That's a bunch of....Waste.....Management, that is (& US Ecology)

Fyi….Position update…..In addition to periodic global-macro posts to this blog, we occasionally share position updates that are routinely shared with our investors.  These comments are absolutely not meant to be investment advice and readers are reminded that all comments posted here are for information and entertainment purposes only!  Any commentary, especially those that include specific mentions of 'buying' or 'selling' or 'positions', is made solely for those limited informational and entertainment purposes, and NOT as advice.  While we will be sharing some detail on changes made to our portfolios, it's important to consider that our portfolio decisions are taken in a much broader context of our overall portfolio strategies and our assessment of each of our investor's unique financial profiles.  As such, what we do, and when we do it, is specific to our investor portfolios and is NOT intended, in any way, as advice for use by others.
With that in mind, we hope you find our comments of interest, and we'd be delighted to hear feedback!

Waste Management (WM) reported earnings today and disappointed vs Street estimates.  Market took stock down close to 5%.  (see first chart below)

The company also announced a 2.7% hike in the dividend (which is approx. 3.3%) and a share buyback of $600mm. 

I still like the theme of waste removal, the high barriers to entry in this space, and the seeming uptick in the US economy which should help WM’s business on both corporate and retail level.  The latter, too, should be helped by privatization of services by struggling municipalities.

Technical players are likely to look at today’s price action as bringing WM close to key support levels and close to technically ‘oversold’ conditions.  Will be watching those levels closely as first key tests of support for a bounce.

Brought total position up to 3% from 2.4%.  If it dips further I’d likely add.

Another company in this space that I’m eyeing is US Ecology (ECOL) (no current positions).  They reported earnings last week, and on that day, the stock took its own ‘flash crash’ before rebounding strongly!  (see second chart below).  The market was initially concerned about a decrease in revenues from Gov’t contracts, which on the earnings call, the company explained as being largely due to the 2013 sequestration and budget cuts.  The business, however, is quite diversified, and the company sounded quite positive on upcoming projects for 2014 in other customer segments. 

ECOL is a relatively smaller company and trades in much less average daily volume.  But on a pullback from current levels, this is on my shopping list.

Will keep you posted.

Ed

Fyi….

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Additional Disclaimer: currently long many stocks/ETFs incl WM.  Positions may change at any time without notice.   

The "Cold" Facts: a quick thought.....

While you’re sitting there thinking about how cold it is, consider this info from the US Energy Information Administration website: 

Have a look at the first chart and note how natural gas prices have doubled in the past 2 years.  

Then look at the next two charts.  

The first shows the temperatures across the US for the 7-day period ending Jan 30.  

The second shows how that deviates from the average temperature historically during that same 7-day period.  

Not surprisingly, there’s a huge portion of the country at significantly lower temps than in years past, requiring more heat, at higher prices per unit of heat.

Going to have any impact on the percentage of income that is available for discretionary spending?????  Hmmmm……

 

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(Please note: This article is solely meant to be thought provoking and is not in any way meant to be personal investment advice. Each investor is obligated to opine and decide for themselves as to the appropriateness of anything said in this article to their unique financial profile, risk tolerances and portfolio goals).
Disclaimer: Please read and consider important information related to all communication made by Soos Global on this site by clicking here.
Additional Disclaimer: currently long many stocks/ETFs incl XLE.  Positions may change at any time without notice.   

Themes for 2014: Comments on WORTH Magazine Article

Fyi….an investor asked for my thoughts on the themes mentioned in an article in WORTH Magazine. .
Below you'll find parts of the discussion and views on each point raised in the article, in turn.  Many global issues are addressed and currently form the backdrop into which our investment strategies are positioned.  But please note:  As always, the comments expressed here are for informational and entertainment purposes only and are not meant to be investment advice in any way!

Fyi.....     

Regarding the WORTH article “5 Key Investment Themes for 2014”, my opinion on each in turn:

“Emphasize stocks, especially non-US stocks, over bonds”:  I agree re overweighting stocks.  I disagree about not abandoning bonds.  I’m out of bonds and expect to stay that way for a while.  I also agree that int’l equities are looking better on a relative value basis vs US equities, but I still think that EM and other int’l markets need to show some signs of stability before I’d allocate heavily directly into that space.  As you know, I’ve chosen the more defensive approach to int’l exposure by owning large, multi-national US companies (or select Europeans, like Unilever (UN)) that have been substantial footprints in global markets.

“Complement core bond holdings with a multi-sector approach”:  I don’t like this whole section!  The comments about Tsys and investment grade bonds softening the blow should equities blow up hasn’t really shown itself to work very well.  Yes, historically, over longer periods of time, bonds were viewed as hedges for equities, but as I pointed out in a missive some time ago, the relationship is not rock solid and when it doesn’t work, then you’re hurt both in stocks and in bonds!  Cash is not a bad thing to own when you expect equities to face near- and mid-term headwinds, in an environment of generally rising interest rates (as we expect in the US, possibly soon in the UK, and in many EM countries that are using higher rates to defend their currencies and to fight inflation).  As for floating rate debt, while that might be good when rates finally do rise, at the moment, what’s the yield?  (I suspect asymptotically approaching zero!).  High yield bonds?  My correlation work shows that they often act like equities, so what kind of fixed income hedge would that be for a falling equity market?!  Distressed debt?  Maybe. But this space is very situation specific, real ‘alpha’.  If you have a distressed situation that you think could turn around even in a troubled global economy, then that is true alpha and uncorrelated w/other assets.  As for ‘hedge funds’, I believe that market commentators are too flip when bunching ‘hedge funds’ into  ‘alternative’ assets.  As you and I both know, saying ‘invest in a hedge fund’ is like saying ‘eat a restaurant’!  Each has its own menu, its own chef, its own prices, its own expertise, its own specific asset class or strategy of focus.  Bottom line, if you expect inflation, then I would not own bonds. I would select stocks that could benefit from a rising price environment.  And I’d add select commodity exposure, either directly, or as I’ve done, through companies that would benefit from higher commodity prices.

“Follow Europe out of its Dark Ages”:  on this we agree, though I’d be very selective and would not go too boldly into a region that is saddled still with suffocatingly high levels of debt and tragically high levels of unemployment, with a set of peripheral nations, though in less bad shape now than in recent past, are still time bombs ready to blow!  The “summer-2012-Draghi-I’ll save the Euro at all costs” effect is still helping Europe stabilize.  And each day that goes by when countries like Spain and Italy can enjoy 10yr yields below 4% is a day in the right direction.  But budget deficits are still a problem, and with this past year’s run-up in the Euro, global competitiveness is challenged.

“Emerging markets will re-emerge”:  I agree.  I do think that much of the timing of this depends on China and its effectiveness in rolling out the reforms that were outlined in late 2013 at their last Communist Party Plenum.  On this, I’m optimistic.  Also, for the past few years, I have focused on the Emerging Markets infrastructure build-up, investing in companies related to that effort, such as construction, machinery and other business services.  I’ve switched the central focus to one that will capture a growing middle-class in Emerging Market countries, who will likely have more and more discretionary spending habits over time.  Again, I’d tread carefully in terms of direct EM exposure at this time.  Many of the countries are experiencing great amounts of stress as Fed tapering has sparked capital flight out of EM, which has hurt their currencies, which in turn, has led many of the EM central banks to engage in counter-cyclical policies of raising rates in order to defend their currencies and to fight inflation.  There are many large multi-national US companies that have over 50% of their business in global markets.  I’d focus there first, and only slowly add to direct EM exposure.

“Global synchronized growth could be 2014’s big surprise”:  I think this is correct.  As I mentioned, I think China holds the key.  Success on their reforms will have a much larger domino effect on global markets than if the US GDP inches up. Europe too is important to watch.  Stability needs to reign there, or else we’ll have turbulence and fears of a global financial crisis.  Finally, the article only mentions ‘geopolitical events’ almost as a ‘by-the-way’.  I think geopolitical events could be pivotal.  If we have a major oil supply disruption from the tumult in the Middle East, that will especially impact Europe, China and Japan.  If we have any form of rogue sovereign action, such as North Korea striking South Korea, global markets will be unraveled.  I think the US holds one big geopolitical event this year, being the mid-term elections.  A big shift in either direction in terms of either house of Congress could have serious market impact.

Please let me know if you have any questions and if you’d like to hear more specifics about holdings and how they fit in with these global views.

Best,

Ed

Please continue to visit Soos Global Market Musings for updates.

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(Please note: This article is solely meant to be thought provoking and is not in any way meant to be personal investment advice. Each investor is obligated to opine and decide for themselves as to the appropriateness of anything said in this article to their unique financial profile, risk tolerances and portfolio goals).
Disclaimer: Please read and consider important information related to all communication made by Soos Global on this site by clicking here.
Additional Disclaimer: currently long many stocks/ETFs.  Positions may change at any time without notice.  

Who's Got the Bigger Story: Sports or Financial Markets? (A view on recent markets selloff)

The stories aren’t too different!   Denver Broncos’ Super Bowl performance and today’s financial markets’ performance can’t be described in any flattering terms that I’m aware of! 

Well, at least the markets showed up to play.

Ok….enough w/metaphors.

Some thoughts on recent market moves:

After January’s 5% drop in the Dow, today’s 2% selloff is bringing the stats awfully close to the 10% level that market pundits dub ‘correction’ territory.   Given the strength of today’s move, both breadth and depth, the 10% mark doesn’t seem too unreasonable to consider.

In my view, this corrective move is long overdue.  

As I argued for some time in the final months of 2013, the market was reaching levels where valuations were supported by far too optimistic views of future earnings growth, and far too mild perceptions of global headwinds.  The terms that I’ve been using to describe our portfolio positions have all included some version of ‘cautiously optimistic’, or ‘defensively optimistic’, noting that, in general, the world has become a healthier economic place in recent years, with global companies facing superb opportunities for new markets (hence “optimistic”), but plenty of reason to be sober about those growth prospects and to not price in overly optimistic views into equity valuations (hence, “defensive”).  Earnings season has been one of the key catalysts for the recent selloff, adding to the already deep concerns that markets have for the impact of Fed tapering on Emerging Market countries.  Both issues have hit with a vengeance since 2014 began, first with earnings being ok but underwhelming and often coming with bleak guidance for future prospects, coupled with several Emerging Market countries continuing to see tapering inspired capital flight, which triggered the falling dominoes of sinking currencies, more stress on funding current account deficits, rising imported inflation, and counter-cyclical central bank policies as defensive responses.

The question is where do we go from here?   Is this the beginning of a 2008-style market rout?  Or is it a healthy re-calibrating of equity valuations with global realities?

At this time, I believe it’s the latter.  In general, company balance sheets are in excellent condition, having used the past few years of low-interest rate environment to either pare down debt levels or to refinance to lower costs.  Operating leverage is also quite strong, as companies have cut costs and forced themselves to operate ‘lean and mean’.  The inflating impact on margins has been a good thing.  But among the ‘defensive’ arguments is that companies can only squeeze expenses for so much and for so long.  At some point, if there isn’t sufficient revenue growth, then it’s likely that margins will shrink, along with EPS, and then equity prices. 

The selloff since New Year’s, in my view, is creating equity valuations that are more in sync with the combination of global opportunities and global challenges.  With the historically high levels of cash that I’ve been holding in the portfolios, among other things, I’ve been adding to companies in the Discretionary space that are likely to benefit from a growing middle class in many EM countries around the world.  I’m continuing to look for and add to companies that play into the US energy infrastructure buildup that is likely to underpin the growth of domestic based sources of all kinds of energy.  I’m looking to add to key players in the alternative energy space, in particular, solar.  I’m focused on the tech sector, with a preference for companies with a global reach, masterful innovation skills, and likely to be at the forefront of next-generation products and technology. 

These kind of market selloffs are not fun to experience.  And the day-to-day mark-to-market on positions can be humbling.  But unless signs emerge that would materially alter the view that I’ve expressed above, I’m viewing the pain of recent weeks as an opportunity to add value to the portfolios.  As things evolve, I will keep you posted, and as always, if you have any questions, please let me know.

Best,

Ed

Please continue to visit Soos Global Market Musings for updates.

(Sign up to "Follow by Email"!  And share with others!)

(Please note: This article is solely meant to be thought provoking and is not in any way meant to be personal investment advice. Each investor is obligated to opine and decide for themselves as to the appropriateness of anything said in this article to their unique financial profile, risk tolerances and portfolio goals).
Disclaimer: Please read and consider important information related to all communication made by Soos Global on this site by clicking here.
Additional Disclaimer: currently long many stocks/ETFs.  Positions may change at any time without notice.