11/2018 Market Commentary

The 41st President of the United States, George Herbert Walker Bush, died this weekend, and he may have been one of the most qualified presidents to hold the office. We invite anyone who did not watch or read any of the videos and print honoring the president to do so. His story is a good one. Ballast salutes 41.

Markets will be closed on Wednesday, designated as a day of mourning by the current POTUS.

John “Jack” Bogle is often credited as the father of passive investing, or at least creation of and advancement of the index fund. You may not know his name, but you probably know his company and brand: Vanguard. We are several decades later, and his approach is mainstream (perhaps too mainstream). Passive investing has been very successful and helped many investors to date. But is too much of a good thing a bad thing? We think so. And so does Jack Bogle. Don’t take our word for it? Read Jack’s penned warning.

The price of crude oil continued to tumble throughout the month of November. For a moment, West Texas Intermediate, or WTI, the US benchmark for oil, touched $49.41 on an intraday basis November 29. That is a -35.7% decline – a rapid decline – from the multiyear high of $76.90 reached on October 3 of this year. Ballast continues to watch the energy markets for opportunities to invest.

Equity markets rallied, sank, and rallied again in November, marking another volatile month. Where markets go from here no one knows, but we suspect that an autopilot holiday rally is in the works. It will most likely include light volumes and the prospect of trade deal (or truce) between US and China. It’s the new year that we worry about.

Credit markets received a few jolts during November. General Electric (GE) and Pacific Gas & Electric (PCG) were two primary concerns. The former responded to the company CEO saying that GE needed to urgently reduce debt. The latter has exhausted its credit facilities as it faces the second major wildfire liability in two years and may well be on its way to bankruptcy, barring state legislative action to lighten the burden. GE and PCG are two investment grade credits, meaning they are perceived to have a low risk of loss. These big realizations may have awoken credit investors to the risks out there. High-grade credit, which technically still includes GE and PCG, saw risk premiums rising. The low-grade market – high yield market – (the riskiest of the credit market) responded similarly with rising risk premiums.

Sticking with previous months’ format, we will just bullet some key events about Tesla that caught our attention.

• The competition is heating up. A notable new entrant to competition is a startup auto manufacturer that we had not previously heard of – Rivian. The CEO commentary is telling.
• Musk expressed interest in partnering with Daimler to use their popular van in a push to electrify the submarket, but this is weird since Daimler is already expected to roll out an electric version in 2019…
• Panasonic says that profitability is within sight (when isn’t it?) at the Gigafactory, the battery factory supplying Tesla.
• Musk posted a tweet welcoming the newly appointed chairwoman and, in so doing, implied that she is new to the board. She has been on the board for a few years and has been the lead independent directly. That is a very odd governance slipup.
• An unverified, independent tweet was circulated that indicated the VP of Legal at Tesla left after nearly 8 years with the company. The person was formerly with the SEC. This does not bode well considering the recent SEC settlement for Musk’s actions in August.

Our previous Market Commentary [link] mentioned Uber’s reported losses, debt deal, and potential IPO. This month, Uber reported slowing revenue growth and worsening losses. Where do investors signup?