Analysis: Q3-2017 Macro Update

The resiliency of the economic expansion continued throughout the third quarter. GDP growth remained steady, unemployment remained low, the US dollar weakened, and the Fed remained on track for its second interest rate hike of the year. On the other hand, geopolitical concerns increased, the chance of tax reform decreased, and market valuations rose to a level that leaves little room for error.

As always, I have no idea what the near-term future will bring. This post is merely an attempt to see if we are closer to the top or the bottom of the economic cycle.

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Analysis: NOW Inc. (NYSE: DNOW)

Now Inc. (NYSE: DNOW) hit $11.85 today and I began to build a position. This document contains an independent analysis of the company. Information on my investment philosophy can be found here.

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Analysis: Q2-2017 Macro Update

Say we throw a ball up in the air and want to predict what will happen next. Newton tells us that transferring kinetic energy to the ball will accelerate it upwards, and the force of gravity will accelerate it downwards. We can confidently say the ball will eventually come back down to earth. Now, try predicting what would happen to the ball if instead, a random survey of the human population decided its movements. If more people felt like the ball should go up it would go up and vice versa.

There is no shortage of forecasters who would take a simplified approach to this problem – just assume the physics bound world and ignore the human element. Eventually, the two should match up. We can think of this as the efficient market camp. Contrast that to the behavioral camp, which focuses primarily on the human element. They note that the fear and greed of a crowd can push the ball to further extremes than the constraints of physics would suggest.

Our goal today is to predict where that economic ball is going. We will borrow from both camps, while not forgetting that this is an exercise in art, not science. We can’t predict where the ball is going nor when it will get there with any certainty, but we can get a decent idea of where the ball is. If the ball is closer to earth, odds are it will begin its journey upward. If the ball is closer to space, odds are it will begin its journey downward. Give or take ten years.

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Analysis: 2016 Reflections

Another new year is upon us, and it’s that time again to reflect on what went wrong since the last time we reflected on what went wrong. The goal is to relearn the same lesson we relearn every year: Nobody, including myself, has any idea how macroeconomic and sociopolitical events will play out, nor how they will affect the markets.

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Analysis: The 2016 Election

The story of the 2016 election centers around the unconventional, unprecedented rise of Donald J. Trump. Last night, with no elected office experience, a grab-bag of policy ideas that reflected neither party’s establishment, and a complete disregard for political correctness, Donald Trump attracted some 59 million votes and was named president-elect of the United States of America.

This has left many on the left in a state of panic and disillusionment. They feel that the election of Donald Trump marks the end of tolerance, diversity, and progressive ideals in America. On top of that, with the republicans winning both houses congress and multiple Supreme Court nominations in the balance, they feel that this might also mark the end of Democratic Party influence in government. This is probably an overreaction.

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Analysis: Monsanto Risk Arbitrage

Disclaimer

This document contains an independent analysis of Monsanto Co. (NYSE: MON). Information on my investment philosophy can be found here.

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Analysis: Brexit

Ray Dalio, founder of investment first Bridgewater Capital, wrote an article for the FT in which he argued:

In deleveragings bad economic conditions typically lead to emotional reactions, social and political fragmentation, poor decision-making and increased conflict. When this occurs in democracies, the checks and balance system, which is intended to yield the best decisions for the whole, can stand in the way of thoughtful leadership and lead to ineffective “mob” rule. This dynamic can lead to a self-reinforcing downward spiral.

Frustrations increase, the established ways of doing things come under attack and frustrations over the ineffectiveness of government creates the perceived need for someone to gain control of the mess. Plato spoke of this dynamic. It was the reason Hitler was elected in 1933.

From Trump to Le Pen, the world seems to be getting more divided. This week, Briton voted to leave the European Union. The EU was created with the goal of allowing freer movement of goods, services, and people across member countries. The benefits of this are well-known: free movement of resources, productive allocation, an increase in overall economic welfare. This is not to say there aren’t losers. For those Britons who increasingly saw themselves as worse off, exit seemed to be the rational choice.

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