numbers vs the media and politics +3

07:29 20-Jul-22

Some progress on the various issues mentioned below...

I guess I shouldn't be surprised that Taiwan has the best coverage of last night's procedural Senate vote for chip stimulus.  It seems to focus on manufacturers, and even though Intel is getting all the press, I note that it is the last of the major foundries to raise prices and only on its premium chips.  I continue to think smaller producers like MTSI and AKTS will see outsized effects .  It will be interesting to see if Vuzix can also get a piece of the action, as well.  The draft bill is not available, but some details are, with the main points being $54b in subsidies and a 4-year 25% tax credit.  Actual passage is hoped for next week.

Vuzix may also be getting a boost from Google reintroducing Glass to external testing.  What's far more material to Google is its move toward allowing alternative payment systems in the EuroZone.  This is in response to the DMA and doesn't apply elsewhere, except for Korea.  It's also a blatant attempt to game the regulation, as Google only reduces its fee from 15% to 12% in most cases:

Developers who choose to use an alternative billing system will need to meet appropriate user protection requirements, and service fees and conditions will continue to apply in order to support our investments in Android and Play. When a consumer uses an alternative billing system, the service fee the developer pays will be reduced by 3%.

I sincerely hope that Google gets nailed for this and that regulators beyond the E.U. and Korea get up to date.  I'd like it even better if their associated central banks weren't flooding markets with so much capital that their private banking minions get to sponsor monopolists.  I'm not holding my breath on either point, though.

Finally, there's word that limited gas to Europe will be resuming via Nord Stream 1, but terms don't really change anything for New Fortress and others.  In fact, natural gas prices have continued to rise.

In the wake of all of this,   I continue to see VIRT as the best value in the market under the circumstances.  NYSE getting involved in that debate may be sign that the waiting for actual decisions is entering its final stage.  I'll also take the newly contrarian stance that volatility will continue and even increase over the medium to long term, with cryptocurrencies still having issues, and the energy crunch making climate effects a foregone conclusion.

Market margin debt declined dramatically (over 10%) in June bringing leverage down below 4x.  This is what I expected, but it is still a healthy move and is a return to levels not seen in a year.  Any short term rebound is still likely to be limited but I think the odds favor a market malaise measured in months rather than years.  The same may not be true for the broader economy, and I will continue monitoring what, if anything, gets done about that.  Consider, though, that we've already lopped a third off the Nasdaq highs, and more than a quarter from the S&P500 in conjunction with this latest adjustment.  Recall also that the market has little to do with the general economy, and everything to do with how rich people are faring.

My latest public post on Polestar indicates that they are holding up pretty well, unlike those living paycheck to paycheck.  That's a negative for Google along with the sorry state of Android Auto, and the post-split GOOG shares are showing it.

Finally, note the typo correction to €/$1.013 below.  The single currency eventually did top out at €/$1.02 before giving back half a cent.  All of this continues to tell me that I want to own American value and yield for the time being.  It may not be exciting, but it should pay off.

On 7/18/22 06:28, Esekla wrote:

It's been all doom and gloom in the financial press recently, mainly as the result of last week's PPI numbers, which showed an increase of 1.1% for June, and 11.3% YoY.  Normally, I would have jumped on this as far more forwardly relevant than CPI, but the report itself reiterates what I've been saying all along:

Nearly 90 percent of the June increase can be traced to a 10.0-percent jump in prices for final demand energy.

Some of that is oil, with Biden's visit to Saudi Arabia getting a predictable response.  Yet if you only watch TV, you would have gotten a different message from the White House.  Nonetheless, Brent is back above Golar's ceiling, topping near $104, and still about $4 ahead of WTI.  More important to the company is word that a final investment decision on Tortue Phase II is being moved up to September. 

But natural gas has been less volatile and continues to look more appealing as an investment.  TTF prices are now above $50 through March and above $37 into 2024, generally $10 ahead of JKM; Henry Hub is back well above $7.  So, without further ado, here is this month's American natural gas versus electricity price chart which actually shows the rate of increase halving from May's dramatic 4x figure, again due to the Freeport outage.  If you're not yet tired of me pounding the table about New Fortress, you might be the only one.  That and my usual practice of publishing this chart together with market leverage is why I held this note until after the weekend.  I'll update with the more interesting leverage data when Wall St. wakes up from its summer nap and makes it available.

In the meantime, for a more forward looking market assessment, I note that after a spike below parity, topped above €/$1.013 and Xebec investors might also like that the Canadian dollar has seen similar though less dramatic action.  Both are short-term positive for American equity markets despite anything the media has to say.  As with HIMX, the press helped push NFE below the $40 strike for Friday's close.  Other semiconductor stocks like MTSI are looking better though, with scaled back chip stimulus expected this week.  VIRT has suffered most of all, due to similar coverage but lack of decisions and is a screaming buy for me.  If some sort of deal isn't announced with the next report then the buyback numbers will be very interesting.

Now, the press may now be gradually catching on to my rant about not lumping oil and natural gas together into "energy".  So, with less headline economic data scheduled for this week, NFE price action could be more positive ahead of upcoming report.  Sri Lanka has begun the process of electing a new leader, so maybe we'll get some clarity there as well.  Just keep in mind that New Fortress is about to spend heavily in order to realize Shell's pipe dream of becoming a pure play global natural gas powerhouse.  With America missing the boat on climate change, don't be surprised if Zero Parks is kept on ice as well.  

Finally, my positive vibe on semiconductors does NOT apply to Vuzix, which reported an unquantified waveguide "volume order" from a Fortune 50 customer for incorporation into a head mounted display.  Management describes this as the "tip of the iceberg" on long term demand and has plans to significantly increase its waveguide production capacity over the next year to address the growing OEM supply business.  That means increased costs to me, which will may make margins an issue going forward, even though management cites the ability to design and deliver a variety of state-of-the-art custom waveguides in volume at competitive costs.  VUZI shares are somewhat up since management's big microLED bet, and with a high rebate rate, I can't rule out short term success.  Even so, I'm staying hands off given all the associated risk and uncertainty.