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.

20/05 – May Market Commentary


US jobless claims fell at the end of May but unemployment rate likely remains near record high. As has happened in the past, it seems this high unemployment rate will grind lower slowly. Restaurants are probably the most illustrative example – it has been estimated that as many of 20% of restaurants may have permanently closed. And what about other hospitality businesses and airlines?


For now, there are federal support programs in place to help with lost income across the country. As time passes, however, it is less likely for these programs to remain in place. Unless many of these displaced workers can return to work in a short period of time there is likely to be an adjustment period. These lost incomes will result in credit losses at lenders (banks, mortgages, credit cards, etc) when debts can no longer be serviced and will result in lower consumption (we are a consumption-based economy). These issues will reverberate around other parts of the economy. It is called a recession. With how deep of a cut this second quarter is expected to be, we may be lucky to avoid a depression.


Investors like to celebrate Warren Buffett and his investment insights. What no one wants to acknowledge is what we have seen the last few months. Berkshire Hathaway has a fortress balance sheet with at least $130 billion in liquidity. Berkshire has announced no deals, something he is known for during market chaos. In fact, Berkshire has been liquidating several large investments – airlines and Goldman Sachs – and trimmed some other positions like JP Morgan and Wells Fargo. Warren Buffett likes to talk positively about long-term outlook for the United States – and we would not disagree, per se… it’s not what the future looks like so much as the path between – but do you suppose he is bullish on the US stock market and economy at these prices? As always, we think his actions speak louder than his words.


Retailers are reeling from the countrywide COVID-19 lockdowns. Many were struggling before the virus. For some major retailer brands it was the last straw. Neiman Marcus, JCPenney, and J Crew are just a sampling of names to recently file for bankruptcy. Others, like Macy’s, Kohl’s, and Nordstrom, have scrambled to shore-up finances and have completed secured debt deals since March. For an industry (brick and mortar retail) that has been in secular decline, it is tough to look across the landscape now and see opportunity, especially on the equity side.


US-China relations continue to fray.


  • The Trump administration is blaming China for allowing the virus to infiltrate the United States. To be sure, on the one hand we are to believe that the virus is nothing (just the flu, not even) and on the other hand we are to hold China accountable.
  • The trade deal phase 1 may be in jeopardy. For one thing, China has suspended US agriculture purchases.
  • China has moved forward with tucking Hong Kong under its unified control and the US responded by moving to strip Hong Kong of its special “One Country, Two Systems” policy. This has allowed HK to remain a central financial and economic hub to Asia post the British handover in 1997.
  • The US is threatening to suspend participation in WHO.
  • The US has warships in the South China Sea

The US is moving toward stricter listing of Chinese companies on US exchanges and restricting Federal pension plan investment into Chinese companies.

Junk Bonds

Some bonds issued into the junk bond market since the outbreak of COVID-19 and subsequent lockdown are souring.


Elsewhere in the junk bond world the Federal Reserve is holding worthless bonds it purchased through one of its market support mechanisms. The Fed purchased junk bonds through ETFs in its secondary market purchases and now holds several bankrupt securities like Hertz Global, JC Penney, and Neiman Marcus.


The dichotomy of haves and have nots in this economic calamity is astonishing. While the credit markets still seem to be sorting things out – bankruptcies and distress on one side of the market and open new issue on the other side of the market – equity markets are screaming higher with NASDAQ 100 a short reach from all-time-high. The S&P 500 has cleared 3,000 but is still down modestly year-to-date.


We wonder: if credit has trouble lending to some of these companies then what could a rational investor expect from owning the stock? Are indexers not looking through to the underlying? That is rhetorical.


  • Share price tumbles after CEO, Musk, says price too high: link
  • Secures $565 million from Chinese banks: link
  • Tesla sues to reopen California factory: link
  • Tesla threatens to leave California: link
  • Tesla and county reach deal for plant reopen: link
  • NASA human spaceflight chief resigns: link
  • SpaceX inaugural astronaut flight/launch postponed: link
  • Musk gets $775 million stock: link

SpaceX launches astronauts into space and to the International Space Station: link

Negative Interest Rates

Low and negative rates appear to be here to stay.


  • US money market funds are waiving fees to prevent the funds from generating negative returns for investors. What price are you willing to pay for safe storage of your cash?
  • The UK issued its first negative yield gilt. Think of it like I give you a dollar and you give me less than a dollar back. Yay!

Fed funds futures may foresee negative Fed funds rate.

12/19 Market Commentary


Boeing’s month was not great but you might not know it by looking at a price chart.

  • Toward the beginning of December a former Boeing employee testified about previously raised concerns over safety fears, casting a bad light over 737 MAX.
  • The FAA added to the ongoing uncertainty by calling Boeing’s timetable for returning the 737 MAX unrealistic.
  • The company decided to finally halt production of the 737 MAX. The company had previously suspended delivery of the newly built planes but did not halt production. The parking lot is full.
  • The supply chain is struggling. This might not be good in the long-run. It also might make you wonder how good things really are at Boeing.
  • Despite needing a win, Boeing did not get it with the space flight of its Starliner capsule – it didn’t hit the right orbit.
  • Crisis adviser retires from Boeing.

Boeing’s CEO was forced out and replaced with an outsider CEO. The path forward invariably appears costly for the company.


Per the usual we highlight some of the major headlines relating to Tesla during the month:

  • Musk won the defamation case brought against him by the guy he called a pedophile on social media and taunted him to sue. Quite the precedent was set. 
  • Competitor, Rivian, sources $1.3 billion capital from investors including T. Rowe Price.
  • Tesla secures $1.4 billion loan from Chinese banks.
  • The stock price surged to new record of $435 and the market capitalization approached $80 billion.

Tesla to begin deliveries of Chinese made Model 3 in China.

Know what GM and Ford’s market capitalizations are? GM’s is approximately $51 billion. Ford’s is approximately $36 billion. Tesla’s market capitalization is closing in on that of combined GM and Ford…



The Fed went bigger with its repo facility and it got the market through year-end turn – equities continued on their march higher and rates were relatively stable. Repo may go quiet for a little while, but we do not believe the Fed has a handle on the underlying problem – other than to print lots of money – and we are bound to see it resurface again in the new year.

Macro View:

Boris Johnson solidified his position and power during a recent election, confirming his mandate to take the UK through Brexit. He has vowed to do so swiftly.

Trade War
After much back and forth, the US and China agreed – again – to sign the phase one of a trade deal…at a later date. They’re close

11/19 Market Commentary


November brought varied perspectives on when the 737 MAX will return to the skies:


Tesla surprised us with a lot of noise during November:

  • Tesla revealed its cyberpunk truck or Cybertruck. It was equipped with shatterproof windows which shattered…twice. Can’t make this stuff up. Some would say that Tesla shattered expectations.
  • Tesla reportedly has 250,000 Cybertruck reservations already.
  • Ford announced a new electric SUV and it will be called the Mustang.
  • Ford agreed to take Tesla up on a tug-of-war match between the Cybertruck and an F-150.
  • Tesla has determined a location for its first European production facility (a Gigafactory). It will be in Germany. Classic Tesla – details are wanting.
  • Tesla’s CEO will testify (because he must) in a defamation suit that resulted from the CEO calling someone a pedophile several times over social media and then egging the person on to sue him. Impressive character from this CEO of a $60 billion company.
  • Tesla CEO, Elon Musk, and Greenlight Capital CEO, David Einhorn, taunted each other on Twitter. Greenlight is a hedge fund that has publicly expressed concerns with Tesla and has disclosed that it is short the stock. For those of you with Twitter accounts, here is the feed. It starts with a Zerohedge piece that Elon replies to with letter addressed to Einhorn. David then follows up with two separate letters.
  • By the way, Musk said he would go “offline” (stop using Twitter) on November 1. LOL!
  • Tesla settled with Walmart after burning several Walmart stores from solar panel fires. The terms were undisclosed. What about all those houses with Tesla solar panels?


Mexico is eager to get USMCA passed in the US congress. It has also teed up some big infrastructure spending. Here is an emerging market country that may be worth monitoring – and visiting soon.


While stock market indexes are pushing record highs and repo markets are on Fed life support world trade has faltered. How does one reconcile the two states. We thought these two headlines on FT.com were pricelessly presented next to each other:


The Fed’s repo facility continues to be well received but the governors are still reluctant to put a permanent facility in place until many details are worked out. Come December treasury auctions the Fed may lose its patience. Hopefully it does not lose its patients.


Every market cycle, it seems, requires a doomed-from-the-start, record-breaking leveraged buyout. And so Walgreens said that it is contemplating such a deal. It would be one for the record books, topping the $32 billion TXU take-private in 2007. Walgreens would pencil out somewhere in the $70 or 80 billions dollars range.  TXU went bankrupt several years later, but somehow it didn’t seem to blemish KKR’s (the lead private equity group in the deal) reputation as it remains one of the largest private equity groups in the world.  Let it be no surprise then that KKR has formally approached Walgreens about such a take-private deal. Much of Wall Street thinks this deal will not get done, but we reiterate that every peak has its apex and this deal would be worthy. Plus, there is a lot of “dry powder” in both private equity and private credit looking for something to do. Never say never but look out if this one goes.

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: