I’m away on a family vacation, hence the delay in writing this post. Happy Thanksgiving to those in the US. I’m going to skip the weekly wrap post Thanksgiving.
Macro and Markets
Amazon’s HQ2 has been getting lots of press and rightfully so. I can’t offer any insight as far as predicting which city Amazon is likely to pick. Much has been written on the candidate cities’ work force, infrastructure, and culture — there are far more knowledgeable people than I on those matters. But I do have some thoughts about Amazon’s motives that I haven’t seen written elsewhere. First, I make the following observations:
- Amazon doesn’t need money, at least not the puny billions (if that) any city will be able to offer via tax incentives.
- Amazon can damn well hire any one it wants.
- If you look at the numbers given in the link above, Amazon can make/re-make whichever city it picks into whatever cultural environment it wants to.
What’s the biggest obstacle in Amazon’s growth trajectory? Political and popular backlash due to its growing clout. What did the military-industrial complex do to curry favor with politicians to get its projects and contracts? Putting factories in the key congressional districts. What can Amazon’s HQ2 accomplish? Transform, or should I say ingratiate itself with, an entire city, region, and state — and more than a few votes I would imagine. Is that the only consideration? Absolutely not, but to assume it’s not part of the consideration is equally naive.
Anyway, that was part of a wider reflection on the sustainability of the growth from AI/ML/IoT/robotics/blockchain/CRISPR/etc. There is more than enough to underwrite a new secular bull market and I’m sure Amazon will be part of it (disclosure: no position in AMZN as of now). Though the tricky part is to be able to take advantage of mispricing, both on the way up and down.
Back to the more immediate developments in the market this past week: there was a nice bounce on Thursday, though much was given back on Friday, at equal or larger volume to boot. It was the case for S&P, Dow and Nasdaq.
The CNN Money fear and greed index dropped below 40 and ended the week at 44. There may still be uncertainty surrounding the senate vote on tax reform but I don’t see anything that will derail this bull market. There is still an outside chance we’ll see 2700 on the S&P by the end of this year.
For someone convinced the bull market is intact this past week presented several buying opportunities. I added to QQQ calls and $LABU (I’m incorrigible), and most proudly: Pimco CEFs $PCI and $PDI before the reversal on Wednesday. The latest UNII report showed much better coverage ratios, likely from taking profits in swap positions. Once again it points to the folly of listening to someone who can’t tell interest rate swaps from the internal revenue service.
Current portfolio composition is as follows: PMs 9.9%; equities 56.4%; FI, 23.2%; cash equivalent, 5.1%; and other, 5.6%. The “other” category is composed of crypto, 3.3%; 3X ETFs, 0.35%; and options, 1.85%. Effective exposure from options is 67.2% of total portfolio value. The option leverage ratio is 36X. The total portfolio is over 130% long equities (before considering the beta of each position).
- Elm Partners Blog: a new favorite blog!
- Corner of Berkshire and Fairfax message board: a new favorite forum!
- Bubble Watch X by The Brooklyn Investor
None of the above is investment advice, the standard disclaimer applies.