20/10 – October Market Commentary


The price for a barrel of crude oil fell to close the month of October at $35.79 (WTI) after spending much of October above $40. This is causing chronic pain in the energy markets where a long list of companies have filed for bankruptcy protection, other companies are trading at historically low values (sector weight as low as 2% in S&P 500), and the oil majors are straining to maintain dividends with low cash flows.

The causes for the fall in price of crude are numerous. Chief among the causes, energy demand expectations shifted lower as countries moved towards greater restrictions to ward off virus spread. Other contributors to the decline are rapidly
rising production in Libya, currently in civil war, and US production does not seem to be in balance yet as storage levels continue to rise to levels that previously scared market participants.

Meanwhile, a frenzy of business consolidation has swept the US shale patch. Pioneer Natural Resources agreed to acquire rival Parsley Energy, ConocoPhillips is acquiring Concho Resources, Chevron acquired Noble Energy, and Devon Energy is merging with WPX Energy. It is a busy sector.


As cases increase and hospitals experience increased admissions several countries reimplemented varying degrees of lockdown/restrictions. Some US states are contemplating varying degrees of restrictions as virus cases rise. While we (and we think the market does too) did not think we would get back to lockdown-like conditions, current trends of several state hospitalizations may lead us there. Hopefully not. Even without state-imposed restrictions human behavior (staying home more, avoiding public spaces, etc) is having a severe impact on the economy.

What can be said is that the economy has not recovered – life is not as it was before. Just looking at industries around travel and vacation as example, we could be years away from previous norms. A new wave of lockdowns and restrictions could prolong any economic recovery, not just travel and leisure. We are not sure markets are priced for this.

Hopefully, Oxford scientists are successful with their 5-minute test. It would go a long way to shortening quarantines and alleviating lasting anxiety from potential exposure.


PayPal, perhaps one of the most widely known financial technology companies, has announced it would open its network to digital/crypto currencies (the realm of bitcoin, ethereum, etc). Square is similarly positioning itself for transactions. This could give new wind for a bubble to blow. Recall that back in 2018 cryptocurrencies experienced an extraordinary runup in prices that was considered by many to be bubble-like. We may see another speculative move in related prices. This is speculative. We watch with bewilderment as markets continue to behave in ways we consider irrational.


The nay-sayers were wrong again. Or were the yay-sayers? Tesla reported another profitable quarter and everyone got what they were looking for – Elon Musk has unlocked another cool $3 billion in stock for himself, the critics saw another poor underlying performance quarter, enthusiasts saw strong profit and cash flow, and Tesla got another shot at making primetime inclusion into the S&P 500 index. On the latter, the index committee skipped over Tesla’s inclusion, waiting for greater maturity from the company. We wonder if the recent credit ratings upgrade is an extra push of confidence. Combined with another profitable quarter maybe inclusion is in the offing. Who knows. It was certainly another interesting month and the company remains very highly valued relative to all other automobile manufactures combined.

05/2019 Market Commentary

Growth Industry

Life insurance! Boy, have we got something you need! Just kidding.

So this is what the road to a trillion looks like: link. Who would have thought an old industry like life insurance was a growth industry again. Here, Blackstone is not bashful acknowledging their primary motivation is your best interest asset gathering. Beware of what these life insurance companies are selling and how they are selling it. Their objective may well not be the same as yours.

Oil & Gas

On the fritz

Oil prices have fallen dramatically in recent weeks from a high of $66 to as low as $53 (both are WTI). The latest inventory reading showed a major build up. This is sometimes associated with weak demand, which could signal broader economic weakness. WTI price chart:

Pioneer: Cutting to Grow

We have always wondered about the business math behind aggressively growing a negative cash flow business whose asset declines/depletes very rapidly – generally two years or faster and often precipitous in the first twelve months of the wells life. Talk about having to work hard to stand still (keep production up). Investors did not seem to mind and fed the industry more and more capital. With the uptick in oil and gas related bankruptcies and industry stock price declines it seems that capital providers are becoming more discerning (ie the capital comes more expensively or with greater strings attached). The question becomes what companies do with what they have. Pioneer Natural Resources seems to be following a new strategy akin to Tesla’s – cutting their way to growth (for all the criticism Tesla gets there sure is a lot of corporate mimicry going on). Things must be going well in the shale oil patch…

Bankruptcy Squared

Triangle Petroleum filed bankruptcy for a second time in three years. What a proud accomplishment for capital providers in the Bakken shale region!

Big Deal

Elsewhere in the oil patch investors are not afraid of recent rumblings (above and previous) or are at least are trying to catch up with rest. Chevron and Occidental Petroleum competed in pursuit of acquiring Anadarko Petroleum. Occidental has won out that bidding competition and with such sound economics management was certain that shareholders would agree so they tweaked the deal terms in such a way that removed the requirement for a shareholder vote. (That’s sarcasm – we think shareholders should vote on something this big) The deal is valued at $56 billion.


More delay in returning the 737 MAX to flight. Getting these aircraft back in the air is critical to Boeing’s operations. Each delay is very costly to Boeing as its working capital deteriorates – aircraft built but not sold is another way of saying cash goes out but does not come in.


  • Tesla expects global shortage of electric vehicle battery minerals (link)
  • US does not exempt Autopilot “brain” from new tariffs (link)
  • Tesla raises $2.7bn capital (link)
  • Solar factory revolutionary cells are being exported and not finding many US roofs (link)
  • Analyst describes “Code Red” situation at Tesla (link)
    • Stock trades below $200 for first time in 2.5 years.
  • Self-driving trucks begin mail delivery test for USPS (it’s not a Tesla) (link)
  • Bullish analyst talks differently on private call (link)
  • Tesla’s Autopilot requires significant driver intervention (link)
  • Analyst warning sends share prices lower (link)

Tesla stock price chart from Bloomberg:

Tesla bond due 2025 yield chart from Bloomberg:

02/2019 Market Commentary


Some quick background for anyone new to the thread: Tesla is an electric car manufacturer with $53bn market capitalization, has yet to produce annual profit and currently has lower volume manufacturing capability as compared to established US-peers Ford and GM, which report profits and have global volumes to go with their market capitalization of $35bn and $56bn, respectively.

As usual, we’re listing some top stories concerning Tesla with minimal comment:

  • Model 3 price cut: Read Story >
  • Tesla buys sketchy penny-stock company Maxwell Technologies: Read Story >
  • Tesla cuts North American delivery division workforce: Read Story >
  • No software updates available for mechanical service needs: Read Story >
  • Can’t sell them here so let’s try to sell them there: Read Story >
  • Amazon invests in rival electric vehicle company Rivian: Read Story >
  • SpaceX (Tesla sister company) reports layoffs: Read Story >
  • SEC asks judge to hold Musk (CEO of a public company) in contempt of court in violation of his agreement with SEC in October: Read Story >
  • Judge says Musk has until March 11 to explain his position: Read Story >
  • More electric vehicle competition coming: Read Story >
  • Convertible debt maturity of $920mn due March 1 with stock below conversion: Read Story >

Macro: India and Pakistan on the Brink

An old conflict just resurfaced between India and Pakistan in the Kashmir region. The two countries are sparring after a terrorist attack against India and subsequent downing of two Indian air force jets. The two countries are nuclear powers. Any more escalation could be market moving.


General Electric

Agreed to sell its biotech division for $21bn, a major step as the company focuses on de-leveraging. Ballast continues to monitor GE for investment opportunities.


Oil and Gas: To Frack or Not to Frack

It’s a big debate with billions of dollars in capital at stake. The reporting and opinions are mixed. It’s difficult to argue with industry experts, but we tend to think benefits will be fleeting, at least in terms of ultimate score-keeping of long-term returns on invested capital. Here is a quick look at the two sides – to frack or not to frack.


To Frack

Chevron, a major oil producer and former part of the Standard Oil empire that Rockefeller built, is shifting capital expenditures away from semi-traditional offshore plays and towards shale in the Permian basin. This Bloomberg piece covers a bit more than the preceding sentences.


Not to Frack

Other reports continue to surface indicating that years of losses in the shale oil patch have finally caused capital providers to think twice about investing. New capital flow into the sector is decreasing dramatically and it’s being reflected across much of the sector’s public stock prices. This WSJ piece covers a swath of them.



Perhaps a case study on its own is Alta Mesa Resources Inc (ticker: AMR) and all related parties involved. An energy-focused (specialist) private equity group sponsored a Special Purpose Acquisition Company (SPAC) – essentially a publicly traded blank-check company – for the purpose of acquiring assets on the cheap coming out of the oil and gas rut that ended circa February 2016. This blank-check came with an all-star CEO. A deal was consummated in early 2018 (a year ago) in which the SPAC paid $3.8bn to acquire two separate assets Alta Mesa Holdings LP and Kingfisher Midstream LLC. Fast forward one year and everything is seemingly fine according to how the fourth quarter earnings release reads except for the often ignored “Corporate Items” section at the bottom where management discloses a $3.1bn write-down of the assets just acquired… For those that don’t want to do the math it’s 81.5% of the aggregate market capitalization at the time of acquisition – again 12 months ago. Bravo!


AMR is a story not widely discussed in the news but represents a red herring in the ‘to frack or not to frack’ debate and highlights the preposterous nature with which capital is gathered, deployed, and destroyed in the capital markets. All of this is done under the perceived veil of safety from a publicly traded company (blessed by and registered with the SEC) and the big-time investors involved.


Do these Unicorns have Wings?

Profits need not apply. Unicorn IPOs are back with Pinterest, Lyft, Uber, Airbnb, and others scrambling to become publicly traded stocks this year.

Negative Yields

Yes, negative yields do exist. Yes, there are a lot more than you realize. No, Ballast does not invest it’s clients capital in any negative yielding bonds.

Kraft Problem

The packaged foods group, not the Patriots owner…

Kraft Heinz (ticker: KHC) reported a massive asset impairment after concluding the calendar year 2018. Kraft and Heinz merged in 2015 for a combined value at the time of around $45bn. The merger was met with general market celebration. Then in 2017 Kraft Heinz attempted to acquire Unilever, a major UK-based consumer products group, for $143bn (could you imagine). Fast forward one and a half short years later and KHC is taking a $15.4bn impairment charge on some key brands. That’s 34% of the initial combined value of the merger. Someone got the price wrong.


The merger was a partnership between two icons in the investing world: Warren Buffett and 3G Capital, the Brazilian investment group that brought zero-based budgeting back in the limelight. There is a lot of criticism to level here on this approach (it even duped the master of investing), but suffice it to say that financial engineering is not a long-term strategy and certainly not something to apply to mega-corporations with end buyers and ultimate consumers that are not at all concerned with how many billions you think you can squeeze from a budget.


11/2018 Market Commentary

41st President

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.

Passive Investing Warning

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.

Oil Tumbles

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.

Market Volatility

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 Volatility

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?

06/2018 Market Commentary

How is it July already? In case your summer is flying by as fast as ours, here is a chance to catch up on June’s Market News.

Auto Market

We commented on subprime auto last month. In June, there were a few events that had us scratching our heads. The first – Edmunds said that used-car prices are at a record high – which caused car rental companies like Hertz (ticker: HTZ) and Avis (ticker: CAR) stock prices to surge. The second – Street analyst forecasted a weak outlook for used-car prices – which sent Hertz and Avis plummeting. Ballast would agree with the analyst perspective that bargains are around the corner for vehicles coming off lease.


Hertz Price Chart

General Electric

GE continues to pare its operations to reduce debt and improve profitability. In June, GE announced it would spin-off its healthcare unit and sell its ownership in Baker Hughes. These businesses represent around 1/3 of GE’s revenues. GE will look very different in coming years. Ballast remains interested in the name.

Another mark for GE in June was the historical removal from the Dow Jones Index. GE was a member of the Dow Jones since 1907. Walgreens is the new Dow Jones entrant. Perfect timing…(Amazon acquires PillPack)

Amazon, The Untouchable

Amazon continues to impact other companies. Drug stores, drug distributors, and pharmacy benefit managers just got a tough pill to swallow (or so investor reactions suggest). Amazon agreed to acquire online pharmacy, PillPack, for $1 billion and wiped out $17.5 billion in equity market capitalization from 8 companies. The acquisition is a major step for Amazon into the pharmacy business, where the company plans to deliver medications directly to patients.


OPEC agreed to raise production. To Ballast’s surprise, oil prices surged. This is because the production increase was lower than expected. West Texas Intermediate crude closed out the month above $74, after spending much of June around $65. Amazing.

Mall Apocalypse?

Miami and Florida officials have approved development of what will be the largest mall in the United States – bigger than the eponymous Mall of America. The same owner is building the new mall. Despite malls around the country suffering greatly from reduced foot traffic and sales as e-commerce draws away market share, this mall is designed with major attractions in hopes of drawing shoppers. The $4 billion mall will have 3.5 million square feet of retail space and 1.5 million of entertainment space, which will include rides, trampoline parks, gyms, and other entertainment.


The cryptocurrency’s US dollar exchange rate continues to trend lower, reaching new year-to-date lows of around $5,900 at June’s close. This is a nice segue to share two pieces we think explain cryptocurrency and blockchain. The first is an info graphic by Reuters, and the second is excerpt from Bank for International Settlements (like a central bank to central banks) annual economic outlook.



It was a wild month for investors of Tesla stock. The price moved between $286 and $373, an $87 range. There was plenty of news flow around Tesla during June but no particularly noteworthy events. What we found interesting was this piece, which takes a look inside the company’s factory.