Friday, July 15

2016: Second Quarter Review

Portfolio Update  
- Equity:  Our Man finally managed to exit the Dr. Reddy’s (RDY) position late in the quarter, for a very marginal profit.

- Currencies: Midway through the quarter, after the strong rally in the Euro, Our Man added substantially to the S Euro position.

Performance and Review   
The second quarter proved far more generous than the first, with the portfolio rising +4.54%, leaving it -0.6% YTD.

The performance was primarily driven by the Precious Metals (+301bps) positions.  While both Gold (GLD, +27bps) and Silver (SLV, +68bps) contributed, it was the exposure to the Gold Miners (+207bps) that made the difference.  Our Man was too early into the Precious Metals positions in 2015, but the positions have more than recouped those losses and provided a healthy gain over 2015/2016.  The strong performance of the Precious Metals book (along with the Dollar strength, especially versus the Euro) meant that Our Man's portfolio was quite profitable in the days following ‘Brexit’.

The Equity book (-17bps) posted a small loss, as VIPS continues to work through its issues and the stock is between investor bases; while cheap (Internet company at less than 20x PE) and growing (40%+ p.a.), it’s also seen its growth slow from 100%+ p.a. and so is transitioning from being held by growth investors to more value-orientated ones.  The International book (+126bps) performed well, led by Pampa Energie (PAM).   Argentina continues to be the gift that keeps on giving – the pace of Macri’s reforms continues unabated, and MSCI moved the country to the watch-list for possible inclusion in the MSCI Emerging Markets Index.  

Finally, the Long Dollar positions were profitable with the China Thesis (+3bps) and the Currencies book (+41bps) generating returns as the dollar strengthened slightly against the Aussie Dollar and especially the Euro (post-Brexit).

Portfolio (as at 06/30 - all delta and leverage adjusted, as appropriate) 
16.1% - International/Country (GVAL, and Argentinian names)
14.4% - Precious Metals (GDX, GLD and SLV)
2.6% - Equities (VIPS)

-1.7% - China-Related Thesis (CROC – Short Australian Dollar)
-32.5% - Currencies (EUO – Short Euro)

49.8% - Cash  

Disclaimer:  For added clarity, Our Man is invested in all of the securities mentioned.  He also holds some cash and a few other securities (of negligible value).  You should not buy any of these securities because Our Man has mentioned them, but should do your own work and decide what’s best for you.

Friday, July 8

Things from my Google Reader; 2016 Part I

It’s been an exceptionally long-time since Our Man posted a “Things from my Google Reader”, so here’s a bumper edition.  Hopefully, the wait will not be so long in the future!

- The Spy Behind the Plane that Saved Britain 
In the skies over Britain in 1940 the Spitfire turned the tide against the Nazis, but only a handful of people knew that it owed its edge to secrets cribbed from Germany.  (Clive Irving, the Daily Beast)

- The FBI vs FIFA 
Football is the world’s game, and it wasn’t exactly a secret that FIFA, the governing body, was corrupt.  Yet, it took the Americans to get the sport to start to clean up its act – maybe we should start calling it ‘soccer’ out of gratitude!   Just kidding!  But here’s ESPN with the in-depth story about how the FBI brought down FIFA! (Shaun Assael & Brett Forrest, with Vivek Chaudhary, at ESPN)

- What the iPhone has done to cameras is completely insane 
 File this one under things you know, but are still stunning to see (especially in graphical form).  How badly do you think camera sales fell, following the iPhone’s introduction in 2007?  Roberto Ferdman looks into it, and it’s uglier than you thought (well, uglier than OM thought at least).  (Roberto Ferdman, Washington Post).

- Taxi, Uber and Lyft usage in NYC 
The TLC provides regular usage data, and Todd Schneider made life easier by collating it all and taking a look.  You know what to expect, but seeing it in graphical form always helps confirm things; Uber up, taxis down, Lyft still trying.   (Todd W. Schneider, at his eponymous blog)

- Will self-driving cars lead to grade-separated cities? 
What will real self-driving cars (think more the Google version than the fake Tesla version) mean for cities?  Well, the folks at MIT’s Sensable City Lab had a look at the future of traffic lights, and predict their days may be numbered.

BREXIT 
 It’s been the biggest thing in Our Man’s homeland since sliced bread, and though the world hasn’t (yet) ended it’s certainly been shaken up.  Rest assured, Our Man has lots of thoughts on Brexit and related things, but you’re likely to be saved from most of them (though Our Man probably won’t be able to resist writing one post, and no more, on the subject).   In the meantime, here are some of the few things Our Man has actually found worth reading on Brexit (and related things) in the aftermath.

- Calm Down: The Brexit Result is not a 21st-centurySarajevo 
For those worrying about Armageddon, hopefully reading this helps you back away from the ledge.  (David McWilliams, Irish Independent)

- Evolution not Revolution 
While newspapers & politicians want to talk about about immigration, the date indicates it was 'sovereignty' that drove the Leave vote.   Ideally, this should inform the British negotiations, and the Adam Smith Institute make the case for the EEA option.  (Adam Smith Institute)

- The 2.8million Non-voters who Delivered Brexit 
An interesting analysis of where the polling went wrong (spoiler alert: turnout models) and the large cohort of ‘new’ voters that it largely missed.  Ascertaining who they are isn’t the hard part, but what do they want and will they vote again is much harder?   Secretary Clinton better hope that Donald Trump isn’t as successful at finding them.  (Matt Singh, Bloomberg…though he’s normally found at the excellent Number Cruncher Politics) 

- Brexit: A disaster decades in the making 
You do not have to agree with the author’s viewpoint (that it’s a disaster) to appreciate that there’s some really good stuff in here about the long-term issues that led to the lack of trust/faith/etc in the establishment (and both major political parties). (Gary Younge, Guardian)

- How Remain Failed: the inside story of a doomed campaign
- How David Cameron blew it 
It wouldn’t be a political campaign, without the post-mortems…after all mistakes were made and there's more than enough blame to go around!  (Rafael Behr, Guardian and a number of folks at Politico.eu, respectively)

Sunday, April 24

2016: First Quarter Review


Portfolio Update 
- Technical: After growing sceptical of the rally during December (but not flashing any major warning signs), the Technical model quckly flashed a warning and a full sell signal during the first couple of weeks of January.  As a result, OM exited the positions in mid-January when the S&P was in the mid-1900s.

- Equity:  With the warning lights from the Technical model flashing, and the myriad of issues with China (and as a result EM) coming to the forefront, OM decided it would be a judicious time to exit some of his Equity positions that have a Chinese-bent.   As such he completely exited TTM (which suffers doubly from any slowdown in auto sales in China and the US, where sales are already at a high rate) and JD.com (Chinese company, in Internet consumer sector).   Our Man also sold ~1/3 of the VIPS position, another Chinese internet name, but one in which he has higher conviction than JD.com (in part because it generates a profit).

- International:  As noted in the year-end review, with all the issues in Europe and Our Man’s lack of faith in European decision-making, he exited all of the Italy (EWI) and Spain (EWP) positions in mid-January.   In addition, after the exceptional performance of the Argentinean names as President Macri first forced a run-off and then won it (and proved far more decisive and aggressive in dealing with the issues in his first 100days than was believed possible), OM took the opportunity to take profits in his Argentina position (by selling TGS).

- Currencies:  With Europe following Japan into negative interest rates, and having witnessed the impact of the move in Japan on both the currency (stronger, not weaker) and banking system (stocks falling), OM reduced his Short Euro position by 1/3 during the second half of the first quarter.  

- China Thesis: With Chinese New Year followed by data that looks to be improving (or at least, not getting worse) and the bounce in commodity prices, OM substantially reduced the Short AUD position (by 80%+).  The position has been a great winner, but OM suspects there will be a much better time when he’s able to re-enter it (at much better prices).

Performance and Review  
The first quarter saw the portfolio drop 4.95%, though after suffering a 7.0% loss in the first two weeks of January, the book was incrementally profitable in the remainder of the month and both February and March.

Unsurprisingly, the Equities book (-304bps) and the Technical book (-283bps) were the largest causes of the loss.  As the Portfolio Update above notes, both books were heavily cut back during the month (they were over 50% NAV, and are now 10%) and in the Technical Book’s case the exposure is unlikely to return any time soon barring a significant change (this is as the Technical model is signalling a bear market, rather than just a notable correction).  The International/Country book (-94bps) suffered during January (primarily from the European positions), though the Argentinean names have continued to perform well as President Macri exceeds expectations (settling with the holdouts, and accessing global capital markets for the first time in 15yrs).

Despite their reduced size, the currency-orientated book were negative contributors, Currencies (-48bps) and China Thesis (-2bps), during the quarter with all of the losses coming in March; clearly OM wasn’t surprised by the dollar’s weakness (hence why the positions were reduced) though the speed of the reversal was a surprise.  That said, expect OM to rebuild the currency positions in the future, especially the Euro (prior to Brexit, Greece’s latest problems, etc).  Finally, the Precious Metals (+235bps) book contributed to returns with Gold, Gold Miners and latterly Silver all contributing well and erasing most of last year’s loss (oh the cost of being too early!!).  While OM’s yet to be convinced this is more than the start of a sharp reversal in a bear market, he’s holding onto the positions as (though it will likely be volatile) there’s likely much more to come.

Portfolio (as at 03/31 - all delta and leverage adjusted, as appropriate)
15.6% - International/Country (GVAL, and Argentinian names)
12.0% - Precious Metals (GDX, GLD and SLV)
10.0% - Equities (RDY & VIPS)

-1.8% - China-Related Thesis (CROC – Short Australian Dollar)
-9.9% - Currencies (EUO – Short Euro)

56.6% - Cash 

Disclaimer:  For added clarity, Our Man is invested in all of the securities mentioned.  He also holds some cash and a few other securities (of negligible value).  You should not buy any of these securities because Our Man has mentioned them, but should do your own work and decide what’s best for you.

Thursday, February 4

Fourth Quarter 2015 Review

Portfolio Update  
- Equity: Our Man added to the position in VIPS, after the company disappointed the market with its earnings and guidance early in Q4.
- International: Our Man exited the position in Greece during December; while the Greek market looks cheap on a long-term basis (CAPE), there remain questions about how useful the Greek data is.  The data-set starts in ’95, and hence predominantly covers the period when Greece was trying to get into and then a member of the Euro.  As such, how truly representative is this period? Does it just reflect a time of unusual ‘good’ behavior by the actors – government, companies, etc – in Greece?  Given the continued austerity as a condition of remaining with the Euro and the uncertainty (while it’s not at the forefront of people’s minds, currently) of whether it will remain so, Our Man decided it best to (finally) just cut his losses and move on.  Those of you, who’re pondering “what’s changed” are largely right…it’s a decision Our Man should have come to some time ago.
- Currencies: The position S Japanese Yen (YCS) was closed out during the fourth quarter, having been profitably held (at various sizes) for over 2 years.  While there may be more actions to come from the Japanese Central Bank, Our Man isn’t convinced they’ll have as much of an impact as those we’ve seen over the last 3 years.

Performance and Review  
The portfolio gained 4.3% during Q4, though this meant it still ended the year in negative territory at -4.6%.  Despite the profitable quarter, Q4-2015 is likely to go down as one of Our Man’s most disappointing.  During the quarter, and especially in December, there were many signs of both macro changes (including weakening US data) and in market tone – in particular with regards to China (further RMB weakness and concerns over its banking system) and credit markets (Third Avenue’s redemption suspension from their credit fund).  These factors impacted the portfolio negatively in December (and subsequently January), and Our Man failed to respond to them proactively.  Thus, rather than the normal round-up of a quarter, the below represents both a round-up coupled with Our Man’s current thinking and plans on the various books.

China Thesis: While the moves in the Australian Dollar cost the portfolio 64bps, the Long USD/S AUD position contributed 2x this during the course of the year.   OM retains the position, expecting a substantially lower AUD (i.e. more like the 2001 lows than the 2008/9 lows) as the unwinding of the China-driven secular bull market in commodities continues.  Unfortunately, while OM expects the AUD position to continue to be a good contributor it’s an inefficient way to play the thesis, but the other options (S the RMB or Shorting 2nd derivative stocks from the mining/commodity fall-out – I’m looking at you CAT) aren’t available to him.

International/Country:  Was a great contributor, +335bps, during the 4th quarter.  The performance was driven by the Argentina exposure; Macri (the most market friendly candidate) did better than expected, initially forcing a run-off which he subsequently won.  Since he took office in December, he has been better than anyone could hope for; removing capital controls, making changes to the tax system, replacing the Central Bank Governor and the Head of the Statistics office, and even starting to negotiate with the holdouts which would bring Argentina back to the global capital markets.  Stocks have responded to these moves, but OM trimmed the position during January – while Argentina is a great alpha story, it’s a terrible beta one as a Latin American emerging market (look at Brazil, for what could go wrong) in what’s become a less patient and forgiving environment.

The European positions were mild detractors in the case of Spain and Italy, and a continued disappointment with regards to Greece.  Our Man’s never been a huge Europhile, so he’ll spare you the Europe is a “political construct not a popular one” comments, and just say that in times of stress (be it caused by Euro, or now the refugee crisis in Syria that’s impact European countries) he has little faith in “Europe” making sound long-term decisions.  As such, after exiting Greece in December, Our Man exited both Spain and Italy in January – they’re still ‘cheap’ and he hopes to be back, though it may be a while!

Equities:  The equity book was a mess in Q4, despite the rising markets, costing the portfolio 125bps.
- JD/VIPS were hit by China concerns and VIPS, in particular, produced disappointing numbers which it also handled ineptly (deciding to pre-announce on a Friday, a couple of days before their Earnings announcement).  While growth is decelerating, unlike most Internet companies VIPS generates profits and thus can be valued off earnings (rather than revenue, or clicks, or whatever).  The stock trades at a reasonable PE (14x 2016) while still seeing 40-50% top and bottom line growth!  Despite this, OM reduced the position in January while also exiting JD (which doesn’t generate any profits)
- The two Indian positions were also disappointments.  Tata Motors (TTM) continues to roll-out new models (especially Land Rover and Jaguar) and they’ve been doing well, but was hit by concerns that the auto cycle has peaked (especially in China, and important market).  While it may outperform other automakers, it’s another good alpha/bad beta story, and OM would rather keep his Argentinean exposure, hence he sold out of the position in January.  Dr Reddy’s problems were largely of its own making, which at least gives it the opportunity for self-help going forwards.

Technical: The Technical book contributed 261bps during the 4th Quarter from the OEW-driven positions.  Unfortunately, there were some signs in December that the market’s bull run had peaked, after the S&P failed repeatedly to break to new highs (which were expected), though no sell signal was seen.  Unfortunately, the sharp descent early in January produced the sell signals, and OM exited the positions (at around the current levels).  Given the OEW-driven model has signaled the end of the 2009-2015 bull market, OM doesn’t expect to have any positions in the Technical book (without substantial market changes) until we’re into 2017.  He is however, working on another (very simple) model to add to the book – as with the OEW-driven model, the new one will seek to help OM get over his skepticism and systematically add market exposure for prolonged periods.

Currencies:  The currency books continued to be productive, adding 56bps in Q4.  As noted, OM has closed out the Short Japanese Yen position, but he retains the Short Euro position (EUO).  With the Federal Reserve raising rates in December and Europe continuing to try and ease (or at least Draghi trying to convince investors that’s the intent) there is a nice dichotomy in policy.  Hopefully, it will last.

Precious Metals:  Our Man wasted almost 300bps in 2015, by entering these positions both too early and sizing them too big.  Unfortunately, OM continued to pay for his inaction after recognizing this relatively early-on.  Despite costing the portfolio 28bps in Q4/December, there were finally signs that the time may finally be here for them…though a large part of any move, is merely recouping losses.

Portfolio (as at 12/31 - all delta and leverage adjusted, as appropriate)
35.0% - Technical Book (DDM, QLD and SSO)
31.4% - International/Country (EWI/EWP in Europe, GVAL, and Argentinian names)
23.5% - Equities (JD, RDY, TTM, & VIPS) 
9.1% - Precious Metals (GDX, GLD and SLV)

-11.3% - China-Related Thesis (CROC – Short Australian Dollar) 
-15.6% - Currencies (EUO – Short Euro)

5.1% - Cash 

Disclaimer:  For added clarity, Our Man is invested in all of the securities mentioned.  He also holds some cash and a few other securities (of negligible value).  You should not buy any of these securities because Our Man has mentioned them, but should do your own work and decide what’s best for you.

Sunday, December 20

Things from my Newsblur: December-2015 - The wait, what, this still exists edition?

So, Our Man realized it’s been an interminably long time since he let you know about stuff of interest from his Newsblur!   After racking his brain, and  checking his files (thus being certain that there was lots of good stuff bookmarked) it seems there was no good reason for this…other than good old fashioned laziness.  Thus consider things from my Newsblur back, with a New Year's resolution to help ensure it!*

This won’t come entirely as a surprise to those of you that have kids but nearly 25yrs after his death, Dr. Suess continues to own the world of children’s books having sold multiples of the next author on the list (a certain JK Rowling).   Oh, and Green Eggs and Ham only uses 50 different words.  (Priceonomics).

Allergies, especially food ones, have been on the rise over the last couple of decades and the “solution” is typically to do everything on can to avoid the allergen.  While this typically works well for those will limited/controllable/etc allergies, it’s not much help for those with very severe reactions but thankfully there are other things being worked on. 
(Melanie Thernstrom, Stanford Medicine)

Folks of Our Man’s generation (were young, about to be middle aged!) saw the technical revolution hit as we went through high school/university so are pretty good at using stuff!  Our Man’s kids are going to need to know more than how to just use things (though they’re freakily good at that too).  Our Man’s using this article so he’ll be able to nod, in just the right spot, in a few years when one of the kids explains how they programmed the toaster to the do the laundry or something like that!
(Paul Ford, Bloomberg Business)

What happens when 2 VC firms try to map out the HC world, from a current traditional map to trying to figure out where it’s going and then blog about some of the things they’re seeing…
(Union Square Ventures and Version One Ventures, On Digital Healthcare)

Anyone who’s been to the DMV, knows how bad the government’s IT systems can be…there is some hope!
(John Gertner, Fast Company)

With the recent run of corporate scandals (including the Banks/Libor, Volkswagen/diesel emissions, and Valeant/stuff) it seems a good time to look back at the East India Company.  The company is thought of as the first corporate raiders, though their approach was to do this in the literal sense with the backing of their 200,000+ strong military force rather than through today’s boardroom maneuvres.
(William Dalrymple, The Guardian)

* Like all NY's resolutions, this only guarantees that Things from My Newsblur will be strongly considered but not actually acted upon/produced in the month of January.