Archive for the ‘Business’ Category

For some reason, I thought shale was invincible… that is, a technology-enabled, found source of additional oil for many decades into the future.

But I just read a ZeroHedge piece — The Shale ‘Miracle’ & The Reality-Optional World Of Bizarro Finance — and apparently shale isn’t going to be the grand savior after all.

The two original big shale plays, the Bakken in North Dakota and the Eagle Ford in south Texas, have now apparently peaked and the baton has passed to the Permian Basin in west Texas. If the first two bonanzas were characteristic of shale, we can look forward not very far into the future when the Permian also craps out. There are only so many “sweet spots” in these plays.

The unfortunate part of the story is that the shale oil miracle only made this country more delusional at a moment in history when we really can’t afford to believe in fairy tales.

Let’s not give up on renewables quite yet!

 

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Last week was quite a ride on Wall Street.  Unbelievably, the Dow traveled 22,253 points in one week — approaching 1x its own index value — I’d say that’s the definition of a wild ride!

Dow Travels 22,253 Points

Everyone is speculating about the trigger.

Other than the obvious reason — which is healthy markets aren’t supposed to go up 100% of the time like we have — two factors seem to have kicked things off.

One had to do with a short squeeze on an ETN (Exchange Traded Note) that tracks the inverse of volatility.  The issue itself was rather harmless in that it did not directly affect underlying securities like some ETFs (Exchange Traded Fund) can.  What wasn’t harmless, though, was it is a leveraged asset… which meant when the pendulum swung, it caused a pretty big short squeeze… which meant that people probably had to sell other assets — like stocks — to cover.  So, ultimately, it’s plausible that these did have some affect in the market last week… selling pressure is, after all, selling pressure.

The other — which people consider the bigger culprit — was a reported surge in hourly earnings reported in last Friday’s (2/2/18) jobs report.  While that signals a healthy economy, which of course is good for the stock market, it also signaled that interest rates might start rising… which, ironically enough, is actually historically good for the stock market, too, at least during the initial rising phase.

But, in last week’s case, people got flat out freaked out.  Hence, the wild ride.

But, it appears that no one asked why hourly earnings surged.  From ZeroHedge:

Well, not so fast, because as a closer look at the data reveals, the only reason why average hourly earnings rose, is because the total weekly hours worked posted a relatively steep decline, dropping from 34.5 in December to 34.3 in January, a 2.9% drop from the 34.4 last January.

What economists (and Wall Street analysts!) should care about is actual earnings power… and average weekly earnings actually declined from December to January.

Seems like no one wanted to let facts get in the way of a good panic.

 

P.S.  Investor sentiment is always the biggest wild card in the deck.  But, weekends are good circuit breakers in that regard.  More and more folks are coming to the conclusion that a lot of what is underpinning the market is still intact.  Readers of my blog know I track the price of oil… and oil has not only been behaving, but has been declining… which I believe bodes well for spending… which bodes well for corporate profits… which bodes well for the market.

Lots of downgrades for Apple over the last few weeks.  The stock was spooked from a $180 level just two weeks ago to around $166 today.

It has nothing to do with the holiday quarter that Apple is going to report on tomorrow after the market’s close… that, people believe, will come in at record levels.

No, it has to do with how the iPhone X is selling this quarter.  Channel checks with suppliers indicate Apple is slashing its expectations of iPhone X sales this quarter… by as much as half

… which certainly seems like a huge let down given that the iPhone X is supposed to be the flagship product and the first iPhone to crack the $1,000 price barrier.

But… come on, people… did you really think a $1,000 iPhone X should sell in consumer numbers?  It’s not supposed to be a volume leader… rather, it’s supposed to be something exclusive and, quite frankly, unattainable for many.

That’s the whole point… to have a high-end iPhone entrant that (1) makes the device/technology more desirable, and (2) contributes in some way to an even higher overall iPhone family “ASP” or Average Selling Price (which is already the highest in the industry).

My guess is — since there are no negative reports on the iPhone 8 — that it’s not only selling well, but making up for any short-fall from the iPhone X… after all, if they’re not buying an iPhone X, they’re buying one of the other not-so-cheap models.

Additionally, don’t be surprised if some of Apple’s “smaller” businesses — like cloud & other services — make meaningful contributions, too.  Even the analysts that have raised flags on the iPhone X agree that last quarter should be pretty spectacular for the company.

And, finally, I always have to throw in the irrationality of the market:  Apple, one of the most stellar tech companies in the world according to any measure (even growth), has a P/E of 14.2 forward earnings… while the average company in the S&P 500 has 18.6.  If you’re looking at tech leaders, Google has a forward P/E of 28… and Amazon has — wait for it — 168.  Go figure.

AAPL has been beaten down so much by negative sentiment in the last few weeks that I think we might have a nice setup for a pop after earnings tomorrow.

At least, that’s what the contrarian in me thinks.

Don’t get me wrong, I love what Bitcoin/Blockchain is doing — disintermediating the financial system (and more!) — which is completely cool.

However, wasn’t so long ago that an upstart named Visa grew to dominate another “cashless” payment mechanism.

Today Visa has about a $260 billion market capitalization and over $18 billion in revenues.

Today Bitcoin has about a $260 billion market capitalization and I believe about $0 in revenues.

If that doesn’t feel like “dotcom explosion 2.0,” I don’t know what does.

As for Bitcoin making money, apparently transaction fees — something that used to be near-zero and a major competitive advantage for Bitcoin — are now trending around $10-$20 per transaction.  Apparently not a major competitive advantage any longer.

Seems to me Bitcoin/Blockchain has an extra long ways to go before it stands toe-to-toe with Visa.

Bitcoin (et al.) has been described as many things:  A digital currency… a commodity… even as a savior of the world as we know it (from the point-of-view of disintermediation).

But I haven’t heard anyone call it what it actually is:  A protocol.

A software protocol is just a set of rules.  When programmers play by those rules, computers can communicate with each other.

And Blockchain — what Bitcoin is based on — is just such a protocol.

Generally speaking, protocols don’t have any cash value.  For example, we don’t get paid by waiting until everyone’s meal is served before eating.  But by following that simple dining protocol, it makes for a better dining experience for all involved.

But Blockchain, via Bitcoin, does have cash value.  And that’s the real innovation here — a financial innovation.  Bitcoin’s value isn’t just as a trusted digital currency or as a storage of wealth, but has grown into a proxy for all value that will eventually be created by companies using the Blockchain set of rules.

Think about all the value created by another popular protocol, the HyperText Transfer Protocol (“http”) — the thing that enabled the entire Internet.  Former CEO of Cisco, John Chambers, once pegged it at $19 trillion (with a “t”)… a bit bigger than our national debt to put that huge number in perspective.

Imagine if someone created a “httpcoin” trading vehicle back in 1994 that proxied the future value of the Internet?  WOW THAT COULD HAVE BEEN WORTH A LOT, LIKE MAYBE $19 TRILLION!

So fast forward to Bitcoin and you can now get a sense of why Bitcoin’ers are so excited… why some have even “expertly opined” that the value of a single Bitcoin could go to $1 million or more.

That the “digital currency” community was able to do this with the Blockchain protocol — whether they meant to or not — is, of course, utterly cool… even if it all blows up one day.

And it will blow up one day… as it should… as value gets transferred from the Blockchain proxy to those companies actually using the protocol to make products that create the real value.

What value will be left in Bitcoin?

Eventually just the digital currency utility it provides a customer, a tiny fraction of what the entire industry may be worth at some point in the future…

… or said another way, a tiny fraction of what it’s worth today.

Isn’t that apparent?

The lotto prize was $700 million… wow!

Just read a great piece at CNBC from Kevin Breuninger that puts the odds of winning that in perspective, though:

The odds of grabbing the grand prize are 1 in 292.2 million, according to the game’s own assessment. To put this in context, your chances of being killed by a lightning strike are approximately 1 in 161,000. The odds of being killed in a shark attack are 1 in 3.7 million.

Even getting hit by a meteorite is more likely than winning the Powerball — 1 in 1.9 million.

 

But here’s my favorite part:

In fact, your chance of getting struck by lightning, bitten by a shark, smacked by a meteor and hitting a hole-in-one on the same day is statistically far more likely than winning the jackpot, according to Jim Murphy of sportsbettingexperts.com.

With all of that said, I’m still happy that I bought a ticket… after all, someone has to win it, right?!  :)

For the vast majority of my professional career, the proverbial — no, wait, the actual — richest guy in the world (RGITW) has been Bill Gates.

I’ve had the pleasure of knowing Bill since the 80’s.  I saw him thoroughly and utterly dominate technology for many decades.  Indeed, he damn near invented the technology industry as we know it today.

Of course, when you know someone, you don’t think of them in crazy, god-like terms.  You think of them as someone fun to drink with… someone that knows a good April Fool prank… someone that even plays a decent game of ping pong.  (BTW, all three of those comments deserves posts by themselves.   ;)

There’s another thing working against Bill in the “crazy, god-like terms” department:  He’s been the RGITW for so long, it’s gotten to be… well… a bit ordinary.

That’s why it surprised me when I felt a little bummed hearing today that Bill is no longer the “RGITW”… he’s only the second RGITW… Jeff Bezo, CEO of Amazon.com, is now the RGITW.

I don’t know Jeff, but he’s built a phenomenal company and is well-deserving of the RGITW title.

Interestingly enough, though, being bumped from the top spot is a pretty great reminder of the absolutely rarefied air Bill has breathed all these decades.

Knowing Bill, he’s not giving it a real second thought… these days he’s far too busy trying to save the planet!