I have been suspecting that we would get a significant correction in the market. I will admit that it took longer to materialize than I suspected. There were several days that I said to colleagues “this market is crazy? Why is the Nazz up 1.5% on no news? This is batshit crazy!” On those days you just have to take your lumps, trim some positions and modify others. Last week I was trying to build some longs in the portfolio and for the better part of this week I was pressing shorts as the market ticked up. Today, I am taking some profits, building some cash and watching some big bets go from red to green.
I am not a big believer in correlation equals causation. I am not even a big believe in chart correlations and this is coming from someone who spent a lot of time studying technical analysis and DeMarks. Just because a chart says X or Y, does not mean it is going to happen. If charts where 60% true, then there would be no other need for any type of investment analysis. We would all sit around and just read charts about the future. For this reason, I think we need to be careful at the temple of chart worship, but we should be very aware of the real world as it has a nasty habit of getting in the way and usually at the moment, we forget the meaning of hubris.
I think it is a good habit to look back and validate a thesis, offer a critique or spend some time examining why we thought X about Y after a reasonable period of time has passed. I read this post from Dan Kennedy a few years ago and I was planning to write a blog post about it in 2014. I forgot to write the post. While I was sorting my sock drawer and cleaning up my browser bookmarks during C19 pandemic quarantine, I came across the bookmark and reread article and decided to write the long-delayed post.
I was able to do a lot of reading during the Great Covid-19 Pandemic. I also watched Netflix for the first time as my daughter insisted that we get a subscription so she could watch Miss Americana. I did end up watching a number of shows on Netflix, but after a few months of Narcos, Unabomber, The Black List and others, the remaining content library has become less interesting. As for books, here is what I have been reading and this is what lead me back to blogging.
Below the break is an update on my current portfolio positioning and some random market thoughts. I will say that the market is absolutely crazy land if you are looking at it from a historical perspective. Last week on Thursday I got up and the SPX was down 15 handles and by the time I got back from my bike ride the SPX was up 13 handles. Just your casual 27 handle move in the morning. Portfolio and market thoughts are next if you want to keep reading.
Last year I wrote this post on the changing structure of technology companies and return to vertically integrated corporate structures as well as the return to on-shore supply chains. I wrote that post in the pre-Covid-19 world, but this trend has been accelerated by Covid-19. It will have broad ramifications. The global power structures, chains of commerce and confrontation points are shifting. To understand this post, I think it will be helpful to understand how we got here and how it is being altered, which was the subject of that post from June 2019. We are transitioning way from 30 years of issue-based coalitions to moving back to a world of bi-polar coalitions. Game on.
Below are some random thoughts on the market, my portfolio and tech. Still looking at earnings events as we move through the end of July and into August.
This post is not intended to be a rant and it is quite plausible that I am just missing where the action is, but 2020 feels to me like 2006/2007 and that is kind of boring. Perhaps I should clarify that statement.
Below are some random thoughts on the market and tech. Not a lot of content, but I will be looking at more of the tech company results as we move through earnings.
V shaped recovery, flattening of the curve, second wave, travel bans, reopening plans and the new normal have all become topics of daily conversation. I have been traveling recently on planes and by car. As I see it, the world is not back to normal, but it is recovering as fear subsides. Financial people love models and predictions and from this price discovery happens. On this Saturday in July here are some thoughts I have on the next few quarters.
I spent a few years on the buy side at long/short technology focused hedge fund. I learned a lot over that time. I feel confident in saying it was the career stop in which I learned the most. I was being paid to obtain a synthetic MBA as well as learn how to build and run a portfolio. Over that time, I developed a lot of business friendships with many people smarter than me on the buy side and the sell side. Almost a decade later, I still regularly engage with analysts, PMs and strategists. It is rare for a business day to go by without a conversation of some type with a former colleague in the investment business. I still like to think that most of the sell side analysts in the networking, hardware, cloud and telecom sectors would take my call. With that said I have been riding the market wave, but I am conflicted with what I used to know and what I see today. In my tech career I always found selling in the transition space between a maturing market and an emerging market to be the most interesting and dynamic space to be in. I am beginning to think the equity markets are moving into a transition space.
My last day at HPE was about two weeks ago. I think of it as more of my last day at Plexxi — rather than my last day at HPE. I spent from January 2, 2012 to June 26, 2020 at Plexxi/HPE. I recently was chatting with one of the early Plexxi employees about the company. 2012, 2013 and even 2014 seem like a long time ago.
There was a time in my life that I went to a lot of tech conferences. The years 2010-2016 were pretty busy for me in terms of conferences, booths, speaking, attending, etc. For the most part, I have very little interest in these events. I think they are a huge waste of time outside of the socializing. This week I took a half day on a Friday to attend the New England Peering Forum in Cambridge MA. This was a small conference, with an interesting talk track and being local, I thought I would try it as the worse case outcome was I would leave early and start the weekend.
As add-on to my recent post on naval warfare, there were some recent developments, which only further enhance the thesis of China and the US moving towards a sorting out of affairs in the Pacific theater. On July 24 Reuters reported the “…U.S. military said…it sent a Navy warship through the Taiwan Strait, which separates Taiwan from China, a move likely to anger China during a period of tense relations between Washington and Beijing.”
The temperature felt like 106 degrees Fahrenheit. The dew point was in the upper 70s, a brutal end to a long hot day. In the early evening I was sitting on the lawn of the deCordova Sculpture Park in Lincoln Massachusetts. We were there to see Doug Aiken’s New Horizon Balloon Project. As we waited in the mind numbing heat and humidity for sunset and the balloon light show to begin, there were a series of speakers and musicians and the theme for the event that night was “The Future of Information: Conversation with Gideon Lichfield, editor-in-chief of MIT Technology Review. Confronted with fake news and information bubbles, how do traditional media companies become platforms for communities to address the challenges society faces in a more equitable and inclusive manner?”
It seems with each passing week, more examples of the changing structure of technology companies emerge. Just before the workday closed on the east coast of the US, the following headline was splashed across the Wall Street Journal “Apple in Advanced Talks to Buy Intel’s Smartphone-Modem Chip Business.” The ultimate “Platform Company” from the 2000s is adding to their arsenal of chip IP and chip development teams.
This morning Cisco Systems announced the acquisition of Acacia Communications (ACIA) for $2.6B in cash. Could you imagine an optical components company being acquired by a systems company 10-14 years ago? Not likely, but the times are a changing. Will not be surprised to see more fabs coming to a US location near you.
As always, my thoughts on these matters might be completely wrong.
My wife would tell you that for some reason I own far too many books on First World War Naval History. Personally, I thoroughly enjoy the history of Europe post the German wars of Unification (>1871) through the outbreak of the First World War. Some of my favorite college courses covered the treaty system of Bismarck and debates as to who was to blame for the outbreak of the First World War. Over time, I have become familiar with the naval history of the First World War. I think it might have started when I read Robert Massie’s book Dreadnaught. My fascination with this period of history is both tactical and strategic in nature.
This morning’s news brought a couple of headlines that are relevant to the last post on The Changing Structure of Technology Companies. The first article is from the Nikkei Asia Review which states that “…Global consumer electronics makers HP, Dell, Microsoft and Amazon are all looking to shift substantial production capacity out of China, joining a growing exodus that threatens to undermine the country’s position as the world’s powerhouse for tech gadgets.”
Working through a framing exercise of a series of cross market observations connecting to several historical corollaries to produce the following hypothesis: there will be an acceleration of change with regard to corporate structures, with emphasis on technology companies. The change that will occur will be impactful on a broad scope to include the private-equity association that has become integral to the technology market segment. The resulting reversal of off shoring to on shoring will have significant effects across the technology industry.