pre-expiration market notes and GRoDT news ?3

09:08 17-Sep-21

Fitting right in with the GRoDT news is Westport restating its consolidated revenue for last quarter.  This reduces that figure to $79.0M, roughly halving top line beat, but has no effect on other figures.  WPRT is down 2% to $3.30 in the pre-market which is nothing compared to the slide from the $5 price tag it briefly saw following the report.  Its decline from earlier in the year is even more severe than that of EMAN or VUZI, but it is closer to fair value than they are.  Even so, it fits right in with my general unwillingness to gamble on GRoDTs.

I'll also share this Q&A:

Do you think Lumens recent push off the bottom is related to these options expiring? Or is cash simply moving to safer ground before October. 

I think it's mostly due to people realizing that the dividend wouldn't be cut right away.  There was a lot of bad info out there.  Although I'm positive about the restructured business and American utilities, I think it's hard to regard it as safer ground near the middle of my $11-15 range with the cut still being a possibility over the next year or so.  I now see it as similar to PPL, though with more volatility and correlation to the pace of American reopening.  If the dividend were cut to, at an educated guess, 18 cents then I could see LUMN shares briefly dropping back into the single digits on a knee-jerk reaction.  However, I would expect them to trade between 6% and 4% yield on recognition of the improved balance sheet and then business results going forward.  The former would mean a $12 price tag, while that latter would mean $18, and these estimates are only if those improved results don't show up earlier.  It will be very interesting to see if and how Lumen starts reporting results from the continuing business next quarter, as I suspect it will right around the crucial Nov. 3 Fed meeting, quite possibly to good effect.

I wanted to get a note out prior to the final day of trading before September options expire...  Today's most important news is likely to be FDA decision making on third shots for most Americans.  So far, my read of the evolving evidence leads me to side with the WHO in thinking that this would be a BAD MOVE that is primarily motivated by politics and profit.  My discussions with a health care technologist and a PhD friend (quoted at the end) involved in sequencing the virus support that opinion; current pandemic problems seem largely attributable to the unvaccinated.  Note however that the FDA simply approving the the Pfizer vaccine isn't the real gating factor.  That will come from the CDC and White House next week, right as we hear what the Fed has to say.

What the Fed said yesterday is also of minor interest, though, as a another data point on the erosion of faith in American markets.  This is driving an increasing number of investors deeper into the wilderness, with Interactive Brokers offering crypto trading, and Coinbase increasing debt to expand into futures and derivatives.  I don't see the pricing of either as attractive and continue to look for VIRT and BGCP to eventually benefit instead as we progress toward American crypto ETFs.  For VIRT it looks as though August market volumes declined slightly to more normal levels but September is looking a bit better so far, and all of this pales in comparison to fading fears of SEC action.  Also as expected, BGCP looks set to benefit from increasing attention to rates and currencies.

Back in the real world, we are seeing continued signs of reopening and inflation, with strong retail sales and 5G deployments for Nokia in America and Indonesia.  The former may be a good sign for Lumen, as Vuzix emphasizes the increasing interest in edge computing, to be followed by security concerns.  All 5G deployments are not equal, though, and I will eventually review Resonant's upcoming presentation on Japan, which I doubt will be market moving.  Nonetheless, Tokyo and other crowded areas could be an indicator on future deployments. 

The market also hasn't cared about eMagin finalizing terms with the DoD for the remaining two years of its contract.  Unlike when that was initiated, it should go without saying that I don't see now as a good time to gamble.  Increased costs are likely for the short to medium term as the company expands it workforce by 10% and I continue to worry about delivery delays.  Both VUZI and EMAN are a fraction of their highs earlier in this year as market froth continues to boil off. 

Xebec remains the only GRoDT I could take a chance on, as Shell affirms industry interest in biofuels.  XEBEF has declined all the way to a post-pandemic low in the $2.20s.  In this note, from the morning of August 24th, I wrote:

I expect the gains we're currently seeing to at least moderate, and more probably reverse, as we approach the next monthly expiration on September 17th, followed by the FOMC meeting 5 days later.  Pressure on scarcely traded foreign equities like XEBEF is also set to be particularly acute as updates to SEC rule 15c2-11 go into effect on the 28th.  Even so, I continue to see Xebec as ideally positioned for the long term, which is much more than I can say for most stocks.

That's all turned out to be pretty much correct, and the rest of the month could see the bottom for the stock.  For the indexes though, I'm eagerly awaiting the next data point on market leverage, even though it's trailing data.  Sagging confidence in China, international trade & cooperation, and the latest American real estate data aren't helping my concerns over whether or not we have days or up to a month and a half before exiting the current market holding pattern.  Most of the financial community is at least beginning to share this concern, but in considering the shift it's important to recognize that the market is primarily driven by what I call "zombie capital".  That is, funds from people who don't spend much time thinking about the market, and instead give their savings over to managers who often don't even pretend to have any fiduciary duty to their income sources; instead they are currently being paid by the Fed to merely mimic the mega-cap dominated indexes.  That probably doesn't begin to shift in practice until at least November 3rd, but even awareness of the details can produce herd mentality that amplifies the fundamental effect of any change in Fed's actions.  We'll see what happens on Wednesday.

On 9/16/21 3:38 PM, a PhD wrote:

Synonymous mutations are DNA/RNA mutations that don't change the amino acid code of the resulting protein. So, you've got it pretty much right.  The viral RNA changes, but the way the proteins look/act doesn't change.  I think this ties into my take on 3rd shots, which is that virus' evolutionary strategy is to mutate a lot and see who survives, so none of us are really safe until all of us are safe. Delta originated in India- if they had been 50-60% vaccinated (a big if, I know), would we be in the situation we are today? It doesn't make sense to have retired americans (who are absolutely capable of staying home) getting 3rd shots while children and a large portion of the world have no vaccine protection. But what do you expect from a society that re-opens bars before schools?

In other news, the SARS-CoV-2 sequence databases hit a cumulative 1M sequences within the last week.  Unprecedented!

On Thu, Sep 16, 2021 at 3:27 PM Esekla wrote:

I find it mildly interesting in that it puts a number (4x) on what I had
already assumed from anecdotal evidence.  Due to that pre-existing
assumption, I have no inclination to freak out over this.  Instead, I'm
glad that the state of the art for studying evolution is advancing.  I'm
guessing that synonymous means mutations with identical binding
characteristics in this context. If not, I'm probably not fully
understanding.

What I have been rabble-rousing about is the American push for boosters
before much of the world has vaccines.  I'd be VERY interested in your
opinion(s) on this.

I'll listen to what they have to say tomorrow, but my starting point is
that I don't see the evidence supporting this as a good move from a
global perspective. 

On 9/16/21 3:04 PM, a PhD wrote:
>
> Thought you would find this interesting.  Seems to indicate that the
> S1 gene will evolve pretty quickly when required. Don't freak out- a
> lot of this signal may be driven by the delta variant and its (almost
> complete in the US) takeover. Think of it as evolving into the space.