30 Nov 2021

Suncor ($SU:NYQ)

This SA piece confirms my view on Suncor. It is profitable, with a foreward P/E of 11.3, it pays a healthy dividend (5.5%), which is well covered and has had recent strong growth. It claims a breakeven price of $35/barrel.

I am not an analyst, and I can’t give investment advice. The market is pretty bearish about oil stocks, and this one is no exception. It has gone down, and might well go down longer, for longer than you can afford to hang on. But it’s worth a close look.

BRICs, Twenty Years On

This is a great overview of how the idea of the BRICs (originally excluding South Africa) was created. It was originally about Asia, Africa coming later. Jim O’Neill had written a PhD on the recycling of oil surpluses, and its affect on the global economy.

The idea of China as a dominant economic power seems commonplace today, but I can remember people pointing out to me that the GDP of China was less than that of Italy, and that it would take a very long time before we needed to worry about its impact on the wider world.

Fragility — the new normal

Why fragility is the new reality for the stock market is a new post by Wellington Management. It is basically saying that liquidity goes away in falling markets. This is something that anyone who has lived through a crash is well aware of. Maybe this time is different, though, with market makers gone, replaced by algorithmically-driven traders. Another problem is the pervasiveness of passive investing. When the last active portfolio leaves, and turns off the lights, the market will have no buyers left. Mike Green has written eloquently on this. The SPY ETF can’t not sell its holdings when clients redeem their holdings. It doesn’t hold any cash and is fully invested, with no discretion given to the managers to choose what to sell. It really will be like the sign in the window of the closing down sale: “Everything Must Go!”

Liquidity is a slippery concept. It’s hard to define, but you know when it’s gone. Essentially, its the disappearance of willing counterparties who will buy what you are selling and sell what you are buying. The fact that there are loads today, is no guarantee that there will be any tomorrow. This is why I am very sceptical of charts which purport to show how it varies, with time. OK, spreads give a proxy measure, but this is far from perfect.

Will this make a difference? I have no idea.

Tesla — $TSLA:NDQ

There was a post highlighting the heavy insider selling going on at Tesla, here. I read these pieces, but I have no idea why, because the stock price moves bear no relation to either stories like this or fundamentals. As far as I can tell, it’s a matter of buying a chain of calls designed to create some sort of gamma squeeze up as a result of market makers having to delta-hedge their option books. Or it could just be Elon’s Tweets.

Out of interest, @ClaireMusk, who is critical of Tesla, has some evidence that her tweets are being suppressed by Twitter. this is the tweet. I don’t know if it’s true, but it’s interesting.

The original thesis was that the $TESLAQ crowd were just short sellers trying to make a dishonest buck by promoting false rumours about the stock, but short sellers of $TSLA must surely have moved on by now, but accounts like @ClaireMusk plug on.

Peloton — $PTON:NDQ

A lot of boomers like me are deeply, deeply sceptical of a stock like $PTON. It is a static exercise bike, with a iPad fixed to the handlebars. It doesn’t seem to have any discernible edge. If someone wants exercise, he has hundreds of options, including just going for a run outside. It’s hard to compete with something that is essentially free. If he wants to listen to something, he can get some headphones. If he wants to watch something, he can get a treadmill or static bike and a TV.

Anyway, I’ve obviously missed something. Maybe this is it:

A lot of that “big edge” comes from a bunch of “little edges” adding up. For example, last month Peloton did a dance class series with Usher, and this month Peloton expanded their partnership with Beyonce. It’s easy to dismiss those deals as small or marketing, but I think they effectively show the edge Peloton has. Huge artists like Beyonce and Usher can work with any brand they want to…. but they’re both choosing Peloton. Why? Well, big artists most valuable asset is their time. Peloton is the only scaled digital player out there; working with Peloton is the only way Beyonce / Usher can reach enough fans to justify the cost of their time.

Again, it’s small…. but Peloton has a bunch of those small little edges, and when you put them together I think they add up to a substantial moat (on top of having the best brand in the business, the best instructors, and by far the most monthly recurring subscription dollars).

Read more here.

It seems really odd that this is a value investor being positive about a stock like $PTON.