but the response must have seemed foolish to my enquirer. My friend, David, holds both an M.D. and PhD, and his doctorate happens to be from Harvard in the field of physics. I’d be willing to bet the farm David could match Warren Buffett, Ray Dalio, Bill Gross, or any other billionaire money manager point for point on an I.Q. test. He may even exceed them.

David’s response cut straight to the flaw in my thinking.

“But there are lots of bright people in the world” he said, “and they’re not all good investors. In fact, a lot of them are quite bad at it.”

Of course, that’s precisely the problem. David himself is not a billionaire nor an investing mogul. While successful, David still has to fly commercial and drive his own car, just like the rest of us.

So if raw brainpower doesn’t automatically make someone a great investor, why? And what does?

These two questions have been on my mind for years, and I’ve never been able to come up with a satisfactory answer, until I read Ray Dalio’s book, Principles. In addition to providing a number of incredible insights, the book has helped me answer the question David asked nearly a decade ago.

Being highly intelligent is a necessary component of being a successful investor, but it’s not sufficient. I’m willing to bet that the world’s greatest investors have another aspect of their personalities in common, which sets them apart from those of us with middling intelligence, and from their intellectual peers. This particular skill is the ability to see the world as it really is, and make decisions about future outcomes based on a limpid and dispassionate world view. In other words, they’re masters of reality.

So what the hell is reality anyway? Is there even such a thing? Those are also good questions, and it turns out reality is an actual thing and there are even methods for determining what it is. As Dalio points out, were there no reality, then planes wouldn’t fly and cell phones wouldn’t work. Therefore, the best way to discern reality is through scientific principles.

In physics for example, several observers can have vastly different perceptions of the same event, and yet all can be valid depending on the observer’s position relative to the event. Assume two people were standing 100 yards apart and I were between them holding a siren. If I were to run towards one of the observers, that person would experience the siren as increasing in volume, while the other observer would experience a decrease in volume, and I would experience the siren volume as unchanged.

Somehow the three different experiences of this same event are all equally valid. If a great investor were making a bet on the outcome of this experiment, would they say the siren volume increased, decreased, or stayed the same?

My hunch is that a great investor could bet on any of the three and reap the rewards. That’s because there can be multiple perspectives within reality, which would explain why so many investing philosophies work. Were reality singular in nature, then there would only be one way to benefit in life and investing and it would just be called, “The Way”. But there isn’t just one way, there are many ways. Investors like Buffett, Dalio, and Gross all have very different investment styles, but all three men win more often than they lose because their predictions about tomorrow are founded in reality, which maximizes their probability of being right. Since the odds are almost always in their favor when they make an investment, they win a lot more than they lose.

Where the rest of us tend to get into trouble is when flaws in our thinking (perhaps the result of intellectual laziness, breakdowns in our logic, or emotional-psychological filters that distort our view of the world), lead us to making decisions that would require an atypical outcome in nature in order to be proven right.

In keeping with the example above, an unsuccessful investor wouldn’t have a firm enough understanding of reality to bet on the volume increasing, decreasing or remaining static. Instead they would select a fourth option like the volume wildly fluctuating up and down. Such a result might happen on occasion but that would be outside of nature, and therefore unlikely to repeat consistently enough to result in a successful investing career.

So how do we know if we’re seeing reality clearly? According to Dalio, it’s all about understanding nature and its driving forces, particularly evolution. Nature will automatically optimize for the best outcomes by prioritizing creatures, systems, and businesses that most benefit the evolutionary process. Therefore, the people who align their interests with evolution are the most likely to be rewarded.

Like species, companies must evolve or they’ll die. Take one of Buffett’s most famous investments, Coke. The company is an American institution, yet the company and its eponymous product have changed markedly over the years. Coke’s formulation today is far different than the original (cocaine was actually one of the ingredients), and the variety of flavors and beverages offered by the company has also grown and evolved.

Imagine if Coke’s management team had held steadfastly to the original recipe and insisted that the company not sell any other food or beverage other than Coke; how might the company have fared over the decades? Probably not too well. Buffett knew Coke had a great product and an iconic brand, but he was also betting on the company’s ability to evolve.

So to answer the question I was posed all those years ago, most of the great investors possess both uncommon intelligence and a firm grip on reality. Armed with this unique skillset they’re able to make accurate assessments about the world today, so they can predict where things will likely end up tomorrow. The moral of the story is, if you want to improve your skills as an investor, begin by working on your ability grasp reality.

Hypocrisy Knows No Bounds

The Kentucky Derby two weekends ago featured the greatest hypocrisy of my lifetime. The winner of the race, who I featured as my Derby pick in the April Newsletter, was disqualified and placed 17th. The stewards (judges) that reviewed the race claimed the winner caused other horses (who had no chance of winning) to lose any shot of winning the race. Horse safety has been tossed around as a reason why the rules are what they are and also justification for the disqualification of the rightful winner of the race. If horse safety mattered then why on Earth were there nearly 20, baby 3 year old horses in the starting gate on a slippery muddy track? If horse safety matters why did Churchill Downs have the track packed to the gills resulting in enough noise to make a jet engine blush? The answer, as always, is money. I prefer entities and people give it to me dirty so I don't get dirtied, as I did in the Kentucky Derby.

Half Empty or Half Full? April 2019 Newsletter

Wed, 01 May 2019 04:57:35 GMT

The age old litmus test of asking someone if a glass filled half-way with water is half empty or half full, is a heuristic for determining someone’s predisposition to being an optimist (half full) or the pessimist (half empty). I’ve always found it interesting that this binary outcome leaves little room for the realists among us, who, when presented with the same riddle would ask, “has the water level in the glass been rising or falling over time?” To a realist, that question is the key to understanding the overall direction a given system.

If that same realist were to appraise the market today in terms of being a glass half empty or half full, how might they see things? On the one hand, the U.S./China dispute continues create drag, economic growth is slowing in the U.S. and around the world, debt levels of U.S. corporations are extremely high, and much of the U.S. stimulus enacted over the past three years has largely been absorbed into the economy; additionally, the yield curve recently inverted which is historically a reliable recession indicator. Sum it all up and experts like PIMCO peg the odds of a U.S. recession at about 33%.

Pretty ominous, right?

On the other hand, while the economy has slowed, it’s still humming along with companies posting solid earnings and projecting moderate growth ahead. The U.S./China dispute could get resolved this year, and the Fed has paused raising rates, ended quantitative tightening, and there’s speculation that their next move could be downward (which could spur another round of growth). And while PIMCO does believe the odds of a recession are 1/3, it’s lower than it was in the fourth quarter of 2018.

So maybe things are headed in the right direction and we’re in for a soft landing.

Who’s right?

Rely on Principals

I’ve just finished reading Principals by legendary fund manager Ray Dalio, and it is without question one of the most extraordinary books I’ve ever read. Ray is a big believer in addressing current situations by applying principals learned from studying similar events that occurred in the past. It’s all about studying history…

Though I’m a new devotee to the Ray Dalio school of thought, it doesn’t take a black belt in back-testing to look at some of our most recent recessionary periods (actually, the periods right before our most recent recessions) and compare them to today to see how things stack up.

A majority of the most devoted bulls will acknowledge we’re in the late stages of a bull run, which began in 2009. The question of course is, how late are we? I recently heard a very respectable fund manager say that we still have several years left to go.

It’s certainly possible. The problem is, nobody really knows when a recession will start until we’re already in it. I distinctly remember something a fund manager said to me in mid-2007, “we know this is going to end badly, but we have to keep dancing until the music stops”. Is the music going to stop? Here are a couple of charts you may find interesting courtesy of Seeking Alpha.

The market doesn’t appear to be pricing in much risk, which is historically troublesome…

Regular readers of our newsletter know that we’re fans of yield curve analysis. And while the inversion of 2 and 10 year Treasuries has been an extremely accurate recession predictor over the last 40 years, the inversion itself (which occurred earlier this month) is actually a buy signal. That’s because a recession typically doesn’t follow until 12-24 months post the inversion.

If we’re to use history as our guide, it would appear the glass is draining rather than filling, but there’s still some water left so it’s not time to panic just yet. Here’s what to watch for: if sales slow and/or gross margins compress, a lot of companies (particularly those in the mid-market) will have difficulty servicing their large debt burdens. If that happens…look out.

Derby Dreaming

Alright racing fans, it is that time of year again, Derby time! This year there seems to be one standout horse: Omaha Beach, three horses with a big shot: Improbable, Game Winner and Tacitus and three horses who may be better than I think and may win: Roadster, Vekoma and Maximum Security. My gut tells me to fear Baffert and he has three in the race but my eyes tell me Omaha Beach is the real deal. I also will be using Win Win Win and Code of Honor in anything I do because they too have impressed me. So what do we do with so many choices? The expensive answer is box them all in a na exacta and pray that one of the big numbers is on top (finishes first) followed by another big number (in second). The brave answer, is take a stand on some of these and try not to hate yourself if a horse you liked sees its number light up next to "1st place." The Derby has been very chalky the past few years and I think that may change this year as the prep races have been full of upsets. I am going to take a stand against Omaha Beach only because I think Baffert is going to target that one with his three entrants and that could open up the race for a horse like Win Win Win who could come from a stalking position and blow by them all. Should that scenario transpire, Code of Honor has to be used as well. I am backing Win Win Win, who will likely be a massive price (20-1 or higher), along with Code of Honor who will also be a big price for my 1st place horses, underneath I will put the Baffert trio along with Omaha Beach, Tacitus and Vekoma. In addition, just in case Maximum Security is some freak of nature (he won the Florida Derby with ease), I will use Maximum Security on top with all the others horses I mentioned underneath. Maximum Security may just sneak away from this field while nobody pays attention to him.

Good luck!

Never (Ever) Ignore an Outsized Squirrel: March 2019 Newsletter

Wed, 27 Mar 2019 03:57:31 GMT

In the Fall I wrote about seeing squirrels around my office that seemed outsized and how I took their large size as a sign an awful winter was coming. I was laughed at by many who read this newsletter and many called me crazy (we all know I am crazy). Why did I mention monster squirrels running around as if they had swallowed five large pizzas in a newsletter that discusses finance? The answer, animals know more than us when it comes to understanding the land and that is because their day to day is outside. Having an expert as a guide has always worked for me and in this case the experts were squirrels.

What seasonal insights was I able to ascertain from looking at the gigantic squirrels? When I see a once skinny varmint beefing up, that sure seemed like a “tell” that they knew that ugliness was coming. I went into full-fledged snow mode and prepped my home and office for winter mayhem. Much to my surprise, the majority of winter had been moderate and I assumed I had misread the shapes of the squirrel’s bodies and as such I should prepare for Spring. I was thinking about what seeds I was going to put in the soil around my house and office and then suddenly and without warning, wham, 4 feet of snow in 3 days. How about them apples Ross? While thinking about Spring I started thinking about all the things people do in the Spring and looked at Spring stocks such as athletic equipment makers, seed companies, etc. That turned out to be a waste of time as we have been in winter mode across the majority of the U.S. throughout this month despite it technically being Spring. The lesson here, never ignore an outsized squirrel, they know things that will affect your life.

On the economic front, the yield curve inverted on Friday which led to some panic selling. This whole conversion is about fluctuations in the price of Treasury bonds, with “yield curve inversion” standing as a shorthand for the prices of different kinds of bonds arranging themselves in an unusual pattern.

One way a government or company can borrow money is to sell a bond. A bond will have a face value (say, $100) and, like any loan, will pay an interest rate (say 3 percent). It will also have a maturity (say, five years). A $100 bond with a 3 percent interest rate and five-year maturity is like a $100 loan at 3 percent interest that needs to be paid back after five years. Another way of talking about it would be to say that this five-year bond yields 3 percent.

The truth, however, is that nobody really knows if this unusual configuration of bond prices (that’s what a yield curve inversion is) really means that a recession is coming. But it’s certainly not good news. And while you wait to see if economic disaster strikes, you might as well learn what the hell it is the analysts on television are talking about, I hoped my explanation helped. If not and in super simple terms, inverted yield curve bad for stocks and economy, Ross is short the Russell 2000 specifically.

The Sports Desk

I was in Vegas last week for my annual event with some fund managers and friends for the college basketball tournament. I have not seen much college basketball this year but from what I have seen from the top teams, Duke cannot shoot, Virginia struggles to score but can defend, UNC looks balanced but can struggle to score consistently and Gonzaga has played teams that would lose to my 40 and older recreation league team. The only team I felt safe backing of the #1 seeds is Virginia and back them I did to win the whole tournament. That bet looked awful at halftime of their first game where they fell behind a #16 seed yet again. Fortunately, Virginia found themselves and rolled in the second half. My home state Oregon Ducks look nasty, they could be a Final Four team and so does Florida State and Houston. I think The Ducks, Houston and Florida State are playing in the Elite Eight this weekend.

The Kentucky Derby picture is getting more clear. As it stands today the only horses I trust are Hidden Scroll, Game Winner and Code of Honor. The Florida Derby is this weekend and will tell us more but my guess is it will tell us Hidden Scroll is a freak and Code of Honor is legit. I have Hidden Scroll in a futures wager to win it all, that maiden breaking win was something else. More to come on the Derby in our newsletter next month.

Thank you for reading!

Too Much Padding Grom: February 2019 Newsletter

Sat, 02 Feb 2019 04:58:59 GMT

For those of you who didn’t grow up surfing or aren’t familiar with surfing vernacular, "Grom" is short for Grommet. A Grommet or Grom is a kid (typically high school or younger) who is learning how to surf and surfers in a lineup will routinely call young kids Groms. Groms are inexperienced and as such do not understand the ways of surfing, and older surfers give them a hard time but typically in a manner to help the Grom improve and embody what surfing represents, which is synchronization of mind, body and spirit. I was once a Grom, cutting my teeth on the point and beach breaks throughout Southern California. The older surfers and my friends taught me how to be an all-around waterman and also taught me a healthy respect for the ocean. I bring this up because conceptually the ocean and the stock market are very similar. The stock market is large, powerful and can be a thing of beauty (when you are making money). It can also be your worst nightmare just like duck diving in the middle of what seems to be a never ending set of 15 footers crashing on your head can be.

I am unaware of any generally accepted or correct term for an inexperienced investor, possibly amateur or even rube, but I am going to start calling inexperienced investors Groms and my hope is to help any Grom reading this get smarter. In a market like we are in now, which is full of uncertainty, Groms tend to spend too much time paddling. In surfing, just like investing, understanding where the wave will break and the optimal point of entry is more important than knowing the waves are coming.

When I was a kid I noticed how the older surfers spent very little time paddling and when a big set came through, they were always in the best spots and had the best rides. I eventually grew wise enough to know I should tail the surfers I respected, and try to see what they saw when they positioned themselves for a massive set rolling through. The best surfers, just like the best investors, almost always find the sweet spots and best takeoff spots or entry points into an investment.

While the success of ETF’s has led many to believe investing is easy, that is the equivalent to a Grom thinking every day is going to be offshore winds and A frames at 6-8 feet. Wrong! Nothing works like that and the Groms who continue to think like that will not evolve and move on to something else they can succeed in. To be a successful investor or surfer you must be patient and when the wave you want comes, be in position to get the best ride possible and don’t chicken out. You can’t feel the wind on your face as you fly down the face of a wave if you don’t paddle into the wave. Just don’t paddle too much or else you might miss the wave or not get the ride you want!

As for how I am investing in this market, I am on the periphery as I don't trust the middle. What does that mean? I am interested in investing in highly speculative boom or busters as well as a publicly traded collection of funeral homes. I think the DJIA is going sideways given there is no solid consensus on whether this market is moving higher or lower. Given that is my belief, I want to have a high dividend paying safe spot if the market craters. I also want a high flier that will run if the binary turns out positive. Biotech, Cannabis, E&P and Tech are the flier industries I am watching.

The Sylva Sports Desk

This weekend features the professional football championship with the mighty Patriots taking on the up and coming Rams. The whole world has already crowned the Patriots as the champs due to their quarterback and coach being past champions. My friends in the gaming industry believe the Rams have a big chance to win this weekend and so do I. Per ESPN.com, the Rams are currently a 2.5 point underdog which makes no sense to me considering I firmly believe the Rams are the better team. Go Rams!

On the horse racing front, the Pegasus World Cup was profitable for your scribe. I was hoping City of Light would beat Accelerate and a big price would come in second and we got just that, woo hoo! That same day at Gulfstream a freak of nature 3 year old was unleashed named Hidden Scroll. Hidden Scroll broke his maiden with ease on Pegasus Day at odds of 8-1 and earned a massive speed figure in doing so while running on his wrong lead in the lane until about 200 feet from the finish line. Hidden Scroll will be 1-9 in his next race and if he runs back to his maiden race, look out! At the moment my WAAAAY too early Derby top 5 are Improbable (gorgeous stride), Game Winner (bully), Hidden Scroll (freak), Dessman (is he a sprinter?) and Coliseum (tossing last race). Yes, Bob Baffert is once again loaded heading into the Derby.

Have a great month and thank you for reading!

Seeking Answers from a Professional: January 2019 Newsletter

Tue, 15 Jan 2019 05:00:56 GMT

I am not sure if you feel any different post the holiday season but those of us considered “professionals” of finance all probably feel like we were shoved in a washing machine for the past 2 months. What was that? Well, “that” is what happens when the adults leave the room and the children are allowed to play with the big toys. For example, when funds went “risk off” in October, those who were chasing alpha (performance) received an early holiday present, namely hedge funds. Hedge funds have been getting their teeth handed to them over the past decade because anyone with a discount brokerage account could buy a handful of stocks or ETF’s and beat “the smart money” aka hedge fund managers. In late October hedge fund managers noticed that the major institutional funds were moving to “risk off” in order for these funds to collect their annual fees AND annual performance bonuses. The hedge funds pounced as retail investors only stood in between them and their own performance bonuses and set off a quite the volatile storm. In the process of that storm some large funds who went from gains to losses in or had minimal gains decided to aggressively tax loss sell. With the aggressive selling and hedge funds attacking on the short side, the perfect downward storm was created.

Is the weakness we experienced in the past two months a sign of things to come? My belief short term, no. I feel like a perfect setup was in place for hedge funds to take advantage and they obviously took advantage. Now that pension funds, stock buybacks and other large buyers are coming into equities markets, I believe equities will move higher in the near term. As we get closer to summer, I think equities may get a little bit choppy due to the employment market weakening and the housing market being very weak. But I am of course guessing as is anyone making a forecast.

On a separate note, with the 10 year treasury dropping below 3% mortgage bonds, (for sale) have been difficult to come across and that is leading to some excess demand (to buy bonds) in the bond market. This increase in demand may lead to yields moving even lower which is another reason I remain bullish in the near term. Remember, prices and yields are inversely correlated.

Lastly, I think 2019 is going to be a strong year for biotech and congrats to those of you who also had LOXO. I bought LOXO at $180, sold at $140 about a month ago and hated myself for doing so. After watching LOXO then go below $130, I bought some June $140 calls (option to buy stock at $140) and then Monday found out they were getting bought for $235/share. Hello!!! I also think tech will be strong in 2019 again and of course cannabis. Be sure to take a look at our mock portfolio of companies we have conviction in located on the homepage of our website. That portfolio is already up 80%+ this year.

The Sports Desk

The college football National Championship game was an odd duck. I have no idea where the Alabama team I saw in October and November went, but that team vanished. Alabama was so incredibly un-Alabama in that game that I had to move to a different television to make sure I wasn’t accidentally watching an arena league game. Many professionals in the sports prognostication industry told me Clemson was the right side (before the game) but I didn’t agree. They turned out to be right and Clemson showed me that their games against South Carolina and Texas A&M were not accurate measures of ability. Congrats to Clemson and Bama needs to rediscover itself after that debacle of a showing.

We are 5 months away from the Derby and there are some horses who have caught my eye, namely Improbable and Nolo Contesto but we have a ways to go until we can separate the may versus will not. I saw Improbable run at Churchill when I was there for the Breeders Cup and despite his diminutive stature; the horse looked like it was running downhill in the stretch. I am going to try and lock in 12-1 on that one for a Derby future bet this weekend.

The Mother of All Short Squeezes? December 2018 Newsletter

Wed, 19 Dec 2018 05:05:51 GMT

As we speculated in our November Newsletter, panic has gained momentum and massive selling has ensued. The bond market is responsible for much of this carnage and things aren’t looking bright. According to the Financial Times, not a single company has borrowed money through the $1.2 trillion US high-yield corporate bond market this month. If that freeze continues until the end of the year, it would be the first month since November 2008 that not a single high-yield bond priced in the market, according to data providers Informa and Dealogic. That is some statistic, and while the bond market won’t remain frozen forever, it sure explains the velocity of the selling that has taken place since November. Guy LeBas, a strategist at Janney Montgomery Scott stated, “What we’re seeing now is pretty typical for end-of-credit-cycle behavior. A prolonged period of low interest rates since the financial crisis a decade ago has seen companies binge on cheap debt. However, as financial conditions have tightened, the high level of corporate leverage has raised widespread concern among regulators, analysts and investors.” The junk bond freeze and loan indigestion has remained confined to lower-rated issuers. Should we see a spread to the high-grade sector, where the bulk of issuance is to fund buybacks and M&A, things get ugly but we have a ways to go before ugly ensues.

A great article I found in Zero Hedge discusses a potential black swan event which is the Fed not raising interest rates on Wednesday. Basically, the market (and everyone in the free world for that matter) is anticipating another rate hike by the Fed tomorrow.

To us, that’s a great opportunity to go long. Why? Because the risk/reward profile is extremely attractive. The Fed raising rates is already baked into forecasts, so if everything goes as planned then the market shouldn’t react too violently. However if the unexpected occurs, we’re set up for the mother of all short squeezes. So we’re long the market heading into tomorrow.

Beyond that, however, it becomes problematic. The yiled curve in the US and Europe have already inverted meaning credit is tightening and a recessing is likely on the way within the next 9-16 months.

Last month I had lunch with a friend of mine who’s an analyst, and he summed it up like this, “we’re in a car going 120mph, which is really, really fast. But a year ago we were going 170, so we’ve slowed down a lot.” This sentiment was echoed by a recent op-ed in the Wall Street Journal authored by Stanley Druckenmiller and Kevin Warsh, who warned that, "no ocean is large enough to insulate the US economy" over the long term. As the world economy continues to cool, the US will have to follow suit.

The bottom line is, if Fed Chair Powell pauses rate hikes on Wednesday, the mother of all short squeezes may happen.

The Sports Desk

I am going to stick to bullet points for the sake of brevity:

The NFL needs to shorten their season. Too many marquis players are getting hurt and as such the quality of the game erodes. No preseason, 9 regular season games and then playoffs.
I have no idea how Georgia lost to Alabama
I think Bama is getting way too much respect against Oklahoma, a 14 point favorite???
The NBA deemed it wise to televise Phoenix (worst team in the NBA) versus Dallas last week and then redeemed itself for that decision when Phoenix “somehow” beat a playoff team in Dallas.
My oldest son’s youth basketball team is finally hitting its stride; the kids have learned that they must dribble in order to advance the basketball on the court. (1st graders)
My middle son’s youth basketball team could be confused as a rugby team. No easy baskets allowed by this squad. (Kindergartners)

Have a wonderful holiday season and thank you for reading!

Layoffs Are Coming, I Said, Layoffs Are Coming: November 2018 Newsletter

Thu, 22 Nov 2018 05:07:50 GMT

In the immortal words of Simon & Garfunkel, “Hello darkness, my old friend, I've come to talk with you again…” Oh yes sports fans and animal lovers, the up has turned to down and the down has come on fast and furious. What seemed like a head fake in equities in October has turned into what I believe is a real downturn and loss of confidence here in November and beyond. As Biggie once said, “Things Done Changed.” What is happening to stocks?

The reason equities aka stocks are selling off is due to a downturn in the housing market (see any housing stock chart from the past 30 days); both new starts and sales have fallen. Exports have fallen and imports have risen, apparently because of worsening terms of trade, most likely due to the strong dollar. Most recently, manufacturers have drawn down inventories, and there is a fall in orders and shipments for durable goods. There are no dramatic drops, but it all adds up to a gradual economic slowdown.

Going back to trade for a second, the trade tax (not a war, just another tax for U.S. consumers) with China is impacting the U.S. in a couple of ways as I see it:

The trade “tax” has raised input prices for American businesses, increasing their operational costs and has put pressure on profit margins (we are seeing this with retailers). This is likely to feed through into weaker wage and employment growth, leading to poorer retail sales and declining economic growth. It also will lead to layoffs and unemployment rising.

Looking into the future, I assume the trade “tax” will raise headline CPI inflation. How much inflation will rise depends on the extent to which producers are able and willing to absorb higher costs rather than passing them on to customers. Initially producers will absorb costs but eventually they will be passed along to consumers are a time when demand is tightening, not a recipe for success. The Fed may respond to rising cost-push inflation by increasing the pace of interest rate rises. This will dampen consumer demand at a time when it was already under pressure because of the wage and employment effects of the tax. Fed interest rate policy has previously accelerated consumer demand slumps, most recently in 2006-7, when the Fed continued to raise interest rates despite rising unemployment, falling house prices and weakening consumer demand. Sounds like what we are about to walk into tight?

I am hopeful the Fed will be smart, but they are way too backward looking when it comes to data. Also, Fed Chair Powell is in a pissing contest with President Trump and I am sure he wants to flex his “independent” muscle to spite President Trump who has been telling Chairman Powell how to do his job.

What does this mean? It means the memory of the stock market 10 years ago is still a fresh memory and as such people are fleeing to cash and defensive names. If you want to stay “safe” in equities, getting into consumer staples might look very smart 3 months from now. For those of us who are looking to hit the ball out of the infield aka looking for outsized returns, I am hopeful stupidity and panic selling will ensue over the next month or two and provide some excellent buying opportunities once the dust settles. I am guessing we will see a DJIA down 1,000 point day before the end of the year given a little bit of selling can really trigger these program based algos to the downside viciously. I will be buying puts on the Russell 2000 and I have some names I will be adding to our portfolio on the website over the coming months that I hope will provide alpha. We will see how this shakes out and see if I can keep my Ross-trodomous title for calling equities correctly.

Being Thankful

In the past I have viewed Thanksgiving as a day to watch football and eat turkey and saying a few thank you’s just because I felt that was appropriate. With age comes maturity and with this new found maturity I appreciate life much more and am very thankful for my life and the people in my life that are family and friends. Last week fires burned through Malibu, where I grew up and nearly destroyed my parents’ home as well as my Godparents’ home. They also took the homes of many people I grew up with and the devastation these fires caused is beyond comprehension. Sylva will be making a donation to the rebuilding effort in Malibu and should; it is my duty to help the community that helped me grow up. Community is the people in it and the people embracing it don’t look for someone else to lift if you won’t yourself.

Happy Thanksgiving!

Company Spotlight

On October 17th, Cannabis became Federally legal in Canada, which was a watershed event for the cannabis industry. Our favorite pick in the Canadian market is still Emerald Health Therapeutics (EMHTF). Emerald is a Health Canada Licensed Producer of medical cannabis, and the company has recently secured recreational sales licenses with several provincial governments. Emerald is vertically integrated, seed-to-sale enterprise, with a 50-50 joint venture ownership in a one of the largest indoor cannabis grow operations in the world. The company has a stellar management team, that is driving the business towards creating cannabis-based formulations for proprietary consumer and medical products. You can read our latest article on Emerald here.

Life as a Jackrabbit: October 2018 Newsletter

Sat, 13 Oct 2018 04:10:19 GMT

Being a professional at anything requires attention to detail, along with many other qualities, and detail is something I pride myself on. In my seemingly never-ending travels with Greg (the Yin of Sylva), I always ensure I take time to observe, listen and think in whatever locale we may be visiting. Yes, thinking assumes I do in fact have a brain, a topic that has been fiercely debated among globally recognized scholars per industry “sources”. I love how “sources” has become a source. While in Vancouver, BC last week I was walking back to my hotel and came across a couple of jack rabbits and I took the time to study their tendencies and behavior, while others walked by me likely thinking I was insane (I am). My observations were as follows:

1) they were courageous and exhibit a fearlessness that has to be respected,

2) they had incredible command of their senses, literally masterful command (try to sneak up on one of them and touch an ear, not happening, I tried),

3) they looked like they were eating fast but they were actually eating slowly, this may be due to their size limitations, namely the size of their mouth and hands, and lastly,

4) they were smarter than I thought they were.

In my line of work I am required to evaluate valuations, human psychology and assortment of statistics at warp speed in order to maximize my profit. This requires many of the same characteristics that I observed with the jackrabbits. Last month I decided to make an outsized investment in a company/stock named Vital Therapies (ticker: VTL). I bought Vital Therapies around $5 and watched it run to over $9 in the subsequent months. Some very savvy short investors thought Vital was a gigantic lie and shorted the stock in a major way. On the other side of that coin some very smart and well respected scientists with multi-billion successes and uber wealthy people believed Vital was about to launch a highly disruptive therapeutic option. Many of these short investors told me to steer clear of Vital as they wanted to protect me and I assumed this was self-serving/private agenda talk and I was wrong (thanks for looking out for me to those who did). I sided with the scientists and to be honest I don’t regret making the decision I did because it was a decision that was well thought out. This decision ultimately proved to be the wrong and that decision and cost me about 5 years of savings. Vital trades around $0.30 today, a 90% loss for your friend scribing this piece.

As I sat there on the bench in Vancouver, BC watching these jackrabbits I started to laugh as I realized I was one of them and they were me. A homeless person wandered up to me, upon seeing me laughing to myself, because he thought I had some powerful drink, I did not unfortunately for both of us. After the homeless person interaction one of the jackrabbits seemed to spot something it wanted on the other side of the street, and made a mad dash across four lanes of road. I watched in horror as this little creature darted across the road with zero trepidation, and somehow it made it to the other side unscathed. What a brave jackrabbit and what courage. The jackrabbit found another meal and hammered away at that morsel for the next 10 minutes as I sat there watching. The lesson was clear; if you’re going to risk everything, make sure the meal is worth it because losing is really gonna to hurt.

The What Have You’ s

The college and pro football season is in full swing. College football will provide any drama this year (I hope I am jinxing myself) given Alabama has the best team in the country by far. The only game that matters at this point is the SEC championship game where Georgia and Alabama will meet to decide who will be the National Champion. I am guessing Ohio State, Clemson and Notre Dame round out the top 4 with an angry one loss Georgia team getting to watch the games that matter come January.

Pro football is painful to watch because the days of running the ball and playing solid defense are over. I realize people want to see high scoring games and QBs throw the ball all over the field but that is like watching basketball teams shoot a bunch of three’s instead of make layups or dunks. Professional football should give serious consideration to ditching the helmets and pads and just go to flag football instead. I am completely serious. Given all the injury issues related to football, the rules have changed but these rules will not protect anyone from injuries and they are making the game unwatchable given penalty after penalty gets called. Watching a QB who throws a pass that is not caught 20 times a game is awful.

On a positive note, the Breeders Cup is coming up in a few weeks in Louisville and both Greg and I will be there. I am entered in the Breeders Cup Betting Challenge again this year and will compete for a $1M+ 1st prize against the best thoroughbred horse handicappers in the world. My plan is to either take big shots on horses I love to win or take small shots on horses that are big prices that have a chance and pray two or more of them win. It seems like every year some big longshot shows up to win a race and some lucky contestant singled that one for the win.

Company Spotlight

Cannabis will become federally legal in Canada on October 17th, and we really like Emerald Health Therapeutics (EMHTF) in the Canadian cannabis market. Emerald is a Health Canada Licensed Producer of medical cannabis, and the company has recently secured recreational sales licenses with several provincial governments. Emerald is vertically integrated, seed-to-sale enterprise, with a 50-50 joint venture ownership in a one of the largest indoor cannabis grow operations in the world. The company has a stellar management team, that is driving the business towards creating cannabis-based formulations for proprietary consumer and medical products. You can read our latest article on Emerald here.

The Public & Private Pension Crisis – September 2018 Newsletter

Wed, 12 Sep 2018 04:12:14 GMT

I was recently speaking with a retired school teacher who is very concerned about her pension evaporating. I thought this was just conversation fodder but she was dead serious and I understand why as a result of looking at how underfunded pensions are in each state. What is puzzling to me is that Connecticut ranks highest in per capita income yet they have the most underfunded pension obligation. How is that possible?

In the U.S. alone, federal, state, and local governments, pensions are about $7 TRILLIONshort of the funding they need to pay out all the benefits they’ve promised. That doesn’t include another $49 TRILLIONin unfunded Social Security obligations, yikes! America’s private pensions are in bad shape as well; around 1,400 corporate pensions are a combined $553 billion in the hole. 25% of those funds are expected to fail or be bankrupt in the next decade. In 2015, the total worldwide gap in pension funding was $70 TRILLIONaccording to the World Economic Forum (“WEC”). That is larger than the twenty largest economies in the world combined. The WEC stated that the worldwide pension shortfall is on track to reach $400 trillion by 2050. So why am I mentioning this?

If public and private pension Ponzi schemes plans see funding deteriorate along with equity prices dropping, that means a considerable drop off in global equity market participants. In addition, pension plans will have to play catch up to make future pension payables due. If the younger workers are not funding their public or private Ponzi schemes pension obligations then pension participants expecting funds have a serious problem and that is a serious problem for all equity market participants that I am sure most people are not thinking about. I half-jokingly used strikethrough font when referencing public and private pensions because they really are Ponzi schemeswhen you think about them. I am sure someone will send me an email backing pensions, I agree with the concept of pensions, just not pooled pensions run by professional money losers.

In times of prosperity it easy to get caught up in…prosperity. I tend to be a doomsday prepper when it comes to equity markets and as such always want to have a plan when things get ugly. “In the land of the blind, the one eyed man is king” - Desiderius Erasmus's Adagia (1500). I don’t mean to sound like an alarmist but I think ugly is coming given the contentious domestic political environment, the possibility economic contraction may be on the horizon due to interest rate hikes, global trade is slowingand lastly because the darlings of Wall Street are starting to capitulate (see TSLA, NFLX, FB, etc.). The first sign of a fatigued market in my experience is when the darlings go to the doghouse and that seems to be happening now.

Don’t put lipstick on any pigs!

Football Returns & Cannabis Runs

For those in the business of approximating the margin of victory by one team versus another, the long wait for football is over and let the approximating begin! Sports’ gambling is of course now legal in certain states and more states are likely to follow suit because money talks, just look at what is happening with cannabis where 8 states and D.C. have gone recreationally legal and a total of 31 states allow for some form of cannabis legally. Pretty cool! Speaking of pretty cool how about the run Emerald Health (EMH.V) has had in the past 30 days, a 100%+ gain. We mentioned Emerald Healtha couple of months ago, and visited their grow in Vancouver, and we remain excited about the company’s prospects.

Potential September Catalysts (we hope)

Two companies we have written on and follow are reporting data this month Vital Therapies, ticker: VTL, (Phase 3 data) and Atossa Genetics, ticker: ATOS, (Prelim Phase 1 Endoxifen). Vital is one of the most heavily shorted stocks around when you measure short interest versus float. I have a lot invested in Vital Therapies and if this data readout is poor I will not be a happy camper but I am VERY optimistic.

As for Atossa, their preliminary results from their Phase 1 study of topical Endoxifen in men due by month end could wake the stock up as investors always love data. We have published videos on Atossa as well as written an article recently and Atossa may provide a solution for eradicating and treating breast cancer.

We eagerly await data from both companies!

Paranoia Sets In: August 2018 Newsletter

Thu, 02 Aug 2018 04:16:00 GMT

My job is to question any all things finance related given the term “investment opportunity” is typically a synonym for “lie”. With that thought in mind, when I look at any news outlet it seems every business could not be doing any better, the economy is on a tear and the stocks I am invested in are working well, yet I am skeptical. Why? Why am I skeptical when the masses are rejoicing and drinking from the punch bowl known as prosperity and equites I have invested in bask in 52 week highs? Well, paranoia was the first thing that came to my mind, which I questioned, so I decided to look up the definition of paranoia and found: Paranoia - a mental condition characterized by delusions of persecution, unwarranted jealousy, or exaggerated self-importance, typically elaborated into an organized system. It may be an aspect of chronic personality disorder, of drug abuse, or of a serious condition such as schizophrenia in which the person loses touch with reality.

Definitions of words, wherein other words are used to describe a word, are the reason why I love the English language. Who needs a therapist when you can turn to a dictionary and learn you are insane and that the thought you are evaluating really means you are delusional, jealous, have a personality disorder, are a drug addict and schizoid. Sorry, back to the task at hand, explaining the what and why of equities…

The growth over value trades seems to be finished. On Friday, in a prescient note observing the factor, style and sector rotations in the market, Nomura's head of x-asset strategy, Charlie McElligott explained why the most important trade of the past decade - growth over value - is now reversing. One day later, as moves he pointed out last week accelerate, McElligott has published a follow up piece, in which he warns that the value/growth rotation is accelerating, while hedge funds and other members of the buy side are getting crushed, something Morgan Stanley touched upon .

McElligott explains:

Another day, another powerful rebalancing OUT of “Growth” (FAANG, Tech / Cons Disc) and INTO “Value” (Cyclicals / Resources)—thus disrupting the performance of “Momentum” strategies, broad “consensual positioning” across Equities funds (HF L/S model) and spurring speculation of “quant fund unwinds” (Momentum Sector-Neutral). This means momentum stocks like FB are not working anymore and stocks like CL are working and money is going to CL from FB.

However, it’s not just a one week phenomenon: “Cash / Assets” factor (-3.4% today) is the factor category poster-child of “Growth over Value”—and which from the low in U.S. rates in the Summer 2016 through March 2018 was +63.5% as a “market-neutral” strategy; however, since March 9th 2018, the factor is -8.5%. This means Consumer Staple stocks like CL are performing better than FB since March 2018.

Crowded “long Growth” (and “Momentum”) positioning is “tipping over” with 1) the negative “micro” earnings catalysts of last week sapping sentiment vs high expectations / “loaded” positioning, in addition to the “Value” macro drivers I’ve spoken about as well: 2) the current tactical steepening of the UST yield curve via BoJ “tweak” potential 3) the more-gradual tightening of US Financial Conditions and 4) Chinese outright easing / stimulus ‘pivot’ powering a potential Commodities / Cyclicals recovery (through infrastructure / fixed-asset investment). This means real fear of a downturn is creeping into fund managers heads and they are rotating out of growth and momentum stocks into defense stocks.

This overall “knock-on” is a “mean-reversion” across the factors, sectors and themes, driving broad “gross-down” / “net- down” flows throughout the Equities universe. This means the days of money chasing momentum stocks like FB and NFLX seem over.

For those of you trying to make sense of what you just read, the fund managers that have playing growth this year are now losing (a lot) and rotating into defensive names. It may seem odd that after a four handle print on GDP that fund managers are rotating out of growth and into defensive stocks but what fund managers are essentially saying is that the GDP print last week was fluff (agreed) and the search for safety is on. This may be the first sign that the near decade long rally in equities is over, take notice.

Another gem I discovered last week is a MASSIVE bet on interest rate volatility spiking. That bet comes in the form of an unnamed multi-billion dollar fund (guessing PIMCO) selling rate volatility puts (betting on volatility increasing) in a way that has friends of mine who sit on trading desks punching their screens thinking they are observing faulty data. The fund making this bet has done this to the point where they are short MILLIONS of put units in long-dated options. Is this why rate volatility has collapsed to near record levels? My guess is yes and for those of you not following, a massive fund is making a monster bet that interest rate volatility is going up. Should this happen, equities are likely heading lower given interest rates will rise leading to higher borrowing costs. The 10 year treasury breaking through the three handle may set this trade in motion…my popcorn is ready!

Watch yourselves out there, the tape looks ugly.

The Characters of Horse Racing

I grew up attending thoroughbred horse races and as a result the track became almost a second home for me. While many of my friends who were also 8 years old attended church or temple on Sunday’s, I was in a car racing down the 405 freeway at 90 mph to get the track so that we did not miss the Daily Double. The tracks I grew up with were Hollywood Park, Santa Anita, Los Alamitos and Del Mar. At some point I want to write a book about my experiences at these tracks because they are some of the funniest (and scariest) experiences of my life. Thoroughbred race tracks are a microcosm of society, in the grandstands are people who have likely been face first on the hood of a police car, the clubhouse is the suburbia crowd and the Turf Club is the white linen table crowd.

One afternoon, I was with my brother at our usual spot in the grandstands at Hollywood Park and we were standing next to a table of geniuses led by a boisterous man named Ray. Ray was amazing, he picked the winner of every race and not only picked the winner of every race but the exact order of finish for each race, quite a remarkable feat. My brother and I were amazed by Ray. “How many times I need to tell you fools? Four, eight, two!” Another favorite was, “Did I not say the 5 was going to eat? Did I not say nobody can run with the 5? Maaaaannn, you guys need to start paying attention.”

One of Ray’s friends pipped up and told Ray to sit down and shut his mouth because “anyone can pick a winner AFTER a race is run.” Ray didn’t listen and after every race kept telling everyone he picked the winner again. My brother and I could not stop laughing and Ray’s friend pointed out to Ray “It ain’t just us laughing Ray, these two kids laughing at you too fool!” These quotes are of course the PG-13 version of what was really said.

This weekend at Saratoga older horses will run in the Whitney Stakes and I like Mind Your Biscuits to win.

I will share another story from the track next month and after including enough of these stories, I can cobble together a book. Next month I will share the story of how I learned how to use a switch blade at the track and also what it was like witnessing my first armed robbery.

Coach John Wooden and the Quick Fix Paradox: July 2018 Newsletter

Thu, 12 Jul 2018 04:17:42 GMT

I seems like every day technology gets faster and expectations are higher and results expected sooner. My Dad would always tell be to, “be quick but not in a hurry”, which is a famous John Wooden quote that I never truly understood until yesterday. The world of Wall Street is generalized and publicly branded as pure unadulterated frenzy based on media accounts. Stocks go up, they go down, companies have good news and then bad news; fortunes are made and lost every day. Many seem to think this world is a casino open 24/7 filled with degenerate gamblers all looking for a quick fix. “Many” are not wrong but “many” are also not right and more than a surface level analysis is required.

Wall Street is often perceived as a collection of brilliant, fast talking, masters of industry, who exist in an isolated world. They cannot be seen or touched. Wall Street is portrayed as an elite club, where the members have unlimited access to money and power, and speak in a foreign language. “Ross, you still selling calls on Santa Claus or did you get margined out, lol?” The media loves to glorify Wall Street with photos of high end suits, wads of cash and a wild party scene. While that depiction may be accurate for some, the vast majority of Wall Street professionals live a very different reality.

The real Wall Street is a world full of professionals immersed in the daily ritual of self-doubt, anxiety, fear, and occasionally jubilation. There is no shortcut to wealth; wealth comes from waiting and hopefully being invested in the right company at the right time. The financial professionals I know are all risk takers but take risk in a measured way so as not to destroy themselves or their clients. In this business there are no second chances, one blemish and the fat lady is singing.

So what the heck is my point? My point is, when it comes to investing, be quick but not in a hurry. Take the time to do your diligence so that you get into an investment at a good price at the right time. Don’t blindly follow the pack or chase the returns because you are in a hurry to get rich and you assume the pack knows where it is going. It rarely does. The pack almost always gets lost and loses; there is no quick fix in this game (unless you joined the pack and owned FANG stocks for the past 5 years, which I have been dead wrong about for the record). J

To put it another way, never be afraid to miss out on a good investment. There will be others. After all, Warren Buffett passed on an opportunity to invest in Microsoft early on, and I’m pretty sure he ended up ok. So take your time, do your homework, and stay patient.

Devaluing the Yuan

A number of people have asked me my thoughts on the tariffs President Trump has imposed on China and how they will impact the stock market. First and foremost, take a look at aluminum and steel stocks, both of which have performed well in the past year. The tariff has helped companies in steel and aluminum realize increases in their share price but China is likely adding coal to their list of tariffs which will effectively halt U.S. coal exports and may negatively impact steel and aluminum. The tariffs as a whole in my opinion are not going to have the impact I think people will expect, they may be worse. While I realize this is a bit of an extreme view, I think China will continue devaluing their currency and while devaluing is the opposite of what China has been preaching, that is what I am guessing they will continue to do because it may work. By devaluing their currency China will play the same currency game almost all other major nations have played over the past 9 years which is make money as cheap as possible relative to other currencies. Yes I realize this is currency manipulation 101 and yes the Chinese will play right into President Trump’s rhetoric that they are currency manipulators but, the tactic may work. I understand that China devalued the yuan in 2015 and it set off a global firestorm but the backdrop then is very different now given large tariffs HAVE been levied. I realize yuan devaluation seems like an extreme in Western journalism, but China is not concerned with anyone not named China, especially in an “America First” environment. China’s debt will grow larger if they devalue their currency, but China’s $4.3 trillion (USD) debt, which represents approximately 41% of the country’s GDP, has hardly had any effect on corporate growth in China. Just ask anyone who’s tried to short Chinese stocks. I am very concerned about yuan devaluation and the chart of USD/yuan so far this year makes me very nervous because if China goes into a tailspin, we will too. Maybe it is a good time to get short China?

Cannabis In Canada

Recently the Canadian Senate approved the Cannabis Act, which was the final legislative hurdle to fully legalizing Cannabis in the country. Canada is the very first “wealthy” nation to fully legalize Cannabis which means the rest of the world will be watching very closely to see how things develop. Because the legislation was widely expected to pass, Canadian-based cannabis companies like Aurora and Canopy had tremendous run-ups in their valuations. In our view, those stocks are very fairly priced, so we went looking for an undiscovered gem, that the market hasn’t noticed…yet.

We found a gem. Actually, an emerald to be more exact. Emerald Health Therapeutics (EMHTF) has a very interesting story. The company has nearly 4 million square feet of greenhouse grow facility at its disposal, which – if utilized – would make them the largest cannabis greenhouse producer in the world. The company also had plenty of cash on their balance sheet as of their last filing (roughly $74 million CAD as of May), and management resumes are stellar. In other words, investors can buy a very attractive cannabis company at a fraction of the price of its competitors. It’s worth a look for those of our readers looking to gain exposure to the Canadian cannabis market.

The Pure Genius Behind Selling Clothes & Dance Moves…In A Video Game

I was speaking with a friend who runs a fund yesterday and he told me that the game Fortnite generated over $300M in revenue in May. When I read stories about people using real money to purchase dance moves and clothes for a video game character, I wonder if we are part of the same species. Hopefully I evolve.

The Financial Obesity Epidemic, Credit Card Debt, The Herbalife Lesson & Tesla Debate - Sylva June 2018 Newsletter

Wed, 06 Jun 2018 04:20:26 GMT

Boom time is here, right?!?! To the city folk reading this, when you walk down the street you likely are seeing brand new foreign sedans, SUV’s with all the bells and whistles, rideshare drivers by the thousands, and "old" rideshare technology (taxis). For those of us in the country, like your author scribing this newsletter, all I see is brand new pickup trucks with customized everything and new homes going up faster than people can swipe their credit card. That can only mean one thing; financial obesity is back. Here in Bend, located in the center of the great State of Oregon, I can’t drive more than a quarter mile without seeing some brand new customized pickup truck with a modified exhaust system, custom wheels and monster tires. Oh yes friends, the good times are here for all based on aesthetics, unless this is just a big game of dress up.

Back in 2009, Bend was hit hard by the recession and while the large cities began to recover in 2011/2012, small cities like the one I live in (population 120,000) did not feel any effects of a recovery until 2017. It seems everyone is feeling the need to upgrade their lifestyle and boy are they ever, and fast. Home prices here are up nearly double from 2009 lows, new restaurants that serve fusion (is that food?) have arrived, new hotels are popping up like acne on a teenager and tourism couldn’t be hotter. I mention all of this because I have asked others in cities both large and small if they too are seeing the signs of financial obesity, which typically ends in financial ruin lest we forget, and oh yes, the epidemic is in full swing. That’s great Ross but what is the point?

The point is that credit card debt is at an ALL TIME high. The average American has a credit card balance of $6,375, up nearly 3 percent from last year, according to Experian. Total credit card debt has reached its highest point ever, surpassing $1 trillion in 2017, according to a separate report by the Federal Reserve. The swipe and pay later mentality is going to get people into a lot of trouble especially with the Fed planning on additional interest rate hikes this year and over the next 2-3 years. While the good times are seemingly rolling, professional investors lay and wait. They are waiting for the person who just paid $70,000 for their new pickup truck to falter so they can scoop that truck up for $15,000 six months from now, they are waiting for someone to buy a home they cannot afford and then scoop that home up. Professional investors prey upon the mindless obesity that takes hold of people because humans are innately wired or trained to think positively and believe in dreams, not reality, and that more is better and more equates to greater self-worth. Be careful and let us not forget how awful the country was economically just 10 years ago. While capitalism is great, it is also predatory, don’t be the prey!

Warren Buffett famously said, “if you don’t know who the rube is at the table, it’s you.” When financial obesity is in full effect, very smart people can do some very foolish things, all in the name of chasing returns. In effect, their greed gets the better of them and they fall prey to those patiently waiting for an obese investor trying to cross the proverbial desert without water.

Ackman v Icahn - The Herbalife Lesson

By far, the greatest predator-prey sequence I have seen in my lifetime was when professional investor, Carl Icahn, took advantage of a very foolish mistake made by another professional investor, Bill Ackman. The mistake cost Ackman dearly and made Ichan a lot of money.

Get your popcorn ready because this is a fun one. Bill Ackman, a guy who the media loved decided to wage war on multi-level marketing company Herbalife (HLF). Ackman claimed to have a moral compass and as such based on the grounds of morality, he decided help the people the people he thought were being taken advantage of (use of strikethrough text intentional throughout :)), he decided to short Herbalife stock to show that Herbalife was taking advantage of people. Pretty funny that the word moral was used when describing his actions, right? he viewed Herbalife’s inflated stock price as the tacit result of financial obesity. Ackman shorted over one billion dollars (not a typo) of Herbalife stock and also spent hundreds of millions of dollars on an anti-Herbalife propaganda campaign.

The media seized on Ackman’s crusade and bestowed upon him a bunch of other heroic titles. Meanwhile, Carl Icahn (very sharp investor) must have caught one of Ackman's moral financial crusade press conferences and smiled. So not too long after Ackman goes public with his anti-Herbalife propaganda, Icahn comes out and announces that he has decided to go long Herbalife. Icahn just so happens to purchase one billion dollars of Herbalife stock, the same amount Ackman shorted, leading to a monster short squeeze and in turn causing the share price of HLF to go higher. This of course led to massive money loss for Ackman, gain for Icahn and high comedy for those of us watching this soap opera unfold. This really happened folks.

One thing to consider, that Ackman clearly missed in his diligence, is Herbalife (HLF) has 3 million people working for them. 3 million people are PAYING HLF for the right to sell HLF's products which means, 3 million people believe in what they are doing and believe in HLF making HLF a "holy" stock (more on "holy" stocks later). My first 30 mins of diligence on considering this trade has me guessing 3 million people may decide to buy $100 of HLF stock to protect THEIR Herbalife from some Wall Street as*hole, that equates to $3B of buying and equals DANGER for anyone contemplating shorting. To be fair, Ackman knows HLF is structured as a multi-level marketing company selling “nutritional supplements”. Of course nothing Herbalife sells has been FDA approved meaning they could be selling people tap water with green food coloring and say it’s a dietary supplement for the management of breathing, lol. Dietary supplements do not require an FDA approval because food and supplements are not regulated by the FDA, but by the USDA, Herbalife does not manufacture, or market medications, food-stuffs (what Herbalife sells) do not require "proper medical trials", as they are not intended to treat, diagnose or cure/heal any disease. So Ackman thought he could somehow break 3 million people with a short trade and some propaganda? You know what, you have to have some serious confidence to think you can swing that. Bill Ackman, I tip my cap to you for trying to think you can flap your arms and fly and for betting over $1B to prove to people you are right and they are wrong, lol.

In the end Icahn/Herbalife (HLF) crushed Ackman because Ackman categorized Herbalife incorrectly and failed to recognize its “holy” status versus being financially obese. Betting against a “holy” company like Herbalife, wherein the people selling Herbalife products believe they are doing right by humanity is usually a money furnace. A company like Tesla (TSLA) is another example of a “holy” company. Tesla management has proven time and time again that they are terrible at execution (what milestone have they not missed?), they have a solid corruption angle that short investors have run with (Solar City deal) and yet Tesla has the valuation it does because people who buy Tesla stock believe they are environmentalists. Tesla’s are status symbols (so are nose rings) and the shareholders and customers of Tesla believe they are saving the world with electric cars. The Tesla shareholder environmentalists look past the fact the car's materials are made from plants using coal power, the batteries destroy the environment and the cars are charged with electricity derived from fossil fuels. In the end, shorting Telsa is not a side you want to take because of its “holy” stock status. Will companies like Herbalife and Tesla eventually fail, who knows? One thing I learned is stocks can stay irrational longer than you can remain solvent. Also, when you are deciding to invest either long or short, make sure you understand what you are investing in.

Another Triple Crown Winner?

This weekend we will get to see if Justify can become the second horse in the past 40 years to win the Triple Crown. In 2015 American Pharaoh did it and boy was that a fun ride! I wrote this before the Derby and I will write again now, Justify is the best horse I have seen in my lifetime not named Zenyatta and he is rapidly approaching Zenyatta status because this horse is just special. His trainer Bob Baffert looks like a kid the night before Christmas whenever he sees Justify and his body language when he speaks about the horse tells me Justify is the best horse he has ever had. That is a major statement to make considering the horses that have come through his barn. Enjoy this horse folks because we will only see him two more times after the Belmont given he will retire undefeated and a champion, barring some weird racing anomaly or injury. Stay healthy sweet Justify and run them off their feet this weekend, I am rooting for you!

I hope you enjoyed reading and thank you for the feedback we get from you daily; it’s always appreciated good or bad! We are pivoting to video based delivery so the days of the written newsletter are numbered. Be sure to visit our website www.sylvacap.com for vlogs (video articles/blogs) and some written content.

Have a great month and be sure to check out our brilliance (lol) by looking at our mock portfolio of companies which we use to track how good (or bad) we are at picking stocks. So far this year we’re up 13%, which means we’re yet again beating the major indexes by a wide margin: https://sylvacap.com/sylva-portfolio/

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The Other Side of the Tesla Story

By: Greg Harrison

I couldn’t resist the opportunity to respond to Ross’ comments about Tesla; I have a very different perspective, and below are a few points for your consideration.

1. Ross has never actually driven a Tesla. I have. Two to be exact – the Model S and the Model X - and I can tell you they are hands down the best cars I have ever driven; my next car will definitely be a Tesla. Without exception every Tesla owner I know (and I know many), say they will never own a gas-powered vehicle again. Sit behind the wheel of any Tesla, and you’ll quickly find out why.

Perhaps it might be prudent to actually test a product before declaring it a total fraud. Just sayin'...

2. People don't buy a stock to help the environment, and none of the Tesla car owners I know bought the cars to save the planet. They bought the cars because they're incredible driving machines, and they never have to stop at a gas station again. Isn't that enough?

3. If you were to ask most people what kind of company Tesla is, many would respond, “it’s a car company”.

Of course, that’s the wrong answer.

Tesla is only a car company the way Apple is a phone company. Yes Tesla makes a car, just like Apple makes a phone, but what makes both products special is the technology inside. That's why Apple is actually a technology company that happens to make phones, and Tesla is actually an energy company, that happens to make cars.

That’s right. Tesla is a green-energy play that makes the most advanced batteries in the world. Tesla’s batteries are so revolutionary that they've turned an electric-powered supercar into a practical every day motor coach. But the cars are just step one in Musk's master plan for his batteries. He actually wants to control the entire energy grid.

In 2006 Musk wrote, “the overarching purpose of Tesla Motors (and the reason I am funding the company) is to help expedite the move from a mine-and-burn hydrocarbon economy towards a solar electric economy (emphasis added), which I believe to be the primary, but not exclusive, sustainable solution."

That statement should put some very clear framework around the long term vision for Tesla, as well as Musk's true ambition. With that in mind, we can now evaluate the Solar City acquisition.

To be sure, the transaction reeks of nepotism and self-interest, and it should. After all, Solar City CEO, Lyndon Rive is Musk’s cousin, and Musk was already a large shareholder in the heretofore struggling Solar City. I wish it were a more arms-length undertaking, but that doesn’t mean the merger should be dismissed outright as corrupt, or even labeled inexplicable.

Ostensibly, the acquisition makes a lot of sense. That's because the biggest problem with solar power is that it cannot be stored. It’s a “use it or lose it” kind of renewable energy. But what if solar energy could be captured and harnessed - say in some kind of giant battery? Specifically, what if a fully integrated energy company could make solar panels that would feed batteries large enough to store power for our homes, and energy for our cars?

In that case maybe, just maybe, the maker of the world’s most advanced batteries might like to control its very own solar company. And that’s exactly the point. Thanks to the Solar City acquisition, Tesla can now “create fully integrated residential, commercial and grid-scale products that improve the way that energy is generated, stored and consumed."

Far from being a “fraud” pedaling snake oil, Tesla is executing against the vision Musk laid out in 2006. They are making the best cars on the road, and they are now expanding to solar panels and mega-batteries that will power your home and office.

Yet despite the fact that Musk has been clear about his objectives from the outset, some people still refuse to see Tesla as anything other than just an ordinary car manufacturer that for some incomprehensible reason bought a solar company. Go figure.

4. Obviously I'm a big fan of Tesla (the company), but I'm actually not a big fan of TSLA the stock. The company has a lot of debt (more than $20b to be exact), which is concerning in an environment where interest rates are on the rise, and maturity dates are fast approaching. Additionally, innovation is expensive and I’m concerned about Musk’s ability to keep the company funded with such a large cash burn and a bottom-heavy balance sheet.

As if that's not enough, Musk’s vision is incredibly ambitious, which means there's a considerable amount of amount of execution risk as evidenced by the Model 3 production difficulties. If anyone can pull this off, it would be Elon Musk, but that's still a big "if".

Should the stock become more appropriately priced, or if the company can strengthen its balance sheet, I'll be an enthusiastic buyer. Until then, I’ll be happy to own the car and wait on the stock.

If you're interested in learning more about Tesla and Elon Musk, I highly recommend Tesla, SpaceX and the Quest for a Fantastic Future, by Ashlee Vance. It's a fantastic read.

April 2018 Newsletter: Investing in What’s Comfortable

Sat, 14 Apr 2018 04:22:45 GMT

Up, down, up, down, sure feels like we are riding on a swing doesn’t it? For those of you stressing and trying to make sense of this chop, stop wasting your time for your own good. Markets are going to do what they will do and the only thing you can control is you and YOUR money. I don’t mean to sound like one of the CNBC nitwits that states the obvious, but opportunity is knocking in a market such as the one we have now and hopefully I can provide some useful insight to you. One thing is for certain and that is VOLATILITY IS BACK, which is a good thing. I emphasize volatility in all caps because some of us having been getting our teeth handed to us for over 5 years waiting on volatility and now it has finally arrived, woo hoo! Those of you parked in comfort aka FANG stocks (Facebook, Amazon, Netflix, Google), one thing I have learned is that investing in what is comfortable is a great way to lose money. It is a time to think out of the box from the lens I look through. For those of you who know me, you know I am an active options trader and the options market is alive again with some big fat juicy premiums that are starting to border on the insane, yipee! I also invest in heavily microcap and microcap has been off quite a bit since January, which too represents opportunity, at least I think it does.

So let’s dig into my macroeconomic thinking starting at the 30,000 foot level and working ourselves down to planet Earth, shall we? Several of the indexes I track were off in March. Those indices include the Conference Board Consumer Confidence Index, the Present Situation Index, and the Expectations Index; all of them were down last month.

Additionally, the Consumer Confidence Survey conducted by Neilsen (a leading global provider of information and analytics around what consumers buy and watch) also showed a deline in consumer confidence in March after reaching an 18 year high in February. Lynn Franco, Director of Economic Indicators at The Conference Board said that, “Consumers’ assessment of current conditions declined slightly, with business conditions the primary reason for the moderation. Consumers’ short-term expectations also declined, including their outlook for the stock market, but overall expectations remain quite favorable. Despite the modest retreat in confidence, index levels remain historically high and suggest further strong growth in the months ahead.”

Without boring you to tears with the full data set, in short, Consumers’ assessment of current conditions eased in March. Consumers were moderately less optimistic about the short-term outlook in March. The percentage of consumers anticipating business conditions will improve over the next six months decrease. Consumers’ outlook for the job market was also less positive. All of this activity has caused a spike in Sylva’s proprietary, “Oh Shit” Index. While corporate buybacks and tax cuts are likely to help stocks in the near term, we’ll keep an eye on the indicators going forward, to see if sentiment continues to slip.

One industry that has been a great place to lose money as of late is biotech. Biotech peaked at the end of January and has gone down, with a brief bump up at the beginning of March. I am VERY bullish biotech as of Monday, wherein I added two new names to our mock portfolio which you can see here. Worth mentioning that as of this writing, the Sylva Portfolio is up almost 11% year to date.

Biotech trades at a price/earnings-to-growth ratio of 1.28 times, compared to 1.45 times for the S&P 500, a 19% discount that makes the industry look significantly undervalued when compared to the long-term average premium to the S&P.

The biggest catalyst for biotech stocks is the increase expectations for earnings for 2019. The Street now expects biotech's earnings growth will exceed the S&P 500's by 20 basis points, a reversal from the past two years, when biotech was expected to lag the index. If history is any guide, this should be a driver of multiple expansions for biotech, meaning the group is trading cheaply at the moment. Carpe Diem!

When Stupid Meets its Match (Enjoy This One Folks!)

I was unfortunately was born with pragmatic genes, I say unfortunately because my brain requires me to make sense of anything I do or see, you get the point. Many people I know simply accept actions, statements of “fact”, responses, etc. and I wish I could be them because I have to understand the why of everything, a true burden. So recently, a wonderful public servant known as a police officer, thought my rate of speed was a danger to society (I was driving downhill in a section that went from a 45 mph zone to a 25mph zone, what an evil trap). I was cited for my action and was told I could attend Traffic School and after completing Traffic School, the citation never happened. As a reminder, I live in a small city in Oregon and therefore I am exposed to the real America. The America I live in is night and day different relative to metropolitan areas where the restaurants have organic paper for their organic menus; we have Olive Garden (not knocking Olive Garden, just laying some foundation). In my Traffic School class there are no “Wall Street” types, no insanely wealthy people, just normal middle class people looking to get a citation removed so that our insurance doesn’t sky rocket. The class was taught by a gentleman who used to teach anger management classes and just as we are getting started with learning traffic safety, in comes a teenager taping on his cell phone and 15 minutes late. Let’s call the teenager Dave.

Dave is dressed like it is summer (it was 42 outside) and Dave is pretty much checking off every millennial stereotype box there is. Dave of course sits next to me despite there being empty chairs in the row in front of me; I for some reason am a magnet for crazy people. The teacher starts talking about speed and the dangers of speed and not even three minutes into his speech, Dave chimes in disagreeing that speed is a significant contributor to injuries in accidents, I already hated Dave, now I really hate him. We are 30 minutes into the class and Dave’s cell battery dies and he interrupts the class to ask if anyone has an iPhone charger. I will give Dave credit for being bold in asking strangers for a cell phone charger but poor timing and now everyone in the class hates Dave. 45 mins in, Dave has a cell charger and randomly bust out in laughter. The teacher asks what is so funny and Dave said he received a really funny text from a friend. If I was teaching the class, I may have murdered Dave but remember the gentleman teaching the class used to teach anger management. The teacher kindly asks Dave to put his cellphone away and Dave does. No joke, 5 minutes later nitwit’s (Dave) cellphone rings, he picks up and starts talking to whoever called. At this point I am convinced I am being set up in some kind of gotcha Ross, but no, this is not a joke on Ross. Teacher asks Dave to end the call and Dave does. At this point I asked Dave if he had any relatives and he told me he does and guess what folks, Dave’s father is a FUND MANAGER. I wanted to make sure I heard him correctly and asked him if his father manages others money and selects stocks to invest in for a living, Dave looked at me like I was an idiot and said “of course”. There are many more Dave incidents throughout the class and the second class that I also had to take, happy to share for those who want to learn how I avoided killing Dave. The point of me sharing this is that many retail investors are intimidated by institutional money, thinking it is the smart money. Folks, it is not, not even close, there are plenty of mega morons running money. The fact that the majority of fund managers can’t beat the performance of the S&P 500 tells you all you need to know about how smart some institutional money is. Don’t get me wrong, some of the smartest people on this planet manage money but many morons do as well. I later learned that Dave’s father inherited a small fortune from his father and has been doing the best he can managing the money he inherited and the money others have given Dave’s father but Dave’s father has been having a tough time over the past few years, so much so that he brought Dave in to help him find ideas. God Bless America!

Have a great month and be sure to visit our website www.sylvacapmedia.com to stay up to date on our favorite small cap investment ideas and economic commentary.

March 2018 Newsletter: The Great Unwind

Thu, 08 Mar 2018 05:25:34 GMT

After a “tumultuous” February, the first month of over a 1,000 point loss for the DJIA in what seems like an eternity, investors seem nervous per various media outlets (cracks me up!). Is the drop in February “the sign” that the 9 year bull market is over? Doubtful in my book given it is corporate buy back season and companies are buying back stock at record rates. For those of you that have no idea what I mean, the headline from an L.A. Times article describing what I am writing about can be found here. The title says it all, “U.S. companies are plowing a record amount of money into buying back stock.” Per the article:

Flush with cash from President Trump's tax overhaul and bathing in more earnings than they know what to do with, U.S. companies are embarking on a buyback binge of historic dimension. How big will it be? JPMorgan Chase & Co. strategists led by Dubravko Lakos-Bujas estimates that gross share repurchases will reach a record of about $800 billion this year, up from $530 billion in 2017. Just under half is attributable to improving profit growth, lower corporate levies and the repatriation of overseas cash under Trump's program.

So, to those of you that are bearish and finally believe your time has arrived don’t get too excited, you will likely have to wait until the dog days of summer for an opportunity to take a crack at succeeding on a macro short. Why do I believe the market is headed for a drop in the summer? My answer is simple, who wants to hold debt that is losing value precipitously?

Allow me to expand a bit on that last sentence. The value of a debt security is inversely correlated to interest rates. Therefore, when interest rates rise, the value of the underlying bond decreases, and when interest rates fall, the value of the underlying bond increases. So, for the past 9 years the U.S. Treasury, China, and a slew of others have been buying U.S. Treasury bonds hand over fist as the U.S. was deemed a safe haven for investment. Now, with yields increasing, the value of those “safe” bonds is decreasing and as such the “Great Unwind” begins. The “Great Unwind” refers to the deleveraging which is happening now. China has recently become a seller of U.S. Treasuries and this has caused the ten-year bond to run nearly fifty basis points in just four months. For those of us in the trenches, this is comical and yet another example of psychological weaponry disguised financial awareness. In other words, investors are now shorting treasuries because as interest rates rise, China will be incentivized to sell their U.S. bonds, thus creating an excess of supply and driving the price of Treasuries down further.

The short Treasuries trade might be so obvious that CNBC will begin trumpeting the ETF to profit from this trade in the not too distant future, should that happen, please don’t be fooled! Any time the mainstream media highlights a good idea, you can be fairly certain you are the last to know and this trade is likely going to be a disaster. Deleveraging overall will drive rates higher and that is not good for the broad market, there is no coincidence between the ten-year yield running and the DJIA dropping.

In closing, there is still more time to make hay so have at it but the window is closing. With that said, the window I am referring to is the days of throwing darts at a board with DJIA components and making money on whatever stock your dart hit. The time for stock pickers to shine is upon us and for those of you, who have not viewed our mock portfolio on our website, consider doing so as the portfolio is up 18% YTD while the DJIA is flat.

Clocker's Corner

I have been thinking of what I should title my personal ramblings for over a year and have finally landed on “Clocker’s Corner”. For those of you that are not horse racing fans, every morning a dozen or so clockers congregate at the various thoroughbred horse racing tracks around the country and clock or time horses training. Clockers provide gamblers with valuable insight into how a horse looks, trains and most importantly how fast a horse is moving. Betting on a horse without insight from a clocker is like buying a stock because you like the letters in the company name, foolish. For those of you brave enough to navigate the world without our insight, lol, I can’t even finish the sentence because it is so silly. And here we go:

While it pains me to write about this topic, I feel that I have no choice given the attention it has received in the media. The Oscars, which I thought were Monday night (yes I am very tuned into the world, lol), have morphed from a movie award show to a political platform for people who pretend to be other people for a living. Think about that for a second before you bash me for not having any semblance of artistic understanding. Why on Earth is someone who is an actor or actress getting a platform to pitch political ideals? Are we supposed to take these people seriously, I do not. Just curious…

I will get into my Kentucky Derby thoughts next month but one thing is for certain this year, there is no favorite. I have never seen so many horses who were supposed to be “real” lose this early and so badly on the Derby trail. More to come…

March Madness is upon us and our annual pilgrimage to the land of legalized gaming with 15-20 or so fund managers is set for next week. To be honest, I have watched maybe an hour or two of college hoops this year. I have no idea who is real or who is not but I will be focused on two percentages next week while parked in the sportsbook with other like-minded thought leaders, lol. I will be focused on team FG% and opponent FG% and my money will be behind anyone who can play defense and score points, seems obvious but Vegas loves to make offensive juggernauts who couldn’t stop a junior high team defensively favorites (translated OKLAHOMA).

Thank you for reading and good luck!

Disclaimers & Disclosures: For a full list of disclaimers and disclosures, please visit: https://sylvacap.com/disclaimer

February 2018 Newsletter: Hello Volatility!

Thu, 15 Feb 2018 05:32:41 GMT

Volatility, hello there my friend! We wanted to publish our newsletter on the 2nd but the DJIA dropped nearly 700 points on the 2nd and as such we pulled back as we wanted to gain an understanding of what transpired and what seems to be on the horizon. So, “Fortune Teller” Ross, please be so kind as to enlighten us on what happened and what seems to be on the horizon. I am no “Fortune Teller”, but I will share with you what I think happened and what is in store. Let’s start with what happened. Two weeks ago I received my weekly Baron’s newspaper or magazine and the first article is Randall Forsyth’s article which mentioned that investor confidence is the highest it has been since 1980 in one confidence tracker and the highest it’s been in another confidence tracker. At that moment, I laughed and said to myself, it may finally be time to buy some VIX calls and buy puts on the S&P. Sure enough, Friday hits and I was lucky enough to have purchased some ticker: UVXY, which is a volatility ETF, and that thing went from $10 and change straight to $14 on Friday the 3rd. From $14 it shot to $30 and the VIX hit an all-time high of $50 on Tuesday, what fortuitous timing and RADICAL MAN! For those of you that follow our tweets, @SylvaCap, you hopefully were making money right alongside me. Let’s then move to last week where on Friday at around 1:40pm est, I sent my mother an email stating, “this is the bottom” and sure enough, the DJIA which was down about 400 points, reversed course and closed green. How on Earth could I possibly know that and what happened? The answer is a combination of panic and fear mixed in with algorithmic trading platforms and we have ourselves a fully weaponized market that can destroy years of investing gains in an hour. Welcome to 2018 ladies and gentlemen, this new reality is scary and we only got a taste.

So what is coming? Well, I see things calming down a bit as we head into the spring. I think volatility subsides and we will see the major averages erase the losses of the past week and I think a fresh set of all-time highs is on the horizon. With that stated, I also see a free fall that I think hits during the summer after the Fed has raised rates for the second time. We are very much focused the yield curve in relation to overall financial health. Last November, we wrote about yield curve at length which you can read here. In that article we noted that historically, the market peaks approximately seven months prior to a recession, and roughly three months after the end of a yield curve inversion.

Interest rates for long-term bonds have been rising over the past two weeks while short term yields have remained flat. It’s important to note that the curve isn’t inverted yet, however the Federal Reserve (“Fed”) indicated that they will continue to tighten fiscal policy and raise short-term interest rates. The market is expecting about three rate hikes this year, which would add another 0.75 percentage point to the two-year yield. If the 10-year holds still…it’s the dreaded inversion. Dallas Fed President Robert Kaplan still sees some room to maneuver, he said, but added, “I wouldn’t be sanguine about an inverted yield curve.” They’ve also indicated that they intend to continue issuing short-term debt instruments to plug budgetary shortfalls. Both of these actions should continue to compress the yield curve.

The other metric we’re focused on is inflation. We’re expecting inflation to increase this year, and we believe it started to creep in last year. In 2017, the labor market tightened. Unemployment dropping is unquestionably a good thing, however more jobs with fewer applicants gives employees leverage to demand higher salaries – an inflationary cost which is ultimately passed on to consumers. In addition, a weaker dollar in 2017 made imports more expensive, and according to PIMCO (one of the world’s largest asset managers), the price of cell phone plans were reset in 2017, which artificially capped inflation (go figure). Additionally, President Trump’s business-friendly agenda should spur economic growth, and with it more inflationary pressure.

Currently the inflation break even curve is flat, which means market believes inflation levels won’t get back to the Fed’s target of roughly 2.25%. It appears as if the market is pricing in two rate increases this year, even though the Fed has signaled there could be three. PIMCO believes the Fed is actually engineering a slight overshoot of its target inflation rate, and that we’ll hit the target sooner than the market is anticipating. If that happens, then the Fed will likely raise interest rates three times in 2018, which could cause the market to correct. The reason is because rising interest rates are intended to “cool” the economy, which means corporate growth will slow. As a general rule, investors don’t like when that happens.

You never know what you don’t know until it happens. For several months now we’ve been expressing concern about a potential threat coming from the geopolitical arena – but it could easily be something else. The fact is it doesn’t matter what “it” is. As any purveyor of Black Swan Theory will tell you, the probability of any single black swan event occurring is remote, however the probability of a black swan event itself, is not. That is why the intelligent investor always takes risk into account. Always. The market seemed to have forgotten that piece of time-tested wisdom and it will forget again, but the next go around will be a true test and as I stated earlier, this past week was only a taste.

The companies we like for the long term are listed in the Investment Ideas section of our website, and our Sylva Portfolio represents our best trading ideas and we are up YTD. We will continue to scour the market for companies we think will thrive in any economic environment. Good companies are built for the long haul, and we think we’ve identified some excellent investment candidates.

Be smart.

January 2018 Newsletter: Easy as ABC

Sun, 07 Jan 2018 05:34:47 GMT

Well sports fans, 2017 is in the books and we point the ship back into the darkness with the hope we again visit destinations of prosperity on our journey. Our Stock of the Month portfolio was Nine Hundred and Seventeen percent (917%) last year. This year we’re doing things a little differently and rather than trickle investment ideas out one month at a time, we’re going to post all of our portfolio picks all at once. You can view the 2018 SylvaCap Portfolio at (https://sylvacap.com/sylva-portfolio/). We’re also going to actively post our trading ideas in the portfolio throughout the year with the hope of matching our 2017 performance.

In the broader markets, Facebook, Amazon, Netflix, and Google (otherwise known as that F.A.N.G. stocks) did exceedingly well in 2017 and we think they’ll do well again this year. In addition to F.A.N.G. we also think banks are going to thrive given the "given", that "given" being Fed rate hikes, at least 3 we think, in 2018. Don’t be surprised if you see a few bank names appear in the SylvaCap Portfolio.

So what does ABC have to do with anything? Well ABC stands for A - Artificial Intelligence, B - Bitcoin or cryptocurrency, and, C - Cannabis ("ABC's)". It seems like every company in each of the ABC industries had an amazing year in 2017 and we see no reason for the party to stop. The party will stop of course, the big question is WHEN?

When I ventured into the securities industry, I was all of 20 years old and at that time there was a really cool thing happening and that thing was called "The Internet", the year, 1997. People were able to access "The Internet" from their home computer and Encyclopedia Britannica likely sh*t their pants because those shiny leather books that I loved getting in the mail each year as a kid had instantly become dinosaurs. No need to lookup a subject matter by the spelling on the side of the book for 5 minutes, instead take 5 seconds and type what you are looking for into the "search" box and presto, answers galore right in your home. Kids these days have no idea what the pursuit of knowledge or information on a subject matter pre-internet entailed. First we went through catalog cards, found the book on the subject matter we were interested in and then heel toe expressed it to the section of the library that contained the book and the adventure began. I write adventure because nothing was ever properly organized alphabetically. Now, you just type whatever you need in the "search" box on a search site and done. "The Internet" dramatically impacted all of our lives, much like being able to buy a joint, legally, within 5 minutes is impacting it now. The ease, organization and intelligence the ABC's are creating in all of our lives is awesome and leading to massive run-ups in the ABC's valuation. WHEN have they gone too far though? One thing I can say with certainty, is not too far yet...

Down To Brass Tacks

Having four children under the age of 7 is like having a tank squadron on ground made of butter. Simply getting out the door is an accomplishment. Given there are so many smart people in this world, can someone please invent a robotic nanny? The nanny in my book needs to be able to make sure the kids are safe, clothed, fed and entertained. According to my wife they need to be all of my items as well as have color coordinated clothes, not touch anything in the house if their hands are not clean, not eat anything not nutritious, not let the kids touch their hair, clothes or each other when eating, make sure the kids don't fight, always have hand sanitizer, not... Having written that, I now see why such a machine has not been created.

I watched some of the bowl games this past weekend and it is abundantly clear that Bama and Georgia are the two best teams in the country and carbon copies of each other. This comes as no surprise given Nick Saban's old Defensive Coordinator is the Head Coach at Georgia, Kirby Smart. The National Championship is going to be a dream come true for a lover of great defense (Ross Silver). I hate these RPO schemes and gimmick nonsense these college coaches run today. I want to see two teams line up, beat the crap out of each other and may the best and toughest team win. I took so much joy in watching Oklahoma choke because I hate what teams like Oklahoma are teaching kids as it relates to playing football. They are not teaching them football, they are teaching them stupidity. What human on Earth wants to run an RPO ever? RPO for those of you in the dark is Run Pass Option aka RPO. This is when a quarterback decides whether to run the ball or throw based on the defensive scheme that he learns from sidelines versus looking at the defense himself, which is what he should do, figure out the scheme himself (I hate this sideline look trend). In the RPO scheme the quarterback has a shelf life of maybe 3 years in college and maybe two games in the NFL which is why this scheme is worthless and dangerous and needs to be eliminated from the game. Call me old fashioned and unevolved all you want. I digress, in the National Championship game the two best DEFENSES not offenses, are lining up to play on Monday. That should speak volumes to those of you who love the gimmick nonsense on offense. I cannot wait for the game and I think Bama gets Georgia this time because Saban taught Kirby Smart and I think Smart is going to have major butterflies going up against Saban, but the "Falcon's Heard the Falconer". If they battle again next year, I think Kirby Smart may take Saban. I have learned a little seasoning is a good thing and very important for intellectual development, Kirby Smart will get that come Monday night. Roll Tide, by no more than 4 points please, meaning I am siding with Georgia and the points!

A Wolf By The Ears

Sat, 02 Dec 2017 05:43:06 GMT

It might seem odd to write or say that you’re "holding a wolf by the ears," but auribus teneo lupum—a line taken from Phormio (c.161BC), a work by the Roman playwright Terence—was once a popular proverb in Ancient Rome. I mention this proverb because the market is seemingly in a situation wherein investors are in an unsustainable situation, and in particular one in which both doing nothing and doing something to resolve it are equally risky. To buy into this market and put all your chips in, may spell doom as this could be the top. To sit back and do nothing but cast aspersion at those invested is an approach that many I know have taken. It has cost them many a dollar in missed opportunities but will they now be correct? Let us delve into the inner workings of the equity markets and its drivers...

The plan to cut the corporate tax rate seems to be going through, so more profit for investors, yipppeee. While this is great news, it sure seems as though this catalyst has been baked into the market given the DJIA is up a whopping 23% so far in 2017. The corporate tax cut has been a major catalyst and made the wallet of anyone short this market a lot lighter. So with the tax cut behind us, what is the catalyst that takes the equity markets higher? Ah yes, low interest rates. I have been preaching the gospel on low interest rates should mean equities only for an investment portfolio for close to a decade. I was chastised and ridiculed by many economists and fund managers for "recklessly" stating that only a moron has fixed income exposure in a low rate environment. Well, apology accepted from those who took shots at me for that comment because I was spot on. With that stated, rates are about to go up and in my opinion go up fairly rapidly in the next couple of years so I strongly believe now is the time to alter course from my equities only, in the portfolio, to now thinking about adding fixed income. I am buying bank stocks hand over fist in anticipation of what I believe will be a rate hike bonanza, if I am right, I will make a lot of money quickly, if rates don't move higher as fast as I think they will in 2018 & 2019, I will still be right but just not make as much money. In case you are at all confused but what I am suggesting, I will make it crystal clear, I AM BUYING BANK STOCKS. I don't buy ETF's so don't ask me what bank stock ETF I suggest, speak to your financial advisor and ask them what banks stocks you should buy. For those of you who have been asking me for years to invest with or alongside of me/Sylva, good news, in January 2018 www.sylvacap.com will contain a section that is devoted exclusively to the stocks I am actually buying and selling. And I'm going to publish the picks before I actually buy or sell the security. Yes, you read that correctly, before I buy or sell a stock, I will tell you so you get to front run me. Sounds cool right?!?!

Musings From the Month

Both Greg and I attended the MJBiz cannabis conference in Las Vegas a couple of weeks ago and it was very well attended and buzzing with excitement. At the moment the public cannabis markets lack two things 1) a banker or bankers who can bring real money to the table for public and private cannabis companies & 2) a "voice" that truly understands the trends and activity of the cannabis equity market. Well, we think we found a great banking group and more to come on them post our meeting with them in a couple of weeks. As for 2) we plan to be a lot more active with content in the cannabis industry so we hope to be the "voice"or a "voice" for the public cannabis companies. Three stocks we are very excited about in the cannabis sector are GB Sciences (GBLX), CLS Holdings (CLSH) & GW Pharma (GWPH). More to come on them from us in the near future.

Blockchain and cryptocurrency are hotter than a habanero pepper. Our stock of the month RIOT Blockchain, Nasdaq: RIOT, at one point nearly quadrupled in the month of November from the $6.80 price we mentioned them at. We remain a huge fan of RIOT and they are the only pure play blockchain company listed on the Nasdaq. They have a top tier management and I think RIOT could be a very special investment for those looking at the company as a long term investment versus a trade. More to come on them in the near future from us.

Last but not least, have a wonderful holiday season. I usually hate the holiday season because things slow down and I love going as fast as possible but this year I am going to slow down a bit and recharge because every day in the financial industry is a battle. There is no other industry that has the highs and lows of finance. The highs aren't really highs, they are more like whew's, the lows are brutal and very lonely. There is nothing worse than sticking your neck out and putting your name and reputation behind an investment opportunity and then having that opportunity faceplant on you. For my fellow comrades in the industry reading this, try to take it easy on yourself this holiday season and be thankful for what you have. Finance is a giant pile of humans all fighting to get to the top where there is fresh air and space to move, it is the most competitive and dog eat dog industry that exists. Finance makes your hair turn white, causes blood pressure to go to heavens and it is by far and away the best way to gain weight as the stress and pressure to be better than everyone else makes you eat stuff that you would never eat in normal situations, such as an entire basket of Red Vines or six gigantic chocolate bars. I hope this last section put a smile on a least one of you who are in this utterly insane industry with me and understands. Be well and see you in 2018!

November 2017 Newsletter: The "When" Of The Matter

Thu, 09 Nov 2017 05:45:39 GMT

Before we dive into the macroeconomic discussion, I just wanted to quickly mention our Stock of the Month portfolio, which is up almost 500% year to date. That’s not a misprint. A lot of readers have been asking us to make the SoTM more visible on our website, so we’re in the process of doing just that. We’re going to rebrand it the “Sylva Portfolio” and it will be a selection of our best ideas.

Speaking of good ideas, Camber Energy (CEI), Atossa (ATOS), Riot Blockchain (RIOT), Soligenix (SNGX), MabVax (MBVX) and BioTime (BTX) are all doing extremely well. If you haven’t checked out our content on those companies, we suggest doing so.

Now back to business. Since I remain steadfastly convinced that we are headed for a recession, I wanted to devote this month’s newsletter to addressing the “when” of the matter. Without some degree of specificity, saying the market will go up or down is useless because the purveyor of the forecast will eventually be proven right. With that in mind, we’ll try to figure out a plausible timeframe within which the market is likely to recede. Of course, everything that follows assumes relatively normalized market conditions persist, meaning there isn’t a major geopolitical event that causes the markets to crater.

Currently, the markets have a number of significant tailwinds. The global economy is strong, capital spending has increased and so has the median household income. Perhaps most significant, the current administration is tearing away business regulations at a torrid pace. This deregulation is fueling growth for large businesses, who stand to benefit most from the reduction in governmental oversight. While the long-term effects of excessive deregulation can cause (or exacerbate) a recession, the short-term impact is almost always spectacularly bullish. In the 1920’s, otherwise known as the “Roarin’ Twenties” there was very little regulation on Wall Street. Insider trading was even legal. Everything worked really well until October 29, 1929, otherwise known as “Black Tuesday”.

Then again in the 1980s, the savings and loan crisis was exacerbated by the lax regulatory oversight that allowed some depository financial institutions to engage in highly speculative investment strategies.

Most recently of course there was the “Great Recession” of 2008, which had several root causes, one of which was the repeal of the Glass-Steagall Act, which occurred in 1999. Glass-Steagall was ratified after the Great Depression, and was intended to keep the financial industry in check. For more than six decades Glass-Steagall did its job and no single financial institution was too big to fail. But roughly nine years after Glass-Steagall’s repeal, the financial system nearly collapsed.

In the 1920s, 1980s, and early 2000s, the economy roared while regulation was constrained. Now that the current administration is once again pulling back regulation, it makes sense to expect the markets to rage. But for how long?

Though large businesses clearly have more government-friendly working conditions than they had under the previous administration, the counterweight will be the Federal Reserve (“Fed”). As the economy grows, the law of supply and demand dictates that the cost of labor and goods also increase. People have more money to spend, so they buy more things. In turn companies need to hire more people to build more things. As labor pool becomes depleted, companies must pay more to hire workers, which necessitates a price increase in the goods they’re selling. This price increase is otherwise known as inflation. If the economy gets too “hot”, inflation can spiral out of control as it did in the 1970s.

In order to keep inflation and the economy in check, the Fed manipulates the cost of overnight borrowing for banks, known as the federal funds rate. As the fed funds rate increases or decreases, so do short term interest rates. The change of interest rates changes the amount of money available in the financial system, and thus how much money is available in the public at large. If the Fed wants to cool growth, it increases the fed funds rate, which decreases the amount of money in the financial system, which in turn slows down economic growth.

The problem occurs when interest rates for short-term securities exceed the interest rates for long-term securities. When this happens the yield curve is said to be, “inverted” because in a healthy economic environment short-term interest rates should be lower than long-term interest rates.

Since the Great Recession, the fed funds rate has been around or slightly above zero. This has resuscitated the economy to such an extent that the Fed is now trying to taper the growth by raising the federal funds rate, a process that began in December of 2015. While the Fed can manipulate short-term interest rates, the market dictates long-term rates due to the buying and selling of bonds. The difference in the method for controlling yield (Fed vs. market forces) allows the disconnect to occur. As the Fed signals its intent to cool economic growth, investors dive into long term securities for protection, driving the cost of those securities up and the yield down. At some point, the yield curve flattens out before becoming fully inverted, which is often a telltale sign of a forthcoming recession. The reason it’s a tell, is because bull markets rely on the strength of the credit. When the yield curve inverts, the credit markets become constrained which slows the economy.

According to Tony Dwyer of Canaccord Genuity, the economy typically peaks approximately seven months prior to a recession, and the mean yield curve inversion lasts 15 months (with the shortest duration lasting nine months and the longest nineteen). Recessions typically occur 3 months after a yield curve inversion ends. When the Fed starts to raise rates, it takes about twenty-one months to invert the curve, and the last three times the curve was inverted, we’ve actually come out of inversion before the recession started.

Therefore, if Dwyer is right and history repeats itself, then we should see the yield curve invert sometime around the third quarter of 2018, with a recession beginning roughly one year after that, which is roughly two and a half years from now.

This timeframe comports with another recession indicator, unemployment rate. Prior to the last two recessions, when unemployment rate dipped below 5% (as it did in January of this year), a recession has followed within the next two to three years.

It would be nice if we had at least another two and a half years before the country fell back into a recession, but I don’t think it will take quite that long. Predominately because I believe a significant geopolitical event will destabilize the economy long before the rising interest rates can impede free-flowing credit.

Even absent an exogenous shock to the market, I believe the absolute longest time we have before a recession hits is twenty-four months. The reason is Brexit. Remember that?

Under the European Union charter, the United Kingdom has roughly two years to negotiate the terms of its divorce from the E.U., which includes the settlement of financial commitments the U.K. made to the E.U. Some estimates peg that number to be up to €100 billion. In the event exit terms cannot be successfully negotiated, the strictest and most harsh terms are automatically imposed. This occurrence would be so austere it is referred to as, “the cliff edge”. Negotiating the terms for the U.K.’s departure are so incredibly complicated, a successfully negotiated departure is nearly a Sisyphean task, especially considering the E.U. has little incentive to help the U.K. extricate itself in an expeditious manner lest it inspire other defectors. For a fantastic explanation of Brexit’s complexities and possible ramifications, click here. Due to the complexity of the U.K.’s exit from the E.U. I think there’s a very good chance the U.K. fall right off the cliff edge. When that happens, the ramifications could be significant enough to roil global markets, and send the U.S. (with its potentially inverted yield curve) into a recession.

Accordingly I would estimate our absolute best-case scenario is a recession within twenty-four months.

I’d like to leave you with one more interesting historical investing observation from Dwyer. Historically, when the yield curve flattens out (meaning the interest rates for short-term and long-term securities are roughly equivalent), that’s actually a buy signal; and when the yield curve inverts, that too is a buy signal, and the market has at least nine months to run. Both seem counter-intuitive, but the data supports Dwyer’s thesis.

While Dwyer may have his history right, I’m a little cautious when it comes to predicting the future by looking in the rear view mirror. I think we’re in unchartered waters, and we’re entering a period of time where we may be proving the rule by providing the exception thereto. That is why I believe we’ll be entering a recession sooner than an analysis based on historical data might lead us to believe.

After all, last month we correctly predicted the market would break the October “7” year curse. My bet is that won’t be the last time that patterns are broken and history proves to be a poor predictor of future events. That said, I stand behind the statement in last month’s newsletter that since we made it through October without a significant correction, the market would continue to perform well for the next four to six months. That being the case, I think it’s appropriate to reassess the economy’s overall health in the second quarter of 2018, at which time we can and make another near-term market prediction. For the time being, we’ll set the outside edge of a recession at twenty-four months from present, and the inside edge at least six months away, subject to reevaluation in in the middle of next year.

***

Ross here, I had to chime my way into this excellent piece that Greg wrote only to say, I am on the other side of the coin. I believe this market keeps on running as long as money remains cheap to borrow, tax cuts are effectuated and companies continue to deliver quality earnings. This reporting season has turned out to be very good, further strengthening the narrative of a favorable earnings backdrop that has been in place over the last few quarters. Selling puts on the VIX has been a money making machine for me and others, as we have been right for nearly 20 months on this trade, I hope it continues!

On a lighter note, the Astros won the World Series which put a smile on the face of a friend of mine who I affectionately call Boss Poss, a big Astros fan. The Breeders Cup wrapped up last weekend and I feel like it resulted in me having more questions than answers, namely, if Gun Runner and Arrogate were to square off at Gulfstream for the $10M race, would Gun Runner win? My guess is no because I think Arrogate is the better horse and just dislikes the surface at Del Mar. College football is starting to take shape and it looks like Bama, Oklahoma, Clemson & Washington will be playing in the championship which will surely rub Big 10 fans the wrong way. Have a wonderful Thanksgiving and we will be back with more next month!

Disclosure and Declaration

Greg Harrison, the co-author of this article is an independent contractor. Greg was compensated by Sylva to co-author this article. He owns, or his family owns, shares of the following companies mentioned in this article: None.

October 2017 Newsletter: Will the Market Break The “7-Year” Curse?

Tue, 10 Oct 2017 04:47:02 GMT

In our last few newsletters Ross and I have focused primarily on the market’s long-term prospects, which I believe are somewhat concerning. This month however, I want to evaluate the market based on a more compressed timeframe. Historically, the best months for the Dow Jones are November through April, and the most challenging are May through October, with August and September being the worst months over the past 20 years. Yet here we sit in the first week of October, and the S&P and the Dow have risen in each of the past five months (including September), and the NASDAQ has risen in four of the last five months.

What gives?

For starters, stocks typically perform well during the first 6 months of a presidential cycle, and if stocks perform better than average in the first six months, then 75% of the time they outperform during the second 6 months. So far stocks have continued that trend. Additionally, the CBOE Volatility Index (often referred to as the VIX or “fear index”), is trading at record lows for the period. Despite the uncertainty in the geopolitical arena, the market remains tranquil. The VIX is currently at 9.41, and according to market analysts, it’s usually around 20+ before the S&P is in danger of a significant correction.

Additionally, the dollar is weak which means U.S. based multi-national companies are able to sell products inexpensively overseas which drives revenue growth. According to David Kostin, Chief U.S. strategist at Goldman Sachs, S&P 500 companies generate as much as one-third of their total revenue from international sales, so the weak dollar acts as a significant revenue catalyst. Then of course there’s President Trump’s proposed tax reform, which is another potential boon to corporate profits. Though the fate of tax reform remains largely uncertain, if ratified, the tax reform could add as much as $180 billion to S&P company earnings.

But we’re not out of the woods just yet.

For whatever the reason, over the past three decades October has been a particularly ominous month for the market in years that end in the number 7. October 19, 1987 was “Black Monday”, when the market plummeted than 22%, which is still the largest single-day percentage decline on record. On October 27, 1997 the DOW dropped more than 12%, and the most recent financial crisis began on October 9, 2007. Now in October of 2017, with stocks at all-time highs and the world seemingly politically unstable, we’re due for a big correction right?

I don’t think so. Why? It’s the contrarian in me. Everything is set up so perfectly for an October correction, that a market crash wouldn’t be a black swan, and I’m all about black swans. Notwithstanding a significant geopolitical event, I believe the market will make it through this October just fine.

For the sake of clarity, this article doesn’t represent a departure from my long-term thesis, which is that the market is positioned for a significant pullback. In fact, according to Warren Buffet, a general proxy for determining if the market is over-priced is when the value of all stocks exceeds the value of the country’s economic production. Right now, the value of all equities in the Wilshire 5000 (a representative sample of the entire stock market) stands at approximately $26 trillion. That’s more than 135% of the country’s gross domestic product. This discrepancy is even greater than it was in the months leading up to the crashes in 2000, and 2007. It’s also worth noting that Berkshire Hathaway Inc. has amassed a record $100 billion in cash, which is quite a dubious omen considering Buffet is on record stating that he dislikes holding cash because it inherently decreases in value over time.

Other market indicators, such as the relative strength indicator, are also signaling that the market is overbought. Additionally, the Rosenblatt Security Report cited that 10 of the last 13 tightening cycles have resulted in a recession. The Fed began its latest quantitative tightening cycle in December of 2015, and we could get another rate hike this year and possibly three ¼ point rate hikes next year. We will keep an eye on the yield curve going forward to see if it flattens out, because that could be an arbiter of a forthcoming recession.

So my long-term thesis remains cautious, but if we make it through October without a significant correction, I think the market will continue to perform well over the next 4-6 months.

Ross’s What Have You’s

I am still looking for a good title for this section, any ideas, send them our way: info@sylvacap.com. October is a very important month in the world of sports as football is in full swing, baseball is in the playoffs, both basketball & hockey start and last but not least, the final prep races before November’s Breeders Cup at Del Mar have been run. As you all know I am a gigantic horse racing fan and am very excited about the Breeders Cup being run at Del Mar this year. Del Mar has many nuances that can lead to the track to become biased for a a handful of races and then the bias can swing the other way. It will be very interesting to see how some of these horses who ship from the East Coast adapt to the Del Mar surface which is demanding physically and often results in gigantic prices. More on the Breeders Cup next month before the races, which I cannot wait to see!

The college football top 10 landscape seems to be ever changing on a weekly basis and teams that should not lose, have lost and teams that should be dumpster fires are surprising the so called pundits. The Iowa State & Troy victories over Oklahoma & LSU are both examples of how weird college football has been this year. As I see it, Bama, Clemson, Ohio State and Washington (sorry Big 12) look to be the four teams headed for the playoffs and those of us who put money on Ohio State in Las Vegas in August are hoping Ohio State does not see Bama in the semifinals. Bama looks very beatable, Clemson does not, Washington is blessed to be in an awful conference and Ohio State is also in an awful and overrated conference. On a positive note, the Miami Hurricanes are undefeated and played in the most exciting game I hve seen all year when they took down FSU, in FSU, snapping a 7 yer losing streak! The Baby Canes rise is real…I hope!

Have a wonderful month and our thoughts and prayers are with those who have been affected by the various nature related storms & fires as well as those of you in my second home, Las Vegas.

Disclosure and Declaration

September 2017 Newsletter: Conflicting Market Perspectives: Bull Case vs. Bear Case

Sat, 09 Sep 2017 04:49:33 GMT

Preface

When attempting to collaborate on this month’s newsletter, it became very clear that Ross and I have differing views on the market's outlook. Rather than debate in private, we decided to air our laundry in public so the the audience could enjoy the banter, and pick a side.

The altercation is as follows...

The Bear Case – by Greg Harrison

In the June Newsletter, I outlined the reasons for potential concern over the aging bull market, citing the distributing figures reported by the the auto industry, the inflated price of gold, and May’s mixed jobs report. I felt these indicators were proverbial cracks in the foundation of the bull market, and I urged investor caution.

Since June, it appears as if the fissures have deepened. Just last week the August jobs report came in lighter than expected and unemployment ticked up. Not a catastrophic event by any stretch, but it adds to the mounting list of things that don’t seem right. This week the political/economic crisis de-jour centered around the possibility that the U.S. could default on its debt obligations as the result of reaching its borrowing capacity. The Second Liberty Bond Act of 1917 limits the amount of money the government can borrow, and this limitation is known as the debt ceiling. The way governments like the U.S. borrow money is by issuing bonds.

The U.S. is required to issue bonds and borrow money any time our government’s spending exceeds the income generated thorough tax revenue (which is pretty much always, notwithstanding these rare exceptions). If the borrowing required exceeds the debt ceiling limit, then Congress needs to raise the ceiling so the country can borrow sufficient funds to repay its loan obligations, or else the U.S. will default.

Were the U.S. to default, the fallout could be catastrophic. At the very least it would put an abrupt end to the bull market, and at the very worst throw most of the civilized world into a massive recession.

The last time the government refused to raise the debt ceiling was in 2011. As a result, the S&P fell 17%, and the country received a credit downgrade. Clearly it’s not something any sane person would want to repeat. In a stunning turn of events this week, President Trump backed the Democrats and agreed to increase the debt ceiling, a reprieve that will last until December of this year. That at least forestalls this particular pitfall for a few months.

Were the debt ceiling the only (or at least the most serious) threat facing our economy, I would be forced to actually agree with Ross and maintain a bullish market outlook. However I see the path forward as being littered with economic and geo-political hazards - too many to avoid cleanly. I discussed several of the pending threats in an earlier blog post, so I won’t repeat them here. Suffice it to say, I am hard pressed to find a plausible scenario that results in a soft landing for our economy.

In spite of the stock market run up this year, some investors are concerned about the market, which has resulted in US Treasury yields hitting a 12 month low. The increase in demand for government issued bonds (like Treasuries) drives bond prices up, and yields down, since bond price and bond yield are inversely correlated.

What’s particularly confounding about all this is that stocks and bonds typically sit on opposite sides of the teeter-totter. When the economy is strong, demand for government bonds is usually weaker because investors can generate greater returns by investing in equities. Conversely, a strong demand for bonds is typically driven by investors fleeing equity markets in search of a safer place to invest cash.

So how are we to interpret a market where both bond prices and equities are rising?

Paul Donovan, chief economist at UBS Wealth Management believes that bond values aren’t being driven by market dynamics as much as an aging population seeking financial safety combined with central bank buying. That's certainly plausible, but if that were truly the case, wouldn't the central bank just ease up on buying? What would motivate the central bank to keep buying if baby boomers are generating so much demand?

As if that weren’t strange enough, somehow the economy’s rate of growth has become decoupled from inflation. Typically, these indicators also act as counterweights to one another, because economic growth spurs demand, which causes price increases and thus inflation. But the U.S. logged 3% annualized economic growth in the second quarter, but consumer price inflation only rose 1.7% from the prior year.

There’s no shortage of theoretical explanations for the dislocation between growth and inflation. Maybe inflation has been so low for so long, it’s become the new normal; or maybe big multinationals are keeping prices low to grab market share; or maybe the economy isn’t as strong as the numbers suggest. Anything is really possible, but nobody really knows for sure.

Stranger still is the fact that this anomaly isn’t just occurring in the U.S. Both Europe and Japan have economic growth rates that are far outpacing domestic inflation. The fact that this fundamental relationship between growth and inflation appears to be broken could have a significant impact on the financial markets. That’s because central banks rely on a healthy inflation-growth correlation to set policy, regulate economic growth, and maintain a target inflation rate of around 2%.

This year the S&P is up almost 10%, and the 10-year Treasury is up 6% forcing yields down to 2%. A 2% yield is typically associated with financial distress, not an economy with a salubrious 3% rate of growth, and 10% gains in equity markets.

With inflation and growth decoupled, the challenge facing world’s central bankers is how to regulate markets when the primary tool at their disposal, namely the raising or lowering of overnight borrowing rates (also known as the Discount Rate), may be wholly ineffective. I don’t necessarily have the answer as to this question, all I can tell you is, it’s definitely not good.

Markets rely on stability and predictability in order to thrive. The country and the world for that matter seem to be careening into unchartered waters, and our nation’s central authority charged with maintaining market consistency may be without its most powerful weapon. That’s a little like the Patriots trying to win a Super Bowl without Tom Brady.

Good luck with that.

Until facts are in evidence that substantiate a more bullish conclusion, I will remain market-cautious. That’s not to say I’m exiting equities completely – because I’m not. Good businesses with superb managers will almost always withstand the market vicissitudes. Investors who maintain a long-term view of the market as I do, will often use corrections as an opportunity to accumulate stock at attractive prices. Right now I'm being very selective, and carefully picking spots to enter new positions or add to existing ones.

Before I hand this over to Ross, I would just like to mention that while I lost my bet on the winner of the Mayweather v McGreggor fight, I won the “will go” bet, which was 9 full rounds. So net-net I made money.

Sending thoughts and prayers to those in Texas, Florida, the Caribbean and Mexico. Stay safe.

The Bull Case – by Ross Silver

Thank you Mr. Harrison for your eloquent and articulate outline of why we should be mortified and stuffing cash in our mattresses, you should give CNBC a call as they would love to have you on air discussing doom and gloom a favorite topic of theirs. I am on the other side of the coin and believe the market moves higher near term primarily due to the fact that the Senate is a black hole. Whatever goes to the Senate vanishes and that is good for the market because the market hates change.

One of your points was how the market is rising and so are treasuries and they should not move in tandem yet in opposite directions. Well, investors are trying to play two hands of poker in a game that only allows for a player to play one hand, thus one hand will have to be forfeited but investors aren’t sure which hand they want to forfeit. What that means is there is a mega straddle on. What is the straddle? Well, institutions don’t want to get caught with their pants down when the music eventually stops so they are playing safety and risk at the same time. My question to you is, when they stop straddling (which is a type of trade for those comedians getting a kick out of my use of straddle), what happens? My guess is the market goes higher rapidly and interest rates run when the straddle is taken off assuming the big money bets on equities, if the bet on safety and treasuries, the market retreats. If you were to walk into any major fund management firm, someone will have the slogan “Don’t Fight the Fed” on their desk or wall. Well, if the government is doing nothing to alter commerce, the Fed isn’t raising rates and companies have another quarter of banner earnings like we just had, equities are going higher Kemosabe. As such, there is no reason not to stay bullish from my goggles.

On a separate note, 52% of Americans don’t participate at all in the stock market. I mention this because the NY Fed Chairman was being interviewed recently and spoke of how the economy was improving based on “how well the stock market has done”. Based off his comment, the 52% of Americans with no money in the market are prospering, how exactly is that? Oh politicians, please never change!

The Lighter Side

When Greg and I were in Vegas before he made that bet on the “fight”, I told him to instead donate it to charity as there was no way on Earth, Floyd Mayweather was losing. The media morons who don’t understand boxing thought McGregor performed admirably for lasting until the 10th round and stated he really took it to Mayweather in the early rounds, INCORRECT. That “fight” was about as fun to watch as grass grow. McGregor had no idea what boxing angles are, for that matter neither did Floyd for the first 6 rounds, McGregor threw sloppy punches in that he did not utilize his hips, telegraphed his punches and he never seriously hurt Floyd. McGregor landed a clean uppercut to Floyd and Floyd didn’t flinch. Total circus, not a fight but man was Vegas an awesome party afterward I heard. Of course I was busy watching my three kids and pregnant wife who is due in two weeks and was not able to make the circus. Greg is in the same boat as me; his wife is due any day now. Pray for us both!

Good grief it has been a long summer. Del Mar and Saratoga were a nightmare for me as it was longshot central at those joints this summer. I usually clean up at Saratoga and cash a few six figure Pick 5’s but not this year. I missed a monster six figure Pick 5 at Del Mar a few weeks ago when a horse on my ticket was disqualified, the horse was a 15-1 shot. That hurt! More on horse racing in November when the Breeders Cup rolls around, I can’t wait!

Most importantly, FOOTBALL IS HERE!!! I was able to watch some college games last weekend and Oklahoma State looks legitimate, they have one of the best college offenses I have ever seen, they will be heard from in the Big 12. Ohio State looked like a pile of horse (four letter word) in their opener against Indiana until they woke up. I have the Buckeyes to win the National Championship at +350 in Vegas. I think their defense will get nastier as the season rolls on but their QB play is terrifying. That QB for Ohio State either looks like a Heisman candidate or a fifth stringer for Nowhere St. Bama took care of business against the Noles which was somewhat surprising. I have not bought into Jalen Hurts at QB and as a result think he could keep Bama out of the playoffs. He may prove me wrong but he looked pretty good against Florida State.

The NFL kicks into high gear this weekend and the teams I have to reach the Super Bowl are Hotlanta at +1100 and gulp, the Chiefs at +1400. The Chiefs and Falcons both have nasty defenses but their offenses are question marks, more so with the Chiefs. While I think Tom Brady is a wonderful ambassador for the NFL, I can’t stand Pats fans; they are the most annoying fans on Earth. While Brady thinks he is in the best shape of his life and can play another 5 years at least, it isn’t happening folks. Brady is a 350lb beast DT falling on him, from a season ending injury. I am 40 and I am sore the next day when I play with my two sons who think I am a trampoline and climbing tree. Brady is getting hit by 6”4 260 lb guys that run like deer, those hits will render him worthless at some point in the near future unfortunately. Pats fan of course think Jim Giraffe-alo or however his name is spelled will continue to drive the Porsche but he is not Tom Brady. Enjoy your moment Pats fans because it is not happening this season! Oh, I can’t wait to get an email form Andrew in RI scathing me for that, he is a lifelong Pats fan and season ticket holder. Notice I have said nothing about my Raiders, and I will not do so until appropriate. I fear jinxes and jinxes are real. I will close with that.

Be safe people in Florida and be well people of South Texas!

Why Microcap Isn’t Working

Fri, 11 Aug 2017 04:51:43 GMT

Last week Ross and I released the first episode of the G&R Podcast, where we talk and debate all things business and sports. As of the time of this writing, we already have over 322,000 page hits! That’s a staggering number, so thank you to everyone who gave us a listen.

Over the coming months you’re going to see a lot more original content coming from Sylva. We receive tremendous feedback on our work product, so Ross and I decided to do more of it; our goal is to generate so much compelling content that Sylvacap.com becomes part of your daily habit. You can also create a free account with us by clicking here, and we’ll notify you every time something new gets posted.

Speaking of original content, Ross has been absolutely crushing it with his options picks. Hopefully you’ve jumped on the Ross Silver Money Train and profited from his ideas.

This month I wanted to try and drill down a little bit on why microcap stocks don’t seem to be doing well as a whole. For the last 5 years the Russell 2000 (which is an index comprised of 2,000 small cap stocks) has underperformed the Dow and the S&P by almost 10%. The obvious question investors are asking is, why? Since 2009, the market has been on one of the greatest bull runs in the last century, and yet the smallest companies have somehow been left behind.

There’s an old financial axiom that a rising tide will lift all ships, yet somehow this particular tide seems to have left the smaller members of our fleet in the lock. Clearly there’s a disconnect between the economy, the stock market as a whole, and microcap stocks.

The reasons why are a head-scratcher for some but we’ve got a theory, to which there are two components.

First and foremost is the flow of funds to money managers, which refers to the movement or flow of money between actively managed funds and passively managed funds (which for the purposes of this article will include both mutual funds and exchange traded funds that seek to mimic the performance of a benchmark index).

Passive funds now hold a whopping $3.6 trillion of investor funds which equates to 42% of stock fund assets, and approximately 25% of the overall value of the stock market. That amount is nearly double what it was just 7 years ago. Active funds are institutions that try to pick individual stocks in an effort to out perform the market. For this service, investors are charged a fee, often referred to as a “load”. Loads vary from fund to fund and can sometimes be quite expensive. In theory, the expense is justified by the fund’s superior performance to the broader market.

The problem is, the market has been performing so well over the past 8 years, that investors haven’t received much benefit (if any) from paying professionals to manage their money.

There are of course a few outliers. Peter Bortel runs the Tiburon Opportunity Fund which has been doing quite well, and Ross interviewed him about 8 months ago. Peter mentioned ticker HIIQ which was trading around $4 at the time, and today it trades at almost $31. Unfortunately, Peter is the exception to the rule.

According to the LA Times, only 37% of actively managed small cap funds outperformed their relevant index over the last 15 years. (The index wasn’t named in the article, but presumably it’s the Russell.)

In turn, investors have yanked their dollars away active money managers, and invested that money in passive funds. Passive funds simply invest in the market, rather than trying to beat it. So, for instance, a passive fund may invest in all of the DOW or S&P 500 components. The load for investing in a passive fund is typically very minimal, and some don’t have any fees at all.

The current direction of the flow of funds is having a fairly significant impact on small, and particularly microcap stocks, because there aren’t really any passive funds (ETF’s) that invest in microcap stocks. Now that fund managers have fewer dollars at their discretion with which to invest, the amount of institutional money available to purchase small and microcap stocks has diminished. This attenuation is, in no small part, responsible for lackluster performance of small and microcap stocks.

For whatever it’s worth, we believe the current flow of funds just seems unstoppable, but it’s really not. I’m not sure I’d go as far as to call it a bubble, but it’s clearly a very strong trend. Like all other fads, this too will normalize over time; if for no other reason that it’s in our human nature to voraciously seek alpha (a measure of an investment’s return in relation to a market index). It’s called greed. And to quote the venerable Gordon Gecko, “Greed is good.”

For this reason, I would actually consider investor satisfaction with market-like returns to be an anomaly. It cuts against the very fiber of the capitalist society, and sooner or later greed will get the better of us. It always does.

In addition to the small & microcap headwinds created by the flow of funds, small cap stocks (though not the companies themselves) are being hurt by a weak dollar.

Here’s how this works: in order to pull the U.S. out of the great recession of 2008, the government enacted the American Recovery and Reinvestment Act of 2009, otherwise known as “stimulus”, in conjunction with quantitative easing. We all remember that, right?

Quantitative easing (explained so brilliantly in this video) flooded the market with U.S. dollars. As a result, borrowing became incredibly cheap, which encouraged companies and individuals to borrow, and U.S. treasuries became very expensive to buy, meaning investors were incentivized to put their money to work by buying stocks instead of bonds. I’m oversimplifying things a bit, but that’s the general idea.

I would be remiss if I didn’t footnote that in 2010, Ross actually wrote that, “anyone purchasing fixed income products from 2009 through the next decade are total morons, because ‘risk free’ yields will not come remotely close to equity yields given the game is rigged for equities to outperform.” Nice call, Ross.

Anyway, with a glut of greenbacks circulating throughout the world, the law of supply and demand necessitates the value of those dollars becoming worth less in international markets. When the dollar is worth less (if CNBC picks up this piece, please make sure to get this point right – “worth less” is two words, not one), it means those who hold foreign currency can buy items denominated in U.S. dollars more cheaply. This includes commodities like gold and oil, as well as stocks, bonds, and consumer goods.

The upshot is that companies that do business internationally received a windfall, because holders of foreign currency can purchase their wares less expensively. Since a lot of small companies in this country conduct most, if not all, of their business domestically, they didn’t receive any economic benefit from the soft dollar. This may also partially explain why the earnings of small and microcap companies have been ho-hum in comparison to their larger counterparts.

While small businesses haven’t benefited from the weak dollar, it’s worth noting that they haven’t been directly injured either. The only tangible effect is that small and microcap stock prices have languished, in part because investors have played the currency arbitrage by betting on companies that are in the best position to benefit, namely mid and large caps.

So will there be redemption for microcaps?

Yes. We absolutely believe there will be or Ross and I would be out right now searching for some other way to make a living. Small businesses are the lifeblood of this country and they’re not going away. They just so happen to be out of favor right now.

Small & microcap stocks could also benefit from President Trump’s, “America First” policies, should they ever get enacted. Historically, protectionism benefits companies that are heavily reliant upon domestic commerce for their growth and prosperity. Additionally, protectionism could strengthen the U.S. dollar, which should also benefit smaller companies. I’m certainly not trying to make a case in favor of protectionism. I actually think it would be quite disastrous for our country as a whole. But broader implications aside, America First would likely have some very favorable side effects for small businesses.

But even without a protectionist agenda, there’s a tremendous amount of innovation occurring in the U.S., and a lot of it is being forged by small businesses. Some of the companies we cover are doing the most incredible things with science and technology that could very easily pave the way for the future of America’s economic growth.

The fact that investors currently eschew these tiny pistons of our economy should not discourage anyone from taking a more holistic and long-term view of the microcap market. And just as we believe the flow of funds will normalize at some point, so too will the currency trade, especially if President Trump is able to deliver on his campaign promise of putting America first.

Musings From Dealing with Airlines & the Stupid “Fight”

Greg, well done on your piece and I agree whole heartedly with your assessment. This is the non-equites/economics section so I will instead fire off some of my dealings with people that make me crazy and this moronic “fight” between McGregor & Mayweather.

First up, people that make me crazy. Are there any companies on this planet that offer worse customer service than airlines? I mean sweet mother of ____(fill in the blank). So that I may not incur the wrath of United Airline’s (UAL) counsel, I will not name the airline I am speaking of. First and foremost, why does it cost $150 to change a ticket that has been purchased? I also don’t understand why checked bags cost a fee and finally, and most irritating, why are there no consequences for airlines when they are late or cancel your flight without 24 hour notice? Those of you lobbying on behalf of the airlines are winning, yet your victory comes at the cost of the consumer, not sure how you sleep well at night.

I almost forgot to mention airline “customer dis-service” representatives. For the love of _____(again fill in the blank) why is it that I have to spend 15 minutes navigating the stupid customer dis-service phone maze to get to hold for 30 mins and then speak to someone? When I speak to someone, they are based 18 hours ahead of me and English is definitely not their strong suit nor is it spoken well. For those of you seeking a good laugh, just imagine me and my three young children, and mega pregnant wife, inside a crowed airport while I am speaking to a customer dis-service agent. While I am being transferred to the next available agent in 22 minutes, which also could be any minute per past dealings, you know where you put these people on speaker thinking you really have 22 minutes and they pick up a minute later. I digress, my two barbarian sons are trying to see how far they can make a cup full of water and ice slide down a railing without spilling and have assured me spilling has a zero probability. I am barking at them to stop and sit in their seats and airport patrons are doing their best to give the aforementioned barbarians adequate room to maneuver in order avoid the inevitable spill and “sorry Dad” that is to come. Suddenly, I kid you not, agent named Judo picks up and asks how my day is going in broken English and how he/she may help me (it was unclear whether Judo was a man or woman). Of course Judo has no idea how to resolve my situation and his/her computer is running slow so back to hold and to another agent who can assist me. Airlines, you should be ashamed of yourselves and there is nothing more I enjoy than shorting your stocks, that time is coming soon I believe buddy ole pal.

Sticking with my vitriol theme, what in the world is this McGregor vs Mayweather “fight”? Is anyone stupid enough to attend this thing or buy it on pay per view? I sincerely hope not. This is the equivalent of me saying I could beat Michael Jordan in a game of one on one. Not only would it not be close but it would be laughable. I did win the Pepsi Hot Shot contest in my city when I was twelve, so therefore I know how to shoot, but does that make it even remotely fathomable that I could have even the slightest chance to take down Jordan? The answer is emphatically…maybe. Ok, ok I will extinguish my ego, the answer is I would have no chance against Jordan. This is what this donkey show of an event Mayweather versus McGregor is. One of the greatest boxers of all time is going to fight some dude who won a few amateur boxing fights.

Greg actually bet on McGregor to win when we were in Vegas and based on the intel I am getting from my friends in Vegas 95% of the bets casinos are taking are for McGregor. I wish I could book this fight, I would happily give anyone who wants to bet on McGregor 100-1 odds instead of 5-1 that the casinos have it at. I spoke with a friend of mine who knows things and he said the casinos are in shock that they will actually get to make a killing on Mayweather barring some whales coming in and dropping $10M+ on Mayweather. Just as I put up every dollar I had on Earth on Lennox Lewis in his rematch with Hasim Rahman, where Lennox dismantled Rahman. I will be putting every dollar I have on Earth on Mayweather because this will be the easiest 20% return on my money I have ever made in my life barring some freak occurrence. Mayweather is currently -500 which means if I put up $5M, I win $1M. See you at the window friends! Until next time…

Where'd Who Go? July 2017 Newsletter

Thu, 06 Jul 2017 04:53:50 GMT

Chief Entertainment Officer, Sylva International

Unfortunately no Greg this month, just me. Greg will be back next month, he is moving into his new office as this is being published. When Greg returns next month, be sure to have your dictionaries ready for his vocabularic battery. So what's up with this title you may be asking, "Where'd Who Go"? Well the answer to the question is investors. In the stock market, more ownership seems to be concentrated in fewer hands. That’s been a worry for at least a century, since Louis Brandeis wrote his book “Other People’s Money.” Once upon a time, investors used to receive stock certificates which they likely kept in a safe or in a safe-deposit box at the bank as proof that they owned a certain number of shares in specific companies. This is no longer the case, as everything is electronic and to receive a physical certificate these days is expensive and a mega pain to deposit when you want to sell it. So the modern day shareholder is an electronic shareholder and with that many shareholder rights are forfeited which we will not get into but just look at the concentration of ownership in any Dow 30 company and you will see why your 100 shares of say WalMart (ticker: WMT) mean nothing given Vanguard owns 100M+ shares. For fun, one of you reading this should call the head of IR at one of these Dow 30 companies and demand to speak with the CEO as you have concerns regarding the company's operations. You have about as much of a chance to speak with the CEO as I do climbing Mt. Everest in flip flops and a Capri Sun. On top of that, the brokerage houses are lending out retail shareholders stock, likely without them having the slightest clue. For those of you who have brokerage accounts, call your brokerage firm and ask them if the shares of a company you own are available for someone else to borrow, the answer is likely yes. Pretty shocking right?

So the concentration of investors and also the concentration of money aka ETF's is something we all should be worried about as this will ultimately lead to a wicked and nasty downturn when it comes. Why? Let's start with who counts as a shareholder and the disappearance of investors. Under Securities and Exchange Commission rules that conform to a 1934 federal law, companies don’t have to count every Joe and Jane Investor as a shareholder. Instead, they need only list the institutions that represent Joe and Jane — such investing behemoths as BlackRock, Charles Schwab, Fidelity Investments, Morgan Stanley or Vanguard Group. Often, Depository Trust & Clearing Corp., an industry-owned organization that handles trades for brokers and asset managers, stands in for many big firms as shareholder of record.

Per an article by Jason Zweig of the Intelligent investor, "Computer-graphics giant Nvidia Corp. has 534 million shares outstanding and a stock-market value of more than $25 billion. The company’s official shareholder count is 342 shareholders, but Nvidia estimates it has at least 200,000 shareholders in total, says spokesman Ken Brown. The trend is accelerating. Twenty years ago, according to S&P Dow Jones Indices, the typical company among the largest 1,500 stocks had 3,342 shareholders of record. By the end of 2010, that was down to 2,689. At Dec. 31, 2015, the median number of official shareholders had shrunk to 1,969. Among all stocks tracked by S&P Dow Jones Indices, shareholders of record have shrunk to a median of 352 today from 1,626 two decades ago." This is alarming, it seems the power of any publicly traded company seems to befalling into fewer and fewer hands.

As for ETF's, oh boy. ETF's are becoming the stock market equivalent of WMD's and I am certain that one day, some fund that holds an ETF or ETF's gets a mega redemption notice and as such triggers a massive sell off of the ETF or ETF's as all these ETF's seem to be algo managed (algo=algorithm). That day will come and when it does it will be ugly and for those of you blindly throwing money at ETF's that have outperformed active managers, watch out. Those of you wondering what a mega redemption is, an example would be Sylva Intl deciding it doesn't want to hold $4B (I wish we had that much money) worth of ticker: DIA (a popular DJIA tracking ETF) and deciding to sell that day. That would trigger a massive drop in the DJIA and the companies included in the Dow 30 would be down a few percentage points just from Sylva's sale alone. Since these trading algo's are so singular in their response to a sale like that, it would auto trigger multi-billions in sales of the Dow 30 companies and as such a collapse would begin. Lets just hope some billionaire doesn't get jumpy and decide to go from equities to the "safety" of cash or gold one day because if that happens, carnage ensues.

Random Musings

As a funny aside, a friend of mine who teaches 8th grade asked her class of approximately 40 students what they wanted to be when they grew up. For those wondering what knucklehead Ross Silver wanted to be in 8th grade, the answer was President of the United States. My friend told me, not one of her students wanted to be President and over half her students marked unsure. Every generation knocks the other for being softer than their own but holy uncertainty Bat Man. Over half the class has no professional aspiration? Parents, get off your "smart" devices and teach your kids a craft. An 8th grader should at least have some idea of what they want to be. One kid who responded said she wants to be Kim Kardashian, yep, welcome to 2017!

Our “Sylva Standouts” are included in the hyperlinks below. Remember to read our disclaimers and disclosures as it relates to investing in anything we write about. Good luck with your investments. Have a wonderful month and we will report back in August. If you need more Sylva in your life, who doesn’t :), check out our daily ramblings on Twitter at https://twitter.com/SylvaCap?lang=en.

Can Trees Grow to the Sky (Part 2)?

Sat, 10 Jun 2017 04:55:09 GMT

The nadir, or low point, of the 2008 crash occurred in March of 2009 when the Dow Jones Industrial Average (“DJIA”) bottomed out at roughly 7,300. Since that time, the DJIA has been on a rampage that’s propelled the DJIA to 21,182 (6/8/17 closing price). In the span of just over 8 years, the DJIA has nearly tripled and caused numerous hedge funds with a focus on shorting the DJIA stocks, to close their doors.

As we’ve pointed out in several of our previous newsletters, the skyrocketing DJIA is in large part due to investors forgoing active money management funds (people who actively manage money) and entrusting their funds with passive instruments like ETF’s. After all, why pay fund management fees when ETF’s have provided a superior return during this stellar run?

On the surface, it appears as if the bull market will continue due to a number of factors we have highlighted in previous newsletters. In short those factors are low interest rates, improved employment and stellar earnings. The Federal Reserve Board is set to meet later this month and regular readers know we’ve been anticipating a rate hike for some time. We’re not deviating from that estimate and it looks like we’re going to be right. However, some recent data we review has us rethinking our prediction that the Fed will raise rates again after their December meeting.

For starters, the May jobs report was at best, a mixed bag. The U.S. added 138,000 jobs for the month, which was below economists’ expectations of 184,000 new jobs, and 73,000 jobs short of the 211,000 jobs that were added in April. That’s a 35% month over month reduction. The tightening labor market was offset somewhat by the drop in the unemployment rate, which fell to 4.3% from 4.4% in April. While we acknowledge that the jobs report is an imperfect measure of the actual health of the labor market, as it excludes variables such as participation, wage adjustments, and population growth, we still view it as an important relative indicator.

Still more concerning was the auto industry’s performance in March and April. Every automaker without exception missed sales numbers last quarter. To compound the issue, inventories and dealer incentives have been skyrocketing to the point that there is actually speculation that May incentives were overly aggressive because manufacturers needed to prop up numbers. When you take into account that the auto industry employs 2.5 - 3 million Americans, another auto-collapse could have sweeping implications for unemployment numbers and GDP, the heretofore bellwethers of our economic salubriousness (ladies and gentlemen, meet the walking dictionary Greg Harrison…I googled salubriousness too J).

Is this a legitimate fault line in the foundation of our economy, or is this just an ephemeral misstep that will get resolved over time? It’s tough to tell for sure, but the news definitely caught our attention.

There are other factors that are also concerning. For starters, according to Reuters the small business lending index posted a decline for the third consecutive month, taking the index down 5% since April and the lowest level since October. The index is largely viewed as a leading GDP indicator, so the weakness in small business lending is foreshadowing the same outcome as the auto industry.

Then there’s gold. According to Deutche Bank, gold is trading at a 20% premium to its estimated fair market value because, "there is a heightened perception of risk or uncertainty in the broader markets." This fact may also partially explain why crypto-currencies have been absolutely ripping this year. Bitcoin, Ethereum, and Litecoin are generally viewed as high risk propositions, but they’re also supposed to be non-correlated assets, which could provide a safe haven for investors in the event of an economic downturn. As an aside, Greg recently purchased bitcoin. I have yet to figure out how to buy bitcoin which Greg scoffs at me about; then again Greg has about 100 apps on his phone whereas I have three. Also, the idea of paying money to get money is odd to me. I will not deposit money into a bank that will charge me to withdraw my money and also I can’t understand why someone buys $100 of bitcoin but only gets $95 worth of bitcoin. Help me with that one Greg! We (I) digress.

We can’t conclude our analysis without some discussion of the U.S.’s decision to exit the Paris Treaty. The economic implications of this decision are so pervasive, it’s impossible for anyone to fully calculate the impact. Typically, creating that level uncertainty is sufficient to roil markets, but given that the new normal for our geo-political climate is the state of tumult, the news was received by the markets with a dismissiveness that can almost be mistaken for apathy (Greg, this is called the new normal or the now famous term, a “nothing burger”). But just because “normal” is no longer correlated with stability, doesn’t mean that there won’t be severe consequences down the road.

Ostensibly the move to quit the Paris Agreement was intended in part to protect fossil fuel industries in the U.S., which would in turn create business growth and more jobs. As unapologetic capitalists, we are generally in favor of actions which yield maximum benefit for our economy. The problem here is that we don’t necessarily agree that removing ourselves from the regulatory obligations of the Paris Accord will produce the intended result. Often times our economy can be overwrought with inefficiencies derived from overzealous regulation. No doubt. But that’s not the same thing as saying that all regulation is, per se, corrupt. There have been times, many times in fact, when sensible regulations have been the catalyst for growth and innovation. Need an example? A few decades ago, the shoe industry predominately used toluene as the glue substance in the manufacture of shoes. Toulene however is toxic and caused serious health problems for factory workers. Regulations were subsequently passed that required manufacturers to produce their shoes in a safer and more responsible manner. Nike met the challenge by developing a water-based non-toxic adhesive that is still used in shoes today. (Isn’t Greg fun?)

The key takeaways from this real-world example are: 1) had the regulation not been enacted, there would have been no catalyst for change and toulene may very well still be in use today, and 2) had another country imposed regulations instead of the U.S., such innovation likely would likely have come from elsewhere. We’re not trying to make a moral argument about the environmental benefits of abiding by the Paris Treaty. That’s an entirely different discussion. What we are trying to do is make an economic argument about the best way to drive growth and innovation in the U.S. Our belief is that investing in alternative energy sources would provide greater economic benefit than placating the venerable industries of the industrial revolution.

Not surprisingly there are a number of business leaders that share this sentiment, but very surprisingly – almost confounding – Exxon CEO Darren Woods authored an open letter to the President, encouraging him to keep the U.S. in the Paris accord. Woods’ rationale? Exxon Mobil maintains the view that the U.S. is well positioned to compete within the framework of the Paris Agreement with abundant low carbon resources such as natural gas, as well as innovative private industries including the oil, gas and petrochemical sectors…

When the CEO of the world’s largest energy company is encouraging our President to adhere to an environmentally rigorous set of regulations because we have a fossil fuel dependency problem, it’s a little like a member of Guns n’ Roses saying that you have a drug problem. These guys know what they’re talking about. To be fair, we are selling our own book. As purveyors of the young, undiscovered companies we are partial to exciting new technologies that are potentially disruptive. If one looks at the small cap landscape, there simply aren’t too many startups trying to disrupt the world with fossil fuel technologies; contrast that with the number of companies that are actively fighting to establish a beachhead in the clean-tech revolution, and it should be fairly obvious where the future is headed.

Given that set of facts, how could any responsible capitalists favor a path that benefits stale, century year old technology at the expense of innovation that will likely drive our economy for the century to come? If companies, large and small are dis-incentivized to seek out better, cheaper, cleaner solutions (a’ la Nike), how will the U.S. maintain economic hegemony over time? We’re not so sure that it can.

The upshot of our analysis is that while the economy still seems to be moving along at a healthy clip, cracks are appearing in the foundation. These potential weaknesses will get exacerbated over time if we continue to pursue policies that are destabilizing and promote antiquated industries. Rarely if ever, has myopathy beaten the path to success. We’re not pulling in our horns just yet because we believe the market still has horse power left, but our view is turning from bullish to cautious and then may rapidly turn to scared (rhymes with witless, just subtract the w and add the letters sh). After all, trees can’t really grow to the sky, or can they?

Our “Sylva Standouts” are included in the hyperlinks below. Remember to read our disclaimers and disclosures as it relates to investing in anything we write about. Good luck with your investments, Derby selection (should you play the Derby) and have wonderful month and we will report back in June. If you need more Sylva in your life, who doesn’t :), check out our daily ramblings on Twitter at https://twitter.com/SylvaCap?lang=en.

And Down The Stretch They Come - Sylva May Newsletter

Wed, 03 May 2017 04:57:04 GMT

Equities Outlook

Ladies and gentlemen, the wait is over, it is Kentucky Derby weekend! The May newsletter has evolved to become my most popular newsletter since I began writing a monthly newsletter. Given my affinity for thoroughbred horse racing and the number of close friends that race and breed thoroughbred racehorses, writing this letter has always been a joy! For some background on the newsletter, back in 2005, I founded a company named Vista Partners with two friends, Greg H. and Jeremy T. and all three of us lived on Vista Court in the Presidio in San Francisco. This is how the name Vista Partners came about. The three of us would banter about the markets, sports and anything else we enjoyed. So one day we are all on a call with a client rambling away about something and arguing with each other and the client suggested we should put our thoughts together in a newsletter as he found our thoughts to be insightful and amusing. With that, the newsletter was born. Jeremy T. left Vista Partners after our first year as did Greg H. to pursue other opportunities (money was not something any of us had much of back then but we built a substantial following with the newsletter). I departed Vista Partners at the end of July last year to start Sylva International and didn't think I would continue writing a newsletter, but after hundreds of you that read the material I wrote asked me to continue writing at Sylva, I felt obliged to do so and here we are. Going forward I am thinking I will make this a video "newsletter" given everything seems to be moving away from the "pen" and Greg H., one of the founders of Vista, is now a part of Sylva, which is awesome! Without further ado...

The market continues to rip (move higher) despite the fact a dude in Korea has the ability to wipe us all out (hopefully not), the EU is crumbling and our President seems to be all hat and no cattle "talk a big game but deliver nothing". I thought the markets would move lower in April as the move higher in Q1 was explained to me by numerous friends who trade for the largest funds on Earth as short covering. I figured funds would lay on their short positions again after Netflix delivered a weak quarter and I went short the S&P 500 around the beginning of April thinking I was smart. That turned out to be a terrible idea as the markets hit new highs in April and continue to do so despite the issues I outlined at the beginning of this paragraph and the weak GDP number for Q1, which we learned of last week. The negative economic data points we continue to receive have had no negative impact on investors, which is surprising especially considering the Fed remains on a path to raise rates at least twice this year. I would think raising rates into economic strength rather than weakness would make sense but what do I know? As the saying from John Maynard Keynes goes, “The market can stay irrational longer than you can stay solvent.”

My saving grace in the month of April was Soligenix (Nasdaq: SNGX), which rocketed up to $5.08 on April 19th on massive volume of nearly 27M shares that day, a near double or double for those who had been buying the stock the days and weeks before April 19th. Soligenix remains incredibly undervalued in my opinion and hopefully we learn when they will initiate their Phase 3 study in Oral Mucositis, with their clinical candidate SGX942, in the coming weeks. SGX942 could be a billion dollar plus compound/opportunity for Soligenix if SGX942 obtains FDA approval post the Phase 3 study, fingers crossed!

The Derby Pick

As I have stated in previous newsletters in 2017, this year has been one of the weirdest years of three year old races I can recall, nobody can be trusted. I began following horse racing in 1994 and that year a horse named Go For Gin won the Derby gate to wire and his victory was somewhat a surprise although six horses in that running of the Derby were sent off at odds of 10-1 or lower meaning there was a lot of parity that year. This year reminds me a lot of 1994 in that there is no standout horse. With that stated I think Always Dreaming looks like a freak of nature and his last two races were AMAZING! I think he and Irish War Cry are the two horses I will be backing on Derby Day. Post positions will have a GIGANTIC influence on the outcome of the race and if either of these two horses draw the rail or the 19 or 20 spot in the starting gate, I am looking elsewhere, where that elsewhere is, I have no clue. Given this is my 13th year of writing a May newsletter and I have picked the winner of the Derby three years in a row after a seven year drought, the odds of these horses I picked as my two horses landing on the rail or getting the outside posts are just about a certainty given that is how my life works. I hope they don't and my top 3 Derby horses are 1.) Always Dreaming, 2.) Irish War Cry & 3.) Classic Empire. Pray for me :)

Our "Sylva Standouts" are included in the hyperlinks below. Remember to read our disclaimers and disclosures as it relates to investing in anything we write about. Good luck with your investments, Derby selection (should you play the Derby) and have wonderful month and we will report back in June. If you need more Sylva in your life, who doesn't :), check out our daily ramblings on Twitter at https://twitter.com/SylvaCap?lang=en.

Can Trees Grow to the Sky?

Sat, 15 Apr 2017 04:58:49 GMT

Based on the title of this newsletter one would assume I ready to throw my bear suit on and proclaim the bull run of equities is over, that assumption would be incorrect. Yesterday I scanned through weekly fund flows data from Lipper: http://www.lipperusfundflows.com/#create:home:Home:/php/signup_trial.php and much to my surprise, I found that equity inflows have been tepid over the past five weeks. Also to my surprise, the amount of equity fund outflows for the week of 4/5/17 represented the majority of outflows during the 30 day period and during that week, there was an outflow of nearly $12B. Why and where did this money go? Well upon closer examination the money is going towards ETF's which are Passive investments versus Active investments. Active investment is represented primarily by the $13.5 trillion mutual fund industry, which is populated heavily with managers who move in and out of positions to try to beat market benchmarks such as the S&P 500. On the other side, the $2.4 trillion exchange-traded fund industry tracks indexes with offerings that carry much lower fees and trade like stocks, providing more liquidity than mutual funds.

Active managers haven't done much to boost their cause in recent years which explains why many friends of mine who run funds have had a difficult time raising money. With that stated there are some fund managers namely Peter Bortel of Bortel Asset Mgmt and Tyson Halsey of Income Growth Advisors who have performed very well. Just 19 percent of Active managers beat the large-cap Russell 1000 in 2016, according to Bank of America Merrill Lynch, giving further fuel to the exodus. All the money flowing toward indexing, though, has generated some critics who believe passive investors are ignoring risks. Passive investing offers fewer opportunities to generate "alpha," or the ability to beat benchmarks, and offers little downside protection. When the market falls, investors tracking indexes can lose money unless they're properly diversified. The most significant effect of money moving towards passive funds is that micro cap stocks have few ETF's and as such, MASSIVE disparities in fair value versus current value exist in the microcap segment of equities making me downright giddy but cause pain to microcap companies given they are so undervalued. Eventually there will be a number of microcap ETF's and when they are created in the coming years, liquidity should increase significantly for the microcap segment of equities. The companies we highlight in our newsletters and in some cases invest in, should theoretically increase in value given the ability to access these stocks via these newly formed ETF's. The ETF's will buy these stocks as they will be part of the index the ETF's will create. These newly formed ETF's should increase the liquidity or average daily trading volume of microcap companies included in these ETF's. There are currently 7 microcap ETF's I am aware of and given the popularity of ETF's many more are likely being created.

My view of equities based on the macroeconomic environment remains unchanged. I am still bullish and despite some early setbacks, it looks like President Trump's economic stimulus measures will kick in next year and as such the equities market is buying now in preparation for that stimulus. It looks like the Fed will likely make 2 more rate hikes this year, one in June and one in December. Lastly, my dear friend volatility (I trade options so I need volatility) should be making a comeback given war drums are suddenly getting louder. Expect some wild swings through the Spring and Summer given weapons the size of my house are being dropped from airplanes on our "enemies". I hate war but war is great for the equity market. For those of you who hunt or own a weapon(s) you can understand how much war will cost given the price of ammo and the price of weapons has skyrocketed in recent years. I was at a local gun show a few weeks ago and my jaw hit the floor when I was told how much just a basic semi-auto handgun now costs and the ammo costs seem to increase by the second, good grief.

Ross's "What Have You's"

I haven't figured out a good title for this section. My Dad wants Ross's Rants but I feel like I sound like a crazy person ranting. If you have ideas on what to title this section, please let us know, info@sylvacap.com. If I select a title from a reader that reader will win an all inclusive, fully paid for thank you from your's truly :). I will be in Washington DC next week to Chair the Pitch & Partner Session of the World Orphan Drug Congress, I was invited to Chair this event again of which I am thankful. I have been researching and following the orphan or rare disease space (affects less than 100K people annually) for a little over a decade. Soligenix (Nasdaq: SNGX) was invited to attend the conference and it will be interesting to learn what the business development heavyweights have to say about Soligenix upon hearing their presentation next week, Soligenix presents on Friday the 21st. Soligenix is an investment of mine and they offer one of the most compelling risk/reward profiles in biotech, RepliCel (U.S. ticker: REPCF or Canada, RP-V) is another that falls into that category. I can tell you that despite the lofty cost to attend the event, these companies will present to a full house. If any of you are interested in my real time feedback, check our twitter account: https://twitter.com/SylvaCap?lang=en, I will be posting some thoughts there and if I forget to provide my feedback, don't hesitate to email us at info@sylvacap.com.

I usually am giddy about the Kentucky Derby this time of year and my Derby thoughts are always a favorite for many of you readers who are also avid horse players. I have absolutely no clue who wins the Derby this year and am thanking my lucky stars for betting on "ALL" in the Kentucky Derby Futures Pool #2. I mean the second I start thinking someone is a horse that can be trusted, they run and are nowhere to be found at the finish. Classic Empire seems to be the standout of the crop but he hasn't raced since finishing 30,000th in his last race and my guess is he will need the Arkansas Derby this weekend and if he finishes third or better, I will pay more attention to him after the race. Gormley will likely be the "wise guy" horse of the Derby after winning the Santa Anita Derby, but he is also a Jekyl and Hyde type, no clue what we are getting there. The days before the Derby I am sure I will have a better idea of who I will be backing but as of now, "ALL".

Happy holidays!

Spring is in the Air

Thu, 23 Feb 2017 06:01:20 GMT

Spring is in the air, the geese are pairing and I see ducks flying North almost daily. Living in the country gives me a different perspective than those of you that are city dwellers, those that live in the concrete jungle. My country life perspective is key and the reason I attribute to much of my financial success, not that city dwellers cannot succeed financially. What I find when I visit the large cities is that everyone is focused on and thinking about the same things. Given I live out in the country, I am usually the only one in the financial services industry and as such when I ask others their opinion on whether the stock market is headed higher or lower, I am met with blank stares. One lady I asked about the stock market was kind enough to tell me how to get to Safeway when I asked her about the stock market, lol.

This past weekend we had our annual Winter Festival here in Bend, OR which attracts all sorts of people from the Northwest to my nape of the neck (Caddyshack joke) and what I found was thriving businesses, no parking and tons of entitlement. It is amazing how well the economy is cranking right now and it sure doesn't look like we are going to slow anytime soon. Interest rates remain low, the President is preaching populism and to get your shovels ready and most importantly WalMart, a major bell-weather for me on consumer health, just reported an excellent quarter. The good times are here and sure seem to want to keep staying around which has me scared to death. In times of complete and total disfunction and near societal collapse, I thrive. When things are great and caution is thrown out the window, credit card borrowing is at an all time high & the average American owes $4717 in credit card debt, I get very scared because the only place to go is down. For those of you who know me well, know my nose tends to be very good but also VERY early. So equity shoppers, literally throw a dart at a board of stocks and you will likely succeed because the tide is rising and when it does all boats rise. With that said, at some point the tide will recede and my guess is the tide recedes when another act of terror occurs and it sure seems out POTUS is instigating our invisible enemies, which I hate.

Happy stock picking!

Random Musings

Is it me or are colds and flus getting exponentially nastier? I was nailed with the sinus flu going around and I was in torture ville for nearly two weeks trying to kick that thing. What a nasty bug, good grief. How is it that we can build 80 story buildings and yet no cure the common cold? I don't get it.
Airports are at total and complete capacity. Last week I sent a text about buying airline stock considering every flight I take is full. Last week I was traveling to Redmond, Oregon and the 7:15pm flight was sold out on Wednesday. Are you kidding me, what 120 people need to be in Redmond, Oregon at 7:45pm on Wednesday of last week?
The NBA is becoming unwatchable given the talent gap is so large. When parity exists, sports are fun to watch but when three teams basically dominate a league of 28 or however many teams there are in the NBA, the game suffers. I was in Vegas recently and decided to take a financial interest in the San Antonio Spurs when they played the Brooklyn Nets. I think San Antonio scored on every possession (which was awesome), I kid you not. The Spurs won something like 140-105 and Brooklyn looked like a bunch of hacks, which is why they have the worst record in the NBA. How is it that the basic fundamentals of the sport of basketball are not applied by professionals? There are some NBA heavyweights who read this, and gents let me tell you, your product is terrible and needs to be fixed. Watching a team run a high school level offense with ease against a team of professionals is no bueno.
Last but not least, the Kentucky Derby is two and a half months away and this years Derby looks up for grabs compared to recent years. I seriously have no strong lean on any of the horses and feel like a big price could win the race this year.

January 2017 Newsletter - Sylva International

Mon, 02 Jan 2017 04:13:55 GMT

The picture on the "cover" of this article is that of my office which is a two story building not a one story building which may be deduced from viewing the photo. As of Tuesday the Governor of my home State of Oregon (go Ducks & Beavers) declared a State Of Emergency because the State infrastructure is in shambles as a result of a nasty storm that pounded us for five thousand five days which seemed like an eternity. I have shoveled north of 100,000 lbs of snow and am thinking of entering into the World Strongest man competition as a result. For those of you who watched Rocky IV, Rocky's training regimen in Russia is child's play compared to that of Ross Silver shoveling snow while having at least one of my two boys on my shoulders shouting orders to me about areas of snow I did not fully dig out and how I need to not take breaks and dig faster. I read an article this morning that stated across the nation, the average temperature is 16 degrees. I realize global warming is real but good grief, it sure feels like global cooling instead of warming. To those about to bash me as an uneducated dunce with a keyboard for that last comment, I fully realize an effect of global warming is hotter summers than the historical mean and colder winters than the historical mean. Don't worry, there is some semblance of a brain inside the head of the person typing this letter, I think :).

Enough of the chin wagging verbiage and onto the reason why you are reading this piece, how do you benefit from what is taking place in the equity markets and what is going on in the equity markets? I have your answers or what I believe to be the answers. For the first time in about 8 years, my Ross Confidence Meter Of Equities ("RCME") is near all time highs and lows. What a contradiction you are likely saying to which I will respond, there are two scenarios related to the RCME and I am not sure which one plays out. Scenario #1 is that our incoming President actually fulfills his campaign promises and we become a "shovel ready" economy meaning improvements to our infrastructure are coming and these projects will be government sponsored. This is great for defense stocks, materials companies and anything to do with construction. Now, we must remember that our incoming President used to be a game show host (remember "The Apprentice") and has run a number of companies into the ground including his one billion dollar Taj Mahal casino and resort built in 1990. One billion dollars in 1990 is valued at around $2.2B today, yikes.

Before I start pressing the buy button with two hands I have to check myself a bit and wonder if he can actually pull this off or whether his promises on the campaign trail were just a bunch of campaign nonsense. I am leaning towards the latter which is why the RCME is near all time lows. I think President Trump, wow that felt weird to type, will not fulfill his campaign promises of a shovel ready economy given there is more red tape in Washington DC than at an art supply store. As such, all these proposed infrastructure improvement projects will be delayed and President Trump will enjoy living in the White House for four years. After his inglorious tenure, Mr. Trump will resume his career of telling people why they are incapable of running businesses and whatever his made for tv character is paid to do.

So what should you do? My answer is simple, find stocks that will succeed regardless of the macroeconomic picture and have a portfolio comprised of blue sky stories along with significant EPS growers that pay dividends and safe havens like utilities and consumer staples. Perhaps the high beta portion of your portfolio does incredibly well and you will harass me for being too big of a chicken but perhaps not. Either way I am personally hedged in this environment wherein I am buying ideas I like and think will work and also buying safety in case President Trump falls on his face and the global economy sours. I can tell you that every pundit on Earth, even the respectable ones, are bullish for 2017 and that scares the living four letter word starting with "s" and ending with "t" out of me. Happy 2017 and good luck!

Wells Fargo (WFC) – banks soaring, a leader

Vuzix Corp (VUZI) – dropping from this list, still think they can disrupt market

Snipp Interactive (SPN.V) – revs exploding and my guess a takeout in 2017

Facebook (FB) – absolute beast, $2B in qtly profits, wow

Insignia Systems (ISIG) – a standout in the industry

Oracle Corp (ORCL) – I expect a strong 2017

Nano Dimension Ltd. (NNDM) - Revolutionary 3D printer, major market disruptor

CLS Holdings (CLSH) – waiting on permits and game changing tech

Sysroex Global (SYRX) – running again post financing, IOT a white hot area

Goldman Sachs (GS) – the leader of banking stocks

Biogen (BIIB) – awesome combo of pipeline and drugs on market

AcelRx Pharmaceuticals, Inc. (ACRX) – a favorite idea of mine for 2017, late stage assets

Soligenix (SNGX) – just completed a financing and plans to move to Nasdaq

Gilead Sciences (GILD) – love this management team, acquisitions have been strong

Mast Therapeutics (MSTX) – merged and gone, produced a 130% return since mention

Inovio (INO) – an industry leader and highly disruptive science

Replicel (RP.V) – Autologous cell therapy pipeline, up 3x since last letter

InMed Pharma (IN.CN) – Orphan disease candidate may reverse EB and other assets

GrowBlox Sciences, Inc. (GBLX) - medical grade cannabis producer, top flight mgmt

GW Pharma (GWPH) – Largest cannabis company by market cap, compelling pipeline

Towerstream Corp (TWER) – Equipment in field worth more than mkt cap

At&T (T) – Industry leader, I like the satellite tv acquisition

PeerLogix, Inc. (LOGX) – Highly disruptive tech and in a white hot adtech market

Qualcomm (QCOM) – mega cheap and institutions starting to take a look again

Fiserv, Inc (FISV) – Solid company

Jack Henry & Assoc (JKHY) – Growing top and bottom line

Cachet Financial (CAFN) – Looks like guidance of $8-$10M for ’16 in the bag

Cummins Inc (CMI) – A nice spot to be in a shovel ready economy

Power Solutions Intl (PSIX) – Mgmt remains optimistic, could see this one up 3x soon

Navistar Intl (NAVI) – Well run business

BioHiTech (BHTG) – Revolutionizing industry and well run company

Random Musings

The NCAA football championship was an awesome game. I thought Bama would roll over Clemson but the Tigers were tougher than I thought. Bama looks like the team to beat in 2017-18 though as they return a number of key players and have an absolutely silly recruiting class filled with what may be 7-8 NFL first round draft choices in a few years, recruiting analysts are drooling over this recruiting class.

The NFL playoffs now begin and due to the fact I have three children and it has been nothing but snow for two months here, I have not had the ability to watch any football. My friends tell me the Pats in the AFC and Falcons in the NFC are the teams to beat. We shall see.

Enjoy the holiday weekend!

December Newsletter: Trumpmania Now, What Later?

Fri, 16 Dec 2016 06:04:50 GMT

Many friends of mine feared a Trumpocracy and thought it was a given markets would crater and America as we knew it was destined for the gutter. I vehemently disagreed with this notion as I thought Trump's economic policies would help and not hurt the economy, it is also why I voted for him. Yes, I am one of the deplorable ones who voted for Trump. At the end of the day, my vote did not matter given Oregon is and will likely always be a bleeding heart liberal state. East of the Cascades, the Cascades being a mountain range that runs through the center of the State of Oregon, it is a different story as that is "red" country or Republican country and where I live. Where I live, people own firearms, hunt and live off the land, foreign concepts to the common coastal city dweller who prefers their meat from the grocery store rather than coming from nature itself. To be clear, I vote with my wallet and I think less government is better than more government. I am by no means a right wing mad man, more so a centrist who is interested in paying as little as possible in taxes and ensuring the environment is kept clean and unharmed from human stupidity. Hopefully Trump steers clear of the progress President Obama made as it relates to the environment, meaning he does not repeal many of the environment related issues Obama accomplished while in office, fingers crossed!

Back to the markets and what is going on. Thomson Reuters Lipper’s fund macro-groups (including both mutual funds and exchange-traded funds [ETFs]) took in $11.6 billion of net new money for the fund-flows week-ended Wednesday, December 7. This marked the fourth straight week of net inflows for U.S. funds, during which time they grew their coffers by $43.6 billion. The positive flows for the past week were driven by money market funds (+$14.7 billion) and taxable bond funds (+$1.1 billion), while municipal bonds funds (-$2.2 billion) and equity funds (-$2.0 billion) both suffered net outflows.

The post-election rally continues for the equity markets; this rally is tied to Trump’s business-friendly campaign promises of lower corporate taxes, less regulation, and a bump in infrastructure spending as I noted earlier. I don't see why this momentum will not continue into 2017 and beyond...if Trump delivers!

Equity ETFs (+$7.9 billion) pushed their consecutive net-inflows streak to nine weeks, including over $40 billion of positive flows since the election. This is insane to me. ETF's are the dumbest investment possible and should only be used as a hedging instrument. Buying an ETF is the equivalent to buying every home in a neighborhood. Some homes in the neighborhood will be worth more than others given their location, size and care. Why also buy the home that is dilapidated and not valuable if you don't have to? Well, when you buy an ETF you buy the good homes and the bad.

Investors continued to pull money from safe–haven assets, municipal bond mutual funds (-$2.1 billion) experienced their fourth consecutive weekly net outflows over $2 billion. Funds in the Intermediate Muni Debt Funds (-$578 million) and High Yield Muni Debt Funds (-$469 million) classifications were the hardest hit during the week. This comes as no surprise and I expect this to continue given how bullish investors are. Investing is fun again, except in microcaps. Microcaps face a slew of issues including poor management, limited funding sources and as a result have been a nightmare for the past two years. This will change when people begin to sour on the large and midcap names and chase alpha and pick up microcaps. My guess is this happens sometime around Q3 of 2017, when the Fed Funds rate might be 1.25% considering how hot this market is, lol.

Ross's Random Musings

I am terrified for the holiday season and I will tell you why, because I have three little monsters under the age of six that will be tugging at me and yelling Dad at me 100 times a day when I take the last week of the month off. Why hasn't someone invented something that can distract children and be healthy and help them grow? Come on technology titans, help a Dad out! How about a flying shuttle they can board and fly around looking at the neighborhood and be kept occupied and fed while I sleep or watch one college football game. Wouldn't that be awesome!

I am very guilty of adoring my children and I can't wait to take them sledding and skiing in a couple of weeks, they will go bananas! Being a parent is the hardest thing I have ever done in my life and I pour every drop of my being into my children and I know the reward will come later when they become people. Everyone tells me to cherish these moments as they go by in an instant, that is a blatant lie and the next person that tells me that can spend the day at my house, the most active home on Earth. Santa is bringing my two boys a cement truck and an excavator toy and my daughter a doll set. My boys have torn up our front lawn to make it a construction site which is a riot but to some of neighbors it is an outrage. I have actually been reported to my HOA for not adhering to the aesthetic code of our neighborhood. In response to those I "offended" I offered to send my boys over to their house with a bag of rocks and paint bulls eyes on their home windows and let my sons fire away. Some people in life need to smile more!

Have a wonderful holiday season and keep an eye on our stock of the month page, https://sylvacap.com/stock-of-the-month. My picks have been on fire, UIS was up 42% last month and XXIA (who will benefit due to CES hype, in my opinion) is up 23% so far this month.

Stocks to watch:

Wells Fargo (WFC) - banks soaring, a leader

Vuzix Corp (VUZI) - M300 being shipped, hope adoption is strong

Snipp Interactive (SPN.V) - revs exploding and my guess a takeout in 2017

Facebook (FB) - absolute beast

Insignia Systems (ISIG) - a standout in the industry

Oracle Corp (ORCL) - I expect a strong 2017

CLS Holdings (CLSH) - waiting on permits and game changing tech

Sysroex Global (SYRX) - what a run earlier this month, IOT a white hot area

Goldman Sachs (GS) - the leader of banking stocks

Biogen (BIIB) - awesome combo of pipeline and drugs on market

AcelRx Pharmaceuticals, Inc. (ACRX) - a favorite idea of mine for 2017

Soligenix (SNGX) - just completed a financing and plans to move to Nasdaq

Gilead Sciences (GILD) - love this management team, acquisitions have been strong

Mast Therapeutics (MSTX) - has a strong balance sheet and optionality

Inovio (INO) - an industry leader and highly disruptive science

Replicel (RP.V) - I love autologous cell therapies, very compelling clinical pipeline

InMed Pharma (IN.CN) - Orphan disease candidate may reverse EB and other assets

GW Pharma (GWPH) - Largest cannabis company by market cap, compelling pipeline

Towerstream Corp (TWER) - Equipment in filed worth more than mkt cap

At&T (T) - Industry leader, I like the satellite tv acquisition

PeerLogix, Inc. (LOGX) - Highly disruptive tech and in a white hot adtech market

Qualcomm (QCOM) - mega cheap and institutions starting to take a look again

Fiserv, Inc (FISV) - Solid company

Jack Henry & Assoc (JKHY) - Growing top and bottom line

Cachet Financial (CAFN) - Looks like guidance of $8-$10M for '16 in the bag

Cummins Inc (CMI) - A nice spot to be in a shovel ready economy

Power Solutions Intl (PSIX) - Mgmt remains optimistic, could see this one be up 3x soon

Navistar Intl (NAVI) - Well run business

BioHiTech (BHTG) - Revolutionizing industry and well run company

This article has been prepared by Sylva International LLC (“Sylva”) based upon public information available about the topics mentioned. Sylva has not independently verified such information, and in addition, Sylva has been compensated by Companies mentioned in this newsletter for digital marketing services for up to a one year period. Statements in this article that are not historical facts are “forward-looking statements” that involve risks and uncertainties. Forward-looking statements can be identified by the use of words such as “opportunities,” “trends,” “potential,” “estimates,” “may,” “will,” “could,” “should,” “anticipates,” “expects” or comparable terminology or by discussions of strategy. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by such forward-looking statements. Additional risks, uncertainties and other factors are identified under the captions “Risk Factors” and “Special Note Regarding Forward-Looking Statements” in each of the the Company’s reports filed from time to time with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the current fiscal year. Sylva and the Company's mentioned disclaim any intention or obligation to update publicly or revise any forward-looking statements, whether as a result of new or additional information, future events or otherwise. The Companies are solely responsible for the accuracy of that information. Information as to other companies has been prepared from publicly available information and has not been independently verified by Sylva.

This article is published solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any state. Past performance does not guarantee future performance.

Sylva International November Newsletter: Over Half A Trillion In M&A: October Mergers Smash All Records With $500.1 Billion In Deals

Fri, 04 Nov 2016 05:04:17 GMT

I am a big fan of www.zerohedge.com and last week David Rosenberg pointed out that mega Merger Manias like the one we are experiencing "invariably takes place at or near cycle peaks, as companies realize that they can no longer grow their earnings organically. We have just witnessed five multi-billion dollar deals this past week alone — $207 billion globally (AT&T/Time Warner; TD Ameritrade/Scottrade) in what has been the most active announcement list since 1999 … what do you know, near the tail end of that tech bull market too."

And now that October is officially over, we can close the books on what has been an unprecedented month for M&A, I mean good grief. According to Bloomberg, in the month when a chill was sent through the spines of corporate CFOs and their investment bankers over fears that rates are about to rise and thus make debt-funded deals more expensive, the scramble to acquire competitors went off the charts, leading to an all time high in global M&A with almost half a trillion dollars of mergers and acquisitions announced globally.

CenturyLink Inc.’s $34 billion acquisition of Level 3 Communications Inc., as well as General Electric Co.’s deal to combine its oil and gas division with Baker Hughes Inc., pushed October’s deal volumes to about $489 billion, according to data compiled by Bloomberg. That’s the highest amount for at least 12 years, topping the previous record of $471 billion in April 2007, the data show.

Deallogic had a slightly different higher October deal total, calculating that the value for mergers and acquisitions for October actually surpassed the half a trillion mark, hitting $500.1B, but the idea is the same and adds that global deal volume has only been higher during five other months in records going back to 1995. More than half of the deals have been based in the US, where M&A volume has already hit a monthly record of $321.2 billion. That's about a third higher than the next biggest month on record, according to Dealogic.

Cited by Bloomberg TV, Bob Profusek, partner and chair of the global M&A practice at law firm Jones Day said that “every weekend recently has been busy.”

According to the Jones Day lawyer “the fundamental drivers are still there,” Profusek said. “Low growth -- which is bad for most things, but it’s good for M&A because that’s how you get growth -- and very accommodating capital markets.” More important, however, are concerns that the period of low interest rates is coming to an end, prompting corporations to scramble and issue debt now while it is still cheap.

Profusek worked for Potash Corp. on its merger with Agrium Inc., and is advising Reynolds American Inc. on British American Tobacco Plc’s $47 billion bid for the rest of the company.

The mega deals dominated October, with just eight transactions accounting for more than $300 billion of the October total. The biggest deal of the year, AT&T Inc.’s $85.4 billion bid for Time Warner Inc., was revealed on Oct. 22 in a rare Saturday deal announcement. So far this year, 32 deals valued at more than $10 billion have been struck. That puts 2016 on track to beat every year since 2007 except for last year, when a bumper 52 transactions of that size or more were announced.

“Size matters,” said Profusek, “particularly because we’re in a very challenging regulatory environment right now.”

The massive size of M&A also means that the market is skeptical many of them will close, or will ultimately find financing should rates spike higher prior to closing. Almost 30 deals announced since the start of 2015 have not yet closed, including Dow Chemical Co.’s $59 billion merger with DuPont Co., which was pushed back until next year. The two health insurance megadeals - Anthem Inc.’s bid for Cigna Corp. and Aetna Inc.’s offer for Humana Inc. - are also still pending. Both those deals are currently trading with at least $40 gaps between the offer price and the target’s current share price, indicating investors are pessimistic they will close.

As Bloomberh observes, "despite currency and equity markets reacting skittishly to poll results and news sentiment in the final days before the U.S. presidential election, M&A activity is forging ahead."

“I don’t hear boards or management really putting the election high on their list of concerns,” Frank Aquila, partner at law firm Sullivan & Cromwell LLP, said in a telephone interview. “Unless there is some sort of regulatory deadline or tax deadline that people are working to, deals get there when they get there.”

On a lighter note, congrats Cubs fans. I am not a baseball fan but I have friends in the city of Chicago whose lives revolve around the Cubs fortunes and it was awesome to see them win. One of my friends camped out at Wrigley last night, I am guessing he did not sleep and may be sleeping on a bench somewhere in Chicago at the time of this publishing. This friend is also a fund manager, so yes, fund managers are real people too.

I am headed to SoCal for the Breeders Cup this weekend and look forward to seeing some of you at the events I will be hosting. This years races are filled with mystery and I really don't think there is a single race where you can say a horse is a lock to win, maybe California Chrome in the $6M Classic (jinx in full effect). I like Not this Time in the Juvenile and Arrogate in the Classic and as such will be taking a stand against California Chrome, yes I am scared. I am also in the BCBC which is a handicapping tournament filled with the top horse racing handicappers in the world. I played two years ago and was in the top 15 after Day 1 (top 15 get paid) and Day 2 I don't think one of the horses I played finished in the top 10 let alone top 3. As many of you who know me well, I have been a thoroughbred fan since 1991, nearly 25 years which is crazy to think it has been that long. In any event, I hope I am holding a huge million dollar check on NBC late Saturday night, wish me luck :)

Some companies to consider for your portfolio

Wells Fargo (WFC)

Vuzix Corp (VUZI)

Snipp Interactive (SPN-V)

Facebook (FB)

Insignia Systems (ISIG)

Oracle Corp (ORCL)

CLS Holdings (CLSH)

Sysroex Global (SYRX)

Goldman Sachs (GS)

Biogen (BIIB)

Soligenix (SNGX)

Gilead Sciences (GILD)

Mast Therapeutics (MSTX)

InMed Pharmaceuticals (IN.CN)

Trillium Therapeutics (TRIL)

Towerstream Corp (TWER)

At&T (T)

Qualcomm (QCOM)

Fiserv, Inc (FISV)

Jack Henry & Assoc (JKHY)

Cachet Financial (CAFN)

Cummins Inc (CMI)

Power Solutions Intl (PSIX)

Navistar Intl (NAVI)

And They Are Off...Their Rocker

Thu, 06 Oct 2016 05:01:48 GMT

Before I begin this article I would first like to thank Mr. Dan Carlson for filling in for me while I was doing all the behind the scenes work necessary to set up Sylva International, founded August 1, 2016, here in the great State of Oregon and of course The United States. Many of you sent me emails and called telling me how much you enjoyed reading Dan's material. You also incessantly asked, when the heck would I return to my post and begin writing again? Well folks, I am back. With that stated, you will from time to time be presented material from some other writers I have selected to serve as contributors to the website. I think (hope) you will enjoy their writing. I promise you that you will hear (in the form of the written word) from me at least once a month. I also am going to add some video interviews as well.

Without further adieu, on to the reason why you are reading this, which is to hopefully make money. Over the past 60 day or so, which seems like 15 years given how much time and energy I have put into setting up Sylva, I have spoken to a plethora of fund managers, investment advisers, high net worth types and people who have no idea what a ticker is and asked them how they feel the economy is doing. The common answer was "ok". Considering people seem to think the economy is "ok", I wanted to find out where money goes in an economy rated "ok" in my 150 person or so entirely unscientific poll. So I turned to fund flows. For those of you who follow asset flows, a great resource is Morningstar (I even wrote this without being paid by them, you are welcome Morningstar) and their most recent report can be accessed by clicking on the link below and a pdf will appear:

http://corporate.morningstar.com/US/documents/AssetFlows/AssetFlowsSep2016.pdf

As one can surmise from the Morningstar article/pdf, active fund managers are being slammed with redemption's (likely due to hiding in cash due to fear of the market's direction and missing the summer move up) and passive funds continue to see money move their way $16.4B inflow in August, although the inflow was half that of July which was $33.8B. The data tells us the money moving into equities is mainly moving into ETF's (exchange traded funds, essentially a basket of stocks) or into the indexes because investors seem to think they can outperform active money managers, and why not, they have been right essentially for the past decade. This in my opinion will end and end soon. Why? The answer being when rates rise only certain industries will participate. I predict an upward move of certain industries and within those industries some stocks will perform better than others. Not to sound like a broken record, but to be abundantly clear, many retail investors have turned to ETF's as many ETF's have performed better than many active money managers. When rates rise (December) and the Fed signals to the world they will continue to raise rates during 2017, everyone will likely pile into bank ETF's, wisely playing the "rising rates is good for banks" trade. The problem is, some awful banks are in most of the bank ETF's. I won't name any bank specifically, but look at a couple of large banks that have been in the news for reasons they don't want to be in the news. One massive bank is in the news for creating fake accounts and had their CEO testify before some members of Congress. That is a bank I would avoid like the plague and there are others too.

Now let's turn our attention to the election and the cartoon I included which I thought was pretty funny. Those of you voting for Mrs. Clinton may not find it so funny (as an aside, I have no idea who I am voting for yet). The first debate was just about unwatchable and Trump completely dominated Clinton in the body language and interruption department in terms of entertainment (body language) and interruption (did he ever let her speak?). I mean the poor woman could barely get a word in. I only watched about 15 minutes and had to turn the television off because watching and listening to Trump, totally unprepared and clearly making up his answers as he goes, is painful to listen to. Round 1 of the debates in my book went to Clinton.

The one point that drives me insane about this election, more so than any others, is the hesitancy of turning over tax documents by Trump. The media seems to assume the guy skirted the IRS and has bank accounts in numerous tax havens and money stashed with rat holes all over the world. For those unfamiliar with what a rat hole is, that is when someone else is holding another's assets in order for the other to seem less rich and in turn pay less tax or avoid disclosure to some regulatory authority, etc. Anyone flying around in planes that "humbly" identify the passenger inside, is not going to be an average American. Therefore Trump's shock at the scrutiny he is receiving is almost comical. Also, the media seems to be hammering him about his delay in turning over his tax documents. This has lead the mainstream media believe and make us seemingly believe Trump is not as wealthy as advertised. Who knows, and that is what is so scary about this election, who knows anything about either of them...scary stuff.

Going forward I will list some companies I feel are worthy of your attention, in full disclosure, I am working with some of these companies to help them become identified and others I am not as they already have the attention of the mainstream, at least to a degree. The reason I help some companies get identified is because they have no outlets by which they can get attention other than me, because all the mainstream outlets focus on the "big boys and girls" or larger companies. In many instances, I put "my money where my mouth is" meaning I have purchased stock and will continue to purchase stock in some of the companies listed below because I believe they will ultimately disrupt their industry with what they are developing or have developed. The list of companies I am currently watching is as follows for October:

Wells Fargo (WFC)

Vuzix Corp (VUZI)

Snipp Interactive (SPN-V)

Facebook (FB)

Insignia Systems (ISIG)

Oracle Corp (ORCL)

PeerLogix, Inc (LOGX)

CLS Holdings (CLSH)

Sysroex Global (SYRX)

Goldman Sachs (GS)

Biogen (BIIB)

Soligenix (SNGX)

Gilead Sciences (GILD)

Mast Therapeutics (MSTX)

Trillium Therapeutics (TRIL)

Towerstream Corp (TWER)

At&T (T)

Qualcomm (QCOM)

Fiserv, Inc (FISV)

Jack Henry & Assoc (JKHY)

Cachet Financial (CAFN)

Cummins Inc (CMI)

Power Solutions Intl (PSIX)

Navistar Intl (NAVI)

That's all folks, see you next month!

Anti-Competitive Forces Afield

Mon, 19 Sep 2016 04:59:55 GMT

I grew up in Boston which, during my formative years, was a great rivalry city. Seriously, was there ever a better NBA rivalry than Celtics – Lakers? Yet, that truly paled in comparison to Red Sox versus the Yankees, aka the Evil Empire. Which, while the most storied sports rivalry in our nation’s history, was not nearly as violent as the Bruins – Flyers slugfests.

Fighting tooth and nail with the competition is ingrained in every New Englander. We take a jaundiced look at the world as a bunch of outsiders trying to take us down; the mentality is truly us against the world. Which is why it just rubs me wrong when I see the anti-competitive forces that are at play in the world today. In particular, I’m speaking to the massive consolidation that is taking place in the farming industry. It’s a concern to both regulators and consumers…but is it a concern for investors?

This past week Agrium made a takeover bid for Potash. The $26-billion, all-stock merger would combine Potash's crop nutrient production capacity, the world's largest, with Agrium's farm retail network, North America's biggest.

This is the fourth major merger currently taking place in the farming industry, following on the heels of the Dow / Dupont merger, the Chem-China / Syngenta marriage, and the purchase of Monsanto by Bayer. All of these transactions combine major players in similar industries, consolidating market share and necessitating regulatory approval.

Some market watchers are fretting that the reduced competition could shrivel up innovation, leading to slower improvements in crop yields. Meanwhile, with their deep pockets and large lobbying staffs, there is a further concern that these new behemoths may have outsize political power.

"They’ll have more ability to lobby governments," says Phil Howard of Michigan State University, who studies consolidation in the food industry. "They’ll have a lot more power to shape policies that benefit themselves at the expense of consumers and farmers."

Due to an economic slowdown in China and a glut of food production over the past few years, the global agricultural economy has been slumping. And, it’s only getting worse. The U.S. is on track to produce huge amounts of staples like corn, wheat and soybeans this year, at a time when demand for those and other U.S. food products is falling in other parts of the world.

With profits being squeezed, the pressures to merge have only become more intense. Back in 1994, the world’s four biggest seed companies controlled just 21 percent of the market. Since then, companies like Monsanto, Syngenta, Dow, Bayer, and Dupont went on a feeding frenzy, buying up smaller companies and their patents. The result of which is the market share of top 5 global companies has increased to 89% in corn seeds and 79% in soybean seeds.

The consolidation is leading to a lack of competition and, thus, concern from anti-trust regulators such as the U.S. Department of Justice. The most commonly used method of evaluating the competitiveness of a market is the Herfindahl-Hirschman Index (HHI), a commonly accepted measure of market concentration. Calculated by squaring the market share of each firm competing in a market, and then summing the resulting numbers, the U.S. Department of Justice uses the HHI for evaluating potential mergers issues.

The DOJ considers a market with an HHI of less than 1,500 to be a competitive marketplace, an HHI of 1,500 to 2,500 to be a moderately concentrated marketplace, and an HHI of 2,500 or greater to be a highly concentrated marketplace. As a rule of thumb, if a merger increases the HHI by more than 200 points in markets that are already highly concentrated, it will raise anti-trust concerns.

According to Forbes, when they examine the Dow – Dupont merger, alarm bells should be going off at the DOJ. “We estimate the HHI for the corn seed market to be about 2700, which places it in the highly concentrated category in the framework above. The soybean seed segment, with an HHI of 2360, is categorized as moderately concentrated segment…We estimate that the post-merger HHI for corn seed market will be about 3100, reflecting an increase of 400. For soybean seeds, we estimate a jump in the HHI of nearly 360, reaching 2700.”

The Dow – Dupont merger, per Forbes, falls well into the anti-competitive catergory. This merger, however, doesn’t even come close to the monopolistic qualities inherent in the Bayer – Monsanto transaction. The scale of these two behemoths, combined with their overlapping business areas, creates a blowout HHI number. For example, in the US cotton industry, pre-merger the HHI is 2,760…an already highly concentrated market. Post-merger, that number increases to 5,161!

When you start seeing HHI numbers going into the stratosphere to levels of 5,000, you start to approach the monopolistic numbers put up by Microsoft back in the heyday of Windows. If you recall those years, Microsoft was THE stock to own. They could charge whatever they wanted for their product and consumers had no choice but to pay up.

Now, the farming industry is certainly not growing like the PC industry of the 80s and 90s. However, it is a huge industry and has suffered from weak margins for years. The mergers taking place, if approved, will dramatically change the landscape of this industry, putting pricing power firmly back into the hands of the dominant providers. Who, like Microsoft years ago, will have customers lined up with no viable alternative. All of which leads me to my investment conclusion that, while these mergers will likely harm the consumers, they are fabulous for investors.

Random Musings From Our Travels

The farming industry is not the only area suffering from a lack of competitive forces. As previously mentioned, I grew up in Boston during the 80’s. Larry Bird was my idol and watching him square off against Magic Johnson in the NBA finals seemed like an annual spring ritual.

Now that I live in the Bay Area, I’ve become a Warriors fan. I’ll admit that it’s somewhat of a bandwagon adoption of them, but realize that I played a lot of basketball in my life and I absolutely LOVE the way they play the game.

Yet, even still, the New Englander in me had very mixed emotions when Kevin Durant signed on to play for them in the upcoming season. Yes, they will be super fun to watch. And, yes, the odds of another championship season here in the Bay Area just went through the roof. However, would Larry Bird have signed on with Magic and Kareem as a free agent? Never!

I must sound very old school, but I just can’t see any of the heroes of my youth teaming up with their mortal enemies to waltz their way to victory. I get it…it’s fun to win. But still, doesn’t it have a lot more meaning when you earn it? My guess is that Lebron loves his win in Cleveland 100 times more than the “Decision” and the victories with the Miami Heat.

Similar to the agriculture business, I think Durant joining the Warriors is very anti-competitive for the league. While the Warriors will now have a dominant position, the competitors are being pushed aside and the consumers suffer. Unless you’re a “stakeholder” in the W’s that is, and my analogy is that Warrior’s fans equate to shareholders in the agricultural giants…they are both rooting for dominance.

Just how anti-competitive is the league, with the Warriors getting Durant? Using the HHI index, can help tell us. By my estimation, looking at the first and second team all-league players, in the upcoming season that W’s should have 40% market share in Curry, Thompson, Green, and now Durant. Second place would be the Cavaliers with 20% in Lebron James and Kyrie Irving (a superstar coming into his own). No other team has more than 1 player in the top 10.

The NBA has an HHI of 2,400. This is an increase of 400 from 2,000, which is where the league would have stood had Durant remained with Russell Westbrook on the Thunder.

So, according to the DOJ, the move of Durant from Oklahoma City to Golden State isn’t anti-competitive enough to justify blocking the transaction, since the HHI is only 2,400. However, I don’t think anyone who grew up in New England would agree.

Sylva Newsletter, Sept. 12, 2016: Trumpeting the VIX

Sat, 10 Sep 2016 04:58:30 GMT

The summer doldrums seem to have ended on Friday, with markets having a rude awakening from their slumbering course. Prompting the selloff was a rash of negative macro data points, including saber rattling from North Korea, lack of stimuli from the ECB and more concerns about a rate hike here at home. All this combined to spark trading that could signal the beginning of a correction.

While the selloff may mark the end of a lengthy rally to new highs, it definitively ended another record setting run. Over the prior 40 trading days, the S&P 500 had been stuck within a range of 1.75% from its high to its low. This was the longest period of this limited volatility in the history of the market. Don’t expect it to continue.

The above chart shows the VIX, more formally known as the Volatility Index. As you can see, the VIX has been trading at rock bottom levels recently; not surprising considering the lack of volatility in the market. But, what exactly does it mean when the VIX is trading at a low?

The volatility index is, according to its sponsor, the CBOE, a “measure of market expectations of volatility conveyed by option prices. The index measures the market's expectation of volatility implicit in the prices of options.” So, the VIX trading at low levels means that options traders don’t expect significant movements in underlying securities. This includes not only individual stocks, but indexes such as the S&P and the NASDAQ.

The problem with the VIX, and what creates opportunity for investors, is that it is incredibly rear-view mirror in its pricing. Just look at the chart. A month before entering the longest period of minimal volatility in history, the VIX soared to over $20 on Brexit concerns. (As an aside, this increase in the VIX on a global macro scare such as Brexit is quite common and is how the index got its nickname as the “Fear Index”)

Looking at the VIX today, and I really wish the selloff could have waited until Monday when this had been published already, it’s bumping along at all-time low levels. And, we are entering what is historically the worst month for stocks plus an important election. All this portends increased market anxiety and a possible selloff.

Increased market anxiety would be an obvious benefit for the VIX. Nervous investors tend to have itchy trigger fingers and this causes liquidity to dry up and volatility to increase. However, just as important to the volatility index is a market selloff. Even if it’s orderly, a down market creates a higher VIX than an up market. This is because traders try to hedge themselves against losing money by buying options. No one hedges against making money.

So, we’re bumping along at all-time lows on the VIX here in early September. Traders seem to be very resigned to dead markets and everyone thinks the central banks will step in to any market selloff with buying support. Thus, what could cause the volatility index to go up from here? I see several possible causes, starting with the election, and Donald Trump in particular, as the primary one.

There are several reasons why the election is important for volatility and the market. These are especially pertinent as we enter September. The first is that the 8th year of a presidents’ tenure tends to be a down year; 1.2% on average. We have been trading higher this year, but there’s a reason why this is historically a weak year and, entering the weakest month of the year, maybe it catches up with us.

Secondly, according to NASDAQ, “volatility tends to develop in the first year following an election, as the market digests change.” We are getting closer to the election. I would expect to see volatility increase, as it always does, post the election.

Thirdly, as relates to Mr. Trump, he is getting stronger in the polls. Now, there is (in my opinion) reason to fear him, but I won’t bring politics into this newsletter. What I will do is quote NASDAQ again.

“A rise in the index between July and October of an election year has predicted reelection of the incumbent candidate or party, while the reverse has pointed to a replacement.”

Thus, as The Donald gets stronger in the polls, one would expect to see a selloff, which would lead to a higher VIX. Perhaps Friday’s action portends Trump catching Hillary? Time will tell.

Beyond the election, there are many other potential catalysts for increased volatility. These range from weaker earnings to increased odds of a rate hike and even North Korea increasing its shenanigans. Which, I think will happen. Does anyone else think that every anti-US country wants to see Trump elected? He’s kowtowing to Putin and I could easily see him applauding the Korean dictator’s leadership skills. The cabinet meetings there already resemble The Apprentice, only “You’re fired!” has turned into a "Firing squad!"

I see a case for a much higher VIX in the near future. As such, investors have several ways to prepare themselves for this. There are several ways to trade the VIX, and here’s a link for those who want to explore them. The most obvious method, and what I like to do, is buying options on the VIX itself. But, this is certainly out the risk curve and for professional traders only.

The bottom line here is that, as we enter the weakest month of the year, and come upon an election that is going to be very ugly and volatile, one would expect the market to start to react. We have just ended the longest stretch of limited volatility in the history of the market. Investors should expect to see increased volatility going forward and should prepare themselves for this now.

Random Musings From Our Travels

"Put your feet flat on the floor. Listen to your breath. Close your eyes. Hear the sounds around you, but focus on your breath." What the heck? Am I in yoga class?

Last night, at "college night for parents", the college advisor led us through how he starts each group session with the seniors. The breathing and relaxation exercise is meant to eliminate some of the stress that goes along with the college application process. After all, as he says, "these kids are facing rejection for the first time in their lives".

There's a lot of irony in that statement. Because, since we're at a private school, and since our daughter didn't get into her first choice of schools, we already dealt with school rejection. And, had a Thatcher hat burning in the fireplace to celebrate that...but, I digress. Back to the breathing.

Meanwhile, not focusing on her breathing, Joan is poking me, thinking that I'm likely on the verge of laughing at the stupid breathing exercise. She couldn't have been more wrong. Just keep calm, breath smoothly and don't look at the chart below...

No, I wasn't close to laughing. Instead, I was thinking that the breathing technique might come in handy every August when the tuition bill comes.

September 6th Newsletter; Robocab: Uber’s Driverless Taxis Help Robotics Reach a Tipping Point

Sat, 03 Sep 2016 04:43:08 GMT

A businessman in Pittsburgh enters his Uber. He is slightly confused…why are their two people in the front seats of the vehicle? And, more disturbingly, why is neither actually driving the car? Welcome to the Uber’s driverless car service in America where, for the first time, services that have always been performed by humans are now being undertaken by robots.

Hopefully our businessman (or woman) overcomes the concern about the lack of human direction taking place in the vehicle. Because, in a year or two, when they get in that Uber, there will likely be nobody at all behind the steering wheel. Yes, the age of the robot is upon us and one had better be prepared for it as it portends a lot of change, along with a (mechanical) armful of investment opportunities.

Robots are dependable. They are accurate. They are fast. And, as the chart above shows, their use is accelerating in numerous industries. It resembles a hockey stick, in terms of growth. And, that chart is based on information that is two years old…during that time, things have only gotten better. A report put out on Sept. 2nd by Research and Markets says the following, “The global robotics industry will expand from $34.1 billion in 2016 to $226.2 billion by 2021, representing a compound annual growth rate (CAGR) of 46%.” The hockey stick is just getting steeper.

While we know that industrial manufacturing is automating over time (it’s a strict cost benefit analysis) what is really driving the current growth is adoption of robotics in new markets. This adoption is possible due to the incredible computing power, and ample supply of raw data, that is available to programmers. Basically, machines are developing the power to learn and adapt. Throw in the accuracy of the GPS system, and you start to open all kinds of windows for new opportunities.

Dallas police used a robot to kill. What does that mean for the future of police robots? ~ The Washington Post, July 21, 2016

Farm Show Visitors Marvel, Scoff at Self-Driving Tractor ~ The Wall Street Journal, Sept. 1, 2016

The recent headlines cited demonstrate this growth into new markets. Soon enough, food may very well be delivered to the grocery store without ever touching a human hand. Soldiers already fly drone planes, the next step is mechanical warriors that patrol dangerous lands without risking human lives. The bottom line, the robotics industry is going to grow rapidly and for the foreseeable future.

As investors, we at Sylva International find the coming wave of robots very compelling. When an industry hits a tipping point, there is opportunity galore. The question is, do the valuations of robotics stocks fully reflect this opportunity, or do they have substantial upside left in them as the business accelerates? To answer this question, we looked at ROBO (the above slide is from their presentation), an ETF focused on the robotics industry.

What we found was good news for investors. As the chart shows, since its inception in 2014, the ROBO exchange traded fund has been pretty much flat. Thus, we believe that expectations haven’t run too far ahead of the market. This is further confirmed by the following stats that show the valuation of the portfolio companies in ROBO; they are quite reasonable.

Now, we would always encourage investors to perform their own due diligence. However, we feel very comfortable in saying that the Age of Robotics is upon us and investors would be well advised to seek out opportunities in this space. At Sylva we are certainly doing so, and hope to bring you coverage of some exciting opportunities in this industry in the near future.

Random Musings From Our Travels

Labor Day weekend is when the Hal Wagner Tennis Tournament takes place, which is our tennis club's annual shindig. Typically, here in NorCal, Labor Day weekend is also a very hot weekend. The thermometer can often go over 100f degrees and the tournament can start to resemble the Australian Open; in terms of temperature if not exactly level of play.

This year, however, the courts are running a cool 65 in the morning matches and just tipping 80 degrees in the afternoon. It's been rather pleasant out there...at least as long as we don't discuss results, which, like the temperature, are running below expectations.

The cooler weather at the Hal Wagner follows a cooler than normal summer on the East Coast, where, at our summer vacation in Rockport, MA, the temperature of the air was nothing but enjoyable and the ocean water bordered on frigid for the early part of July.

Now, we're not going to argue the veracity of climate change, nor to say that global warming isn't happening. It's taking place as far as we can tell with this year having the smallest polar ice cap recorded and 2016 being already declared the hottest year on record by NASA. No, this is really happening and only people with blinders on fight the glaringly obvious facts around climate change.

Instead, however, we think it makes more sense to discuss the benefits of climate change and how this impacts us everyday. For example, besides not sweating our a** off in the tennis tournament, we have had the AC on a grand total of 1 day this year. And, that was to test the system.

Looking beyond our personal comfort, and taking a more scientific approach to climate change, one can see that the benefits are numerous and have greatly exceeded the negative impact of climate change for years. (For a good read on "Why Climate Change is Good For the World", just click on the link.)

As individuals, we are free to do what we feel is best. Protest Exxon, buy power from Green Producers, don't purchase GMO food. This all feels good, and don't we all want to save the polar bear? Of course we do!

However, as investors, need to focus on the facts and the numbers. While we can fight climate change on a personal level (and we do recycle, try to consume less, etc.), on a portfolio level we need to examine the impact of climate change and try to predict the winners and losers.

And, there will be many winners and losers as a result of climate change. For example, the power usage of cooling is lower than that of heating. How will this affect power companies? Or, the impact of global warming is opening up parts of the north for greater farming usage, while simultaneously causing shifts in the weather (and rainfall) patterns in other parts of the world. Not to mention that a 33% increase in CO2 has dramatically boosted crop yields at a time when population growth has created greatly increased demands on our food supply.

We could go on for a while citing more benefits of global warming. Or, we could rail on about the costs of climate change. Both are to some degree correct and, while the benefits do appear to have exceeded the costs over the last 50 years, there is a lot of political and social disagreement to all conversations surrounding this area.

Instead, we would suggest that investors accept that the world isn't static. Climate change is happening. Fight it personally, but invest with an understanding of its implications.

August 29th Newsletter; Next Stop September, Mind the GAAP (earnings that is)

Sun, 28 Aug 2016 04:46:25 GMT

As we get closer to the fall months, the markets are humming right along. In August, new highs have been reached on a weekly basis and, while most traders are off enjoying their last days of summer in the Hamptons, Fed watching seems to be the most exciting action taking place. Personally, we are getting rather tired of watching a market with minimal volatility and are looking forward to having some meaningful action return to the marketplace along with the well-tanned traders.

To get a sense as to just how docile the market has been, check out the below chart of the volatility index. It has been bumping along at incredibly low levels. When this happens, it shows how complacent things are…and usually portends a change.

That being said, while we look forward to more market activity, perhaps it is best to be careful what you wish for. Because, although we remain positive on the US economy, and are feeling good about small cap shares at this time, history is not necessarily on the side of the bulls as we enter the month of September. Check this next chart out…

As the graph clearly demonstrates, September is the cruelest month of the year to be an equity investor. It’s not even close. Why is September historically so bad? We are scratching our heads about this, like the rest of you. However, no good question should go unanswered, so we Googled it and here are a couple of possible explanations.

"A University of Kansas study suggests a sharp drop-off in the amount of daylight in New York in September might trigger seasonal affective disorder and make some traders more risk-averse. On average, New Yorkers see 3,147 fewer minutes of daylight in September than they do in August, the biggest drop of any month"…from Business Insider

"Sam Stovall, equity strategist for S&P Capital IQ, has argued investors tend to ditch lackluster stocks before third-quarter earnings results start trickling in. Others have suggested traders who follow the old dictum “Sell in May and go away” return from their Labor Day sojourns eager to sell off positions that have since become undesirable. These patterns may also account for greater volatility as summer gives way to fall"…from IB Times

Like we said, these are possible explanations, but, frankly, we don’t buy into any of them (especially the one about how the people who sell in May come back after Labor Day and sell…really?). This just goes to show how there is no real explanation for this phenomena. Yet, it happens pretty consistently.

That being said, however, at Sylva Capital, we are in the camp that history may very well end up repeating itself in 2016. In our opinion, the market appears poised for a tough September for one reason…complacency. As a group, market participants seem to be shrugging off any and all negative economic data, continuing to push stocks to new highs. Admittedly, there is a TON of cash out there. Central Banks have the spigots wide open…but all that really does is just add to the complacency as traders have now become absolutely convinced that the Fed will ride to their rescue on any market pullback; an action commonly referred to as the “Fed Put”.

Now, this Fed Put may or may not exist, but it really doesn’t mean that stocks can never go lower. As we saw during the early part of 2016, this is quite possible and it can happen rather quickly. Meanwhile, this complacency is allowing the market to overlook one key metric that has turned increasingly negative.

We do acknowledge that dislocations between two related data sets happen often and can sometimes be greater and last longer than ever imagined. However, entering the weakest month of the year, we feel it’s important to highlight one metric that is getting distorted more than we’ve ever seen; that metric is the performance of the S&P 500 relative to its constituents’ earnings growth. It’s only natural that the two would trade in lockstep over time, however low rates have distorted this relationship. The market is chugging higher while earnings are stagnant.

“For Q2 2016, the blended earnings decline for the S&P 500 is -3.2%. The second quarter marks the first time the index has recorded five consecutive quarters of year-over-year declines in earnings since Q3 2008 through Q3 2009.” – Factset

According to Factset, this is the worst stretch for corporate earnings since the Great Recession. Yes, it was much worse then, but still...any comparison between now and then should give investors pause. Yet, that’s not the case as the chart below clearly demonstrates.

The divergence between weakening earnings and stock strength is growing. This is an unsustainable trend that will be either broken by huge earnings growth, or a market correction, or some combination of the two. Being generally constructive on the US economy, we do think earnings will improve. However, the days of dollar strength are numbered and how much earnings can improve for the larger companies is a real question.

Thus, going into September, we believe that investors are will soon start focusing on third quarter earnings. And, when they do so, they will be confronted by a very weak to negative trend in earnings growth. Combine this with stock valuations being very stretched and the market is set up for a pullback. The bottom line? September is historically the weakest month for the market and we think this September will prove no different.

Random Musings from Our Travels…

Late August has to be about the worst time for sports. Sandwiched between the Summer Olympics and the start of meaningful (why they play preseason is beyond us…) football games, there really isn’t much to enjoy. Sure, you have baseball, but that season never seems to end and around now it feels like a 3-mile horse race; instead of each move having meaning, baseball teams have been jockeying for position for so long you almost don’t care to watch until mid-September.

Since sports aren’t too interesting right now, what else is going on in the world that captures our attention? Well, there’s actually a Facebook page that is called “What’s Trending”. Maybe this is worth a view? I’ve listed the top stories; you can be the judge as to whether or not this is a good use of your computer time…

High school girl dresses like Mulan for her photo, it goes viral.

Britney Spears does carpool karaoke.

Go topless day is coinciding with the Ban the Burka movement in France.

Buzzfeed India aired a block of ice melting…for over an hour.

Taylor Swift took a photo of her cat sitting in an apartment window.

Need I go on? The list is long and it is truly amazingly boring. Thus, we eagerly await the return of football season and October baseball. Until then, enjoy the last of your summer and, if you’re feeling really hot and bored, check out the ice block melting.

August 22nd Newsletter...The Effects of Brexit, Buy Sterling

Sun, 21 Aug 2016 04:48:41 GMT

As we last detailed in an article, Is It Time to Brexit the Market? I Fear Not, the concerns over the effect of an exit vote were dramatically overblown. At that time, markets were in turmoil and headlines screamed about the negative impact of Brexit. Two months later, things are quite different as stability has returned to the markets and, instead of fearmongering, we can start to see in the headlines the actual impacts of the referendum.

What exactly are we seeing these days? Well, this past week revealed a whole slew of economic data out of the UK. There were retail sales, unemployment numbers, property sales, and CPI. With the exception of GDP numbers (which for Q3 won’t be out for quite a while) these are some of the most important, leading economic numbers that are released. And, across the board they tell the same story; Brexit has yet to have a meaningful effect on the British economy.

Looking at the above chart of the FTSE 100 (The Financial Times Stock Exchange 100 Index, the U.K.’s equivalent to the U.S.’s S&P 500), the market would seem to echo the sentiment expressed in the economic figures. The UK’s economy is chugging along quite nicely, as its market which hit new highs in August. How is it that, despite the incredible doom and gloom predicted if Brexit passed, things aren’t falling apart? There are many possible explanations, but we have a few theories that, taken together, could be driving the resilience.

The Brexit vote was not one of fear, but rather one of solidarity and unity. Thus, the British people are not scared, but are full of hope and anticipation for better times. An economy, while looked at from a top down perspective, is actually made up of the actions of all the individuals participating in the economy. If the people are feeling empowered, you’ll get expansion, not recession. This is highly evident in the retail sales and employment numbers from July, which were outstanding.

By leaving the EU, Great Britain has actually wed itself to a much stronger spouse. Realize that the EU is a bummer. Germany is doing well, but the rest of the guests in this house are freeloaders. Italy, Spain, Portugal, France…they all have issues. The UK has just shed itself of the burden of supporting its weaker siblings. And, simultaneously, has brought itself closer than ever to the US, its strategic ally and the only developed economy that is actually doing well these days.

The actual date of departure is a shifting target that continually gets further away. The latest headlines suggest that the actual Brexit might not happen until 2019. Seriously, do you think there’s going to be a mad rush to abandon the UK by foreign companies if Brexit isn’t even contemplated for a few years? Doubtful. Instead, there will be a measured approach, with much less near term impact.

These are three possible theories that could be driving the resilience in the UK; we’re sure there are others and economists will be debating this for a long time. What is not debatable, however, is the resilience in the economy and the strength in the FTSE. Also not debatable, but rather surprising in its persistence, is weakness in the British Pound.

The above chart is the same chart of the FTSE 100 overlaid against the British Pound (in orange). As you can see these two traded like two British Beefeaters, in perfect lockstep formation…right up until the day of the vote. Post the Brexit vote, the FTSE sold off, only to rally to all-time highs. The Pound Sterling, however, has gone down for the count.

What is driving down the Pound? We believe it’s the action of global macro hedge funds, piling on board the same trade. They have a tendency to do this frequently and, judging from the below chart printed this morning off of Bloomberg, this is possibly one of those situations.

Are the hedge funds right, however? Looking at the economic numbers out of the UK and the action in the FTSE, we don’t believe they are. Hedgies are looking for the UK to have to cut rates, which historically has hurt a currency. However, time are different now. Taking Japan as an example, they have negative rates and a very strong currency. So, we are not so sure this bet is a sure thing and from the perspective of Sylva International, things seem to be just fine in Britain and it looks like it is time to buy the British Pound.

Random Musings From Our Travels (by Ross Silver)

Hello from the bottom of the ocean or wherever I am, it is me Ross Silver and yes I am still alive and kicking. I hope you are enjoying the content we have provided to date and we have plenty more to come including additional ideas to consider for your stock portfolio as well as random musings from me, Dan and others that will be joining the Sylva team/platform. Speaking of the platform, for those of you that think you have the skills to cut it as a newsletter writer and pick stocks that go up (not down) for a living, shoot us an email with your resume and some writing samples. We have been bombarded with resumes already but we want the best of the best on our site. Instead of posting as LT335 or whatever acronym or screen name you are using, use your own name and see if you can make the cut.

I will have more content next month but one thing worth mentioning is the Olympics and some of the “sports” that are considered “sports”. I am sorry but walking in no way should be considered an Olympic sport. I had a friend send me a clip from the Olympic walking event and I refused to open the clip given my stern belief that walking is not a sport. Speaking of walking apparently one of the contestants collapsed while walking during the event in the Olympics, I read this somewhere. How is that possible for someone who is considered to be an Olympic athlete? I can understand a runner collapsing but not a W-A-L-K-E-R. I walk every day to grab a sandwich for lunch and the past few days have decided to up my tempo in order to see if I could take walking seriously as a sport.

I plan on training in the mountains of the Northwest along with my dog and children. Perhaps there is an Olympics for animals and if so, my 8 lb Maltese Poodle can enter the walking event given she will be my training partner along with my kids. Hold back the jeers on me owning an 8 lb Maltese poodle, I wanted an Alaskan Husky my wife wanted a Maltese Poodle not a big surprise who won that one.

Anyways, we'll see you next week by which time I will have hopefully cut my walk from my office to the deli from 7 mins and 47 seconds to 7 mins and 37 seconds. You think I am kidding; I am going to time myself and keep a chart of my improvement. For those interested in sponsorship opportunities stay tuned. When I decide whether or not I am going to turn pro as a walker I will let you know and I am sure the flood gates will open from potential sponsors. Let me know if you want to be one. Meanwhile, enjoy the rest of the summer and be well!

August 15th Newsletter...Dog Days of the Dow

Tue, 16 Aug 2016 04:50:37 GMT

Dog Days of the Dow

It certainly is the dog days of summer. The weather is hot, the election looks to be almost over before it begins, and the Olympics are on TV. To quote our favorite singer, Zac Brown, it’s a great time to have our “toes in the water and ass in the sand, not a worry in the world, a cold beer in my hand.”

Meanwhile, the market seems to be acting like a mid 80’s Cadillac. Remember those big boats? If you had it in drive, and took your foot off the brake, it would do twenty without you even touching the gas. The momentum behind those cars seemed unstoppable once they got in gear.

Well, the Dow appears to be experiencing a Cadillac idle, as nothing really seems to be driving it, yet it steamrolls down the road to new highs. Sure there are minor bumps in its route. Brexit, Soros, random terrorist attacks…the list is fairly extensive. Yet, like a two-ton Caddy, the market doesn’t even seem to notice the blips as it rolls to new highs every week.

For those of you who know Zac Brown, the next line of the quoted song is, “life is good today”. Yeah, for the Dow, life is good. But, what about for those components of the Dow? How are they faring individually in the midst of this rally? We’re glad you asked, because it’s rather interesting. Because, as we sit here in the Dog Days of Summer, the companies of the Dow most enjoying their summer holidays are the Dogs of the Dow.

A quick side note, for those of you who don’t know what the Dogs of the Dow are, every year on December 31 a list of the highest dividend paying stocks in the Dow is made as a subcomponent. Historically, these companies have the highest yield due to having underperformed their peers over recent history. Hence the term “Dogs”.

The above chart details the year-to-date returns of all the Dow components. Highlighted in blue are the Dogs of the Dow…the ten stocks that entered 2016 with the highest yield. As you can see, the returns of this group have exceeded the returns of the overall Dow by a decent margin. To be exact, this group has returned 15.4% through August 12 versus a 6.6% return for the overall Dow.

Now, it’s certainly interesting, but not totally beyond expectation to see that the weakest stocks of the past are outperforming in the present. These are all large companies, after all, with large customer and revenue bases to fall back upon. And, the market is a very cyclical creature in that companies (and sectors) get hot one year only to fade back the next. For example, does it really surprise you that Exxon and Chevron are putting up positive retunrs this year after the lengthy oil slide of the past several? This type of cyclicality has happened throughout history and is why the Dogs of the Dow theory came into existence in the first place.

What we do find interesting, however, is the forward looking nature of the returns presented here. The market is known to be a great discounter of the future and we think the YTD returns are an impressive example of this in action.

Once again, why? Well, because this is an election year. And, this election appears to be steamrolling (like the Dow) to an inevitable Hillary domination. She is pulling ahead in the polls while Trump continues to shoot himself in the foot. If this trend continues, and I think it will, Hillary’s policies should dictate the direction of government policies for the next few years. Particularly if she wins in a landslide.

How exactly does this translate into the market discounting the future? When looking at Hillary’s policies, healthcare costs seem to be her biggest concern and drug costs in particular appear to be the bullseye that she is targeting. Thus, it seems to make little sense that Merck, Pfizer, J&J and United Healthcare (the four healthcare focused companies in the Dow) are all putting up big years. Seriously, who in their right mind wants to own these type of stocks if the new President of the United States is making them public enemy number one on her first day in office?

Yet, the returns for this group are particularly impressive…on average they are up 17.5% YTD. In all honesty, this is rather surprising to us. Yet, at the same time, it isn’t. Because, it demonstrates the incredible ability of the market to discount the future. These companies’ stocks should be under pressure due to the upcoming election disaster they have staring them in the face. But, they aren’t. And that, as an investor, is exactly what makes the market so interesting.

Random Musings From Our Travels…

The Olympics are on in full force and, once again, Michael Phelps has provided compelling footage. It almost begs the question of what will the announcers do without him? It’s gotten to the point where baseball games have been paused to watch him swim.

Five gold medals and one silver is quite the haul. We have often thought that swimming medals are overrated as it’s possible to accumulate a quite a few for doing something only slightly different. For example, you can swim the freestyle 50 meters, 100 meters, 200 meters and then be on a relay team doing it again. Bingo, four medals. Do this two times and you’re more highly decorated than Usain Bolt who happens to be The Fastest Human Being In History!

That being said, we really need to tip our hat and acknowledge Michael Phelps as the greatest Olympic athlete in history. His record total is beyond compare. His ability to return this year and win gold in so many events, competing against swimmers almost half his age, is superhuman.

And, he has broken the coolest record of all time. With his 13th individual gold medal, Michael Phelps broke the all-time record for individual golds. Formerly held by Leonidas, that record had stood for 2,168 years! To put that in comparison, for Dimaggio’s consecutive game hitting streak to last as long, it would have to not be broken before the year 4,109. Just saying, but it appears that Michael Phelps has set a record for the ages. Hats off to the greatest Olympian of All-Time!

August 8th Newsletter

Mon, 08 Aug 2016 04:52:18 GMT

Sell in May and go away is an old adage in the market. And, 2016 appeared to be headed in this direction, especially with Brexit becoming the latest common noun added to the dictionary during the month of June. However, it appears that the market would rather ignore the old adage and instead climb the proverbial Wall of Worry, as indexes hit all time highs during the latter half of July.

Now that we’re entering August, while simultaneously hitting record highs, where should investors focus their attention? Will record low rates continue to drive investors into the market? Or, will lower earnings and fear of the Fed take the wind out of the market’s sails?

It is our belief that the overall market looks extended, but there investors needn't head for the exits. The comfort we get investing in stocks comes from two sources. First, despite the Fed's efforts to raise rates here, globally rates are going nowhere. And, liquidity is very high, which means there's lots of cash in the hands of investors. Now, some very large pools of capital might be stuck in certain allocation dilemmas and, therefore, content buying long bonds at negative rates. But, most of the world doesn't like to give someone money and be willing to wait 30 years to get back less than they gave them. It's rather counterintuitive.

Instead, we believe that rational investors would rather buy stocks that have both positive yields and potential upside returns. Yes, there is risk of losing money. However, when you buy bonds at negative rates there isn't risk of losing money...instead there's a guaranteed loss! Faced with this scenario, stocks stop looking too rich for investors.

The second source of comfort in investing in stocks now comes from the safety net of central banks. True, the global economic recovery remains weak, with fears of problems being numerous and persistent: Brexit causing a UK recession, Italian banks going bust, China, etc. However, it is this weak underpinning of the global economy that gives us comfort in buying stocks. Because, central banks have shown that they will do anything (and I mean ANYTHING) to keep the recovery moving forward. As such, the world will remain awash in liquidity and there will remain a safety net underpinning risk assets such as stocks.

So, with this comfort that stocks, despite mediocre earnings growth and high valuations, remain an attractive investment, where should investors look to put their money? We believe there are a few attractive areas to explore and will touch on two this week.

Our first area of choice is small cap. As the above chart shows, small caps tend to outperform after a first Fed rate increase. We are now 8 months after the fed raised rates and the trend has been working; small caps have had a nice run.

Historically, the run has extended for at least a year from the first rate hike. This would give us a nice runway through year end. We believe that the small cap market, on a relative basis to large caps, still has a lot of catching up to do. And, we think the Fed will remain very cautious and slow in their increases. This means that the period of outperformance may very well be an extended time of joy (a word us small cap investors have missed for a couple years) in small caps and we think this train will continue down the tracks for quite a while longer.

The second area where investors might want to look is Latin America. As the above chart shows, from the lows in January, when this Latin America MSCI ETF was down 26.4%, the outperformance has been huge. We are looking for this outperformance to continue.

And, why is this, you might ask? The answer is one word...Capitalism. From a very high, top down level, we all know capitalism has proven itself as the better economic model. And, while the US might be feeling the Bern and thinking that socialist ideas have merit, they really don't; just as any rich Russian living in NY or London.

But, what does capitalism have to do with Latin America? Well, it has been a quiet, sort of under the radar movement, but capitalist trends are taking over Latin America. We all know that there have been changes in government going on, but a lot of investors haven't put the pieces together to proclaim that the continent is moving more capitalistic. But it is!

Check out this list:

1.Argentina...dumps socialist president for capitalistic one.

2. Venezuela...Chavez is gone, reforms are taking place.

3. Brazil...dumps socialistic president, reforms taking place.

4. Cuba...opening its market to the US.

5. Colombia...makes peace with FARC, trade agreement in place with the US.

These are some of the biggest economies in Latin America and they are all making a simultaneous shift towards capitalism. Throw in commodity prices appear to have bottomed and you've got a secular trend with legs. We believe Latin America, like small caps here in the US, is a place where investors can make some money going forward.

Random Musings From Our Travels...

Looking at Latin America as an investment idea is a great segue into a discussion of the Olympics, which kicked off with their opening ceremonies on Friday night. Despite the prelude being discussions about which golfers and tennis players (funny how it's the country club sports, isn't it?) don't want to attend due to the Zika Virus, and how the athletes facilities are subpar and not ready, at the end of the day this will all be about the sports.

Where are our eyeballs focused? Well, along with the rest of the US, Michael Phelps has become a compelling individual. This time it's not for his dominance, but, rather, to see if, at an age long past where most swimmers have hung up their suits to dry, Phelps can manage to pull out a miracle. Already the most decorated Olympian in history, can Phelps overcome his age and his recent bouts with addiction and add to his medal collection? He is a special man, with a huge heart, and we believe he'll do just that.

Meanwhile, Ross' favorite event of the year, The Tour de France, concluded last month. While it was its typical colorful display of amazing athletes enduring brutal physical trauma to complete the circuit around France, it lacked serious drama. Chris Froome demonstrated that he is by far the most dominant cyclist on the planet.

There has been lots of speculation that Froome's Team Sky was too strong and, as a result, that the Tour should lower the number of riders per team going forward. The thinking being, this would make the race more competitive. Our response is, good luck with that one. Froome looks like he could be a one man team and still win. He was attacked by every challenger at different times and never appeared to come close to faltering as he countered each attack. Froome's dominance resembles that of Lance Armstrong (who technically never won, but we know better...) and the only way he will lose the dominance is if one of his competitors can raise up to his level.

The Tour was sadly marred by a terrorist attack in Nice on Bastille Day. Our hearts go out to the French and to all that have been affected by the increased onslaught of terrorist activities. May each of you, our readers, enjoy your August and your summer travels safely.

Is It Time To Brexit The Market? I Fear Not...

Tue, 07 Jun 2016 04:54:37 GMT

Summary

Markets in turmoil in front of vote.

Immediate impact of Brexit is muted.

Meanwhile, the Fed has turned more dovish.

Fade the fear; sell gold and buy European stocks.

Brexit is all over the news these days. Will the people of Great Britain vote to leave the EU? Or, will they stay? There are, of course, many repercussions for the financial markets based on the results of next weeks' vote; more so if there is a vote to exit the EU than one to stay. I believe, however, that the potential impact of an exit vote has been overly feared by the markets and investors should be proactive in positioning for a post voting snap back.

It was not too long ago that the thought of a vote to exit the EU was almost disdainfully dismissed. As recently as early June, the betting odds were over 80% for remaining in the EU. As the below chart shows, however, the odds for Brexit have increased dramatically.

The result of this change in the tide has been a swift counter punch by those in the remain camp. Sadly, their whole thought process behind convincing people to stay in the EU has been one of instilling fear into the voting populace. For example, check out these headlines.

"Osborne Warns Brexit Means Tax Rises and Spending Cuts" - Financial Times

"'Brexit' Would Cause Big Problems for German Banks" - CNBC

"Brexit would pose huge problems for rural Ireland" - RTE News

I could list dozens of more headlines, each one with a varying take on the doomsday that is an exit vote. However, I think you get the gist; the powers that be want Great Britain to remain in the EU and they are willing to scare the bejesus out of the exit voters in an effort to keep the status quo.

And, that strategy might work. There remains a better than 50% chance, according to the bookies, that Brexit is shot down. But, meanwhile, the strategy is having the tremendous side effect of throwing global markets into semi-turmoil; not a complete meltdown, but a serious impact nonetheless. What we are seeing, as the rhetoric heats up, is a major flight to safety. Look at how gold has traded over the last 10 days.

And, a major sell-off of equities. Check out the last couple days in the DAX.

The immediate impact of Brexit is exactly…what???

Here's the deal, markets are in turmoil because they fear a vote in favor of Great Britain leaving the UK. It's understandable on one level; a vote for Brexit is truly a vote against globalization and all the benefits thereof. It makes no economic sense and is strictly driven by a "Trump-like" fear of immigration. Yet, it's possible and, were it to happen, there would be repercussions.

Exactly what the repercussions are, however, is up for debate. Britain wouldn't leave the EU immediately, instead they would have a 2 year window to negotiate a trade deal with the EU. And, there is the precedent of both Norway and Switzerland that have free trade agreements with the EU despite not being members. It would appear that the immediate impact of Brexit is actually quite negligible, with the longer term impact to be negotiated by politicians.

The Economist, a major supporter of a Remain Vote, sums up their concerns thusly, "The immediate effects of a Brexit vote are likely to be bad. Prolonged uncertainty over Britain's new relationship with the EU will discourage investment, especially foreign direct investment, of which Britain is the biggest net recipient in the EU."

I'm looking at gold rallying and equities selling off and keep coming back to that quote. If the issue is "prolonged uncertainty" and less foreign investment in Britain, do the world markets really need react violently? I don't think so.

The Fed is getting clued in

While Brexit is dominating headlines out of Europe, the Fed's meeting here yesterday was probably more meaningful for the longer term direction of markets. In their open market policy meeting, there was a noticeable turn towards a dovish policy for interest rates from the Governors.

As shown above, the Fed is indicating a less aggressive stance towards interest rate increases. This has broad implications for financial markets that are very counter to what has been taking place. When the Fed moves towards an easier monetary policy, one would expect a USD sell-off. A move we had started to see since the last employment report, but one that had been reversed of late due to Brexit concerns.

As you can see, the reversal of Fed hawkishness has been overwhelmed by the flight to safety induced by the increasing concern over Brexit.

Fade the move; sell gold, buy European stocks

Markets are inherently forward looking. They predict the future and react in anticipation thereof. In the case of Brexit, I feel they have dramatically overreacted in anticipation.

First off, the odds of an exit are still 50-50…at most. I'm a believer that people are rational and it's irrational to vote for an exit, so I expect a vote to come out in favor of remaining in the EU. This would result in a reversal of the fear trade.

Even if I'm wrong, however, I still believe that we have seen an overreaction in the markets to the fear of Brexit. A vote in favor of exit would have little to no immediate impact. And, the impact would be felt primarily in Great Britain. The rest of the world will chug along happily. Meanwhile, the bigger news, a less aggressive Fed, is being ignored.

Thus, regardless of the vote, I expect to see a reversal of recent market movement to come next week. I think the dollar will weaken and risky assets will do well. I am expecting to see gold reverse its recent strong moves and back off, meanwhile I think equities will rally. I would be a seller of gold into and on the news, and a buyer of European equities at the same time.