Will The Russell 2000 Finally Join The Party???

On Tuesday the Fed Powell
will discuss US monetary policy and on Weds will announce whether he is keeping
interest rates on hold or dropping them.  In July Fed Powell lowered interest rates for
the first time in a decade.  Wall Street
is expecting the same on Weds, pricing in an 86% chance of a quarter-basis
point cut.

If the US equity markets are going to continue their climb higher, the Russell 2000 must fall inline.  The Russell 2000 index represents the largest 2000 small cap public companies in the US.  But in recent months the Russell 2000 have been stubborn to rise with the DOW, NASDAQ and S&P 500 as indicated by the green line.

Source

Usually towards the end of the business cycle, rising interest rates hurt smaller companies the most because they have a higher debt to earnings ratio and lower free cash flow relative to much larger companies.  Also, smaller companies are more volatile and tend to react and respond to changes in economic conditions and changes in investor sentiment first. However, if rates are going to continue to get cut, that should help the Russell 2000 to finally join the party. And based on the Russell 2000 outpacing its friends last week, I think it things a rate cut is already “money in the bag.”

Source

The iShares Russell 2000 ETF, which tracks the Russell 2000 Index of stocks with smaller market capitalizations, saw its largest weekly inflows in nearly a year during the week that ended September 6. Those inflows totaled $1.5 billion and followed a $340 million inflow during the final days of August. Since bottoming out on August 27, the iShares ETF has rallied nearly 9% compared to the S&P 500’s gain of 5% over the same period.

There is the possibility that the resurgence could be longer lasting if the Federal Reserve’s interest rate cut at the end of July is more than just a one-off and marks the beginning of a rate-cutting cycle.

Judging by history, further rate cuts would be supportive of small-cap equities. During the first year following the start of a Fed rate-cut cycle, small caps have risen on average 28% compared with just 15% for large caps, according to investment banking firm Jeffries, per the FT.

Source

Thus the chart suggests the two levels to monitor above price are the daily supply at $1630 and $1665.

This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.

Esports & Gaming News

Video game loot boxes should be classed as gambling, says Commons (The Guardian)

  • A House of Commons committee has advised that loot boxes should be regulated as gambling and banned for children.
  • The recommendation features as part of the DCMS report on immersive and addictive technologies and states that games featuring loot boxes that are paid for with real money (as opposed to earned as in-game rewards) should be marked as containing gambling and age-rated accordingly.
  • The report also touched on the concerning rise of deepfake videos, urging the government to include them as part of the duty of care principles for social media firms laid out in the online harms white paper.

Analysis and Comments

  • The most obviously impacted franchise would be EA’s FIFA, as Ultimate Team would presumably be captured by this proposal.
  • While not a helpful line for the broader industry, the regulatory overhang regarding loot boxes is not really news. Loot boxes are already banned in Belgium, which has resulted in several games being pulled from the market (as the only alternative would have been to obtain a gambling license).
  • In this case, the effectiveness of the measures will presumably be determined by their enforcement, as the rules could be easily flouted if parents or other adults allow their bank details to be used for under 18 year olds to purchase these type of features.
  • The country’s gaming trade body (UK Interactive Entertainment) said they would review the recommendations and “consult with the industry on how we demonstrate further our commitment to player safety – especially concerning minors and vulnerable people”. The government said it “will consider the committee’s report carefully before responding”.

Overwatch League, Nielsen Release AMA Viewership Data (The Esports Observer)

  • After entering a deal in April 2018, Activision Blizzard and Nielsen have now released viewership figures (average-minute-audience) on the Overwatch League (OWL) for the first time.
  • The data compares digital streams last year vs. digital streams and linear broadcast this year, showing that the OWL averaged 313k viewers globally and 95k in the US, an annual increase of 18% and 34% increase, respectively.
  • Notably, the median age of OWL is 24, which according to Nielsen data is far younger than the other leagues (NFL, NBA, MLB, NHL, MLS, the PGA Tour, and college football and basketball) which underscores the reach/impact esports have with younger demographics.

Analysis and Comments

  • The viewership figures are the most important metric when assessing an esport’s success; however, because companies and the media often provide different types of viewership figures with poor context, it is often unclear what thesenumbers actually mean.
  • As a result, streaming viewership is still often difficult to compare with traditional TV ratings, and previous attempts to do so have inflated the success of esports in problematic ways.
  • Activision Blizzard’s partnership with Nielsen is a big step in the right direction in establishing more usable and consistent metrics that will help better inform investors’ decisions (and will give them more confidence in the data).
  • Nielsen has been steadily growing its presence in the space and signed a deal with Riot Games earlier this year to measure League of Legends’ esports viewership – something we view as an exciting development as League is the world’s largest esport and has recently started introducing the franchise model to its national leagues as well.  

Ethical Stock Investment To Launch On New York Stock Exchange

Ethical Stock Investment To Launch On New York Stock Exchange (PlantbasedNews)

  • Beyond Investing is launching the US Vegan Climate Exchange Traded Fund (VGN ETF) on the New York Stock Exchange on September 10th.
  • The ETF is targeted at vegans looking for climate-conscious investments and is constructed by taking “the Solactive US Large Cap index (a proxy for the S&P 500 Index) and [excluding] any stocks whose activities are incompatible with a vegan and climate-conscious approach to investing, replacing damaging stocks with midcap alternatives that meet its ethical criteria.”

Analysis and Comments

  • Flows to ESG and sustainability-focused funds have spiked this year, as investors continue to focus on the investment opportunities that address issues such as climate change, (plastics) pollution, or gender pay disparities.
  • Therefore, you should expect to see continued growth in the number of investment instruments focused on these issues, particularly as worries around uncompetitive “stranded assets” intensify.



Real Estate Continues to Push Towards ALL TIME HIGHS

Real Estate has been relentless. During a time where NOTHING seems to be going anywhere in the US sectors and the global growth is SLOWING, Real Estate continues to push forward. I am looking at Real Estate at least testing the 94 area from the 2008 highs before pulling back. More Upside to Come.

Speaking of, I am selling my house now if you are in the market 😉

Survey says consumers avoid electric cars due to three myths: range, price, charging (electrek)

Survey says consumers avoid electric cars due to three myths: range, price, charging (electrek)

  • According to a new survey by Autolist, the top reasons for not buying an EV were range, price, and charging, with c. 40% of respondents concerned about these issues.
  • The author makes the argument that these concerns are outdated, as EV prices are already below US$30k (after fuel cost advantage), provide a range of ~250miles, and the are thousands of charging points every where in the US.
  • One of the positive insights from the survey is that the majority of consumers (55%) now said they would use an EV as their primary vehicle rather than as a secondary vehicle (which was previously the top answer).

Analysis and Comments

  • This article fits in well with the investor’s view as to the process by which EV uptake will occur
  • The short version is that, as the article highlights, the key issue around EV adoption will be familiarity. For most consumers, current EVs are perfectly suitable for day to day use. Most of us just don’t drive far enough to need to recharge more than once a day (as with the person in this story). So the key is getting people to try one.
  • This does not understate the charging infrastructure challenge; yes, there is a lot more that needs to be done to roll out charging stations, especially fast chargers. But this is a solvable problem.
  • As with similar innovations, the adoption curve starts slowly and then rapidly accelerates – we expect to hit this inflection sometime in the mid 2020s. Tailwinds to this include tougher emission standards & city centre driving restrictions & potential headwinds include cutting of subsidies and a lack of affordable model choice.

The article also makes an important point:

  • Auto makers don’t need to keep making the range further & further, if the cost is more expensive batteries & hence a very expensive EV. The alternative is cheaper shorter range EVs, possibly with a lease package that includes the occasional use of a petrol car for longer trips

Nearly 1 in 4 millennials hasn’t had a physical in 5 years

Nearly
1 in 4 millennials hasn’t had a physical in 5 years, survey says (Mobi Health
News)

  • According to a new survey by Harmony Healthcare IT, millennials prefer getting medical advice online to going to their doctor; 76% of the respondents said they used specialized websites like WebMD or news articles.
  • It highlights the current transformation of the healthcare sector. Millennials, who will outnumber baby boomers by 20m in 2030, are favouring retail clinics and telehealth for healthcare treatment. The online presence of traditional providers is also important: 65% said they only see doctors who can be found online, with 48% saying they would prefer to have a virtual visit with a doctor than an in-person appointment.
  • One of the main argument is cost: WebMD for instance, the first choice website for those surveyed, is free, which makes it the economically more sensible option, as only 35% of those surveyed set aside savings for medical emergencies, with 51% of those saving less than US$100 per month.

Analysis and Comments

  • The first thing that is probably important to note about this survey is that the respondents are American (which explains the emphasis on cost advantages).
  • However, a much larger study conducted by Accenture in February looked at four times as many consumers from all around the world and came to similar conclusions: there is a shift away from traditional care offerings, towards online alternatives.
  • Importantly, this shift was not only found among members of the youngest generations (Millennials and Gen Z), but also Generation X (the one after the Boomers).

Where Is The Dax Headed Next??? – Part 2

I talked about the DAX most recently, three weeks ago,

Where Is The Dax Headed Next???

The DAX is a blue chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange.  And Germany, the biggest economy in Europe is stalling.   Germany is an export country and so they have been hit hard by the trade tariff between China and the US and the all the uncertainty surrounding Brexit.

You put all these issues in a pot and the finish product is an inevitable recession.  An inevitable recession was further supported by the recent ZEW Survey.  ZEW Indicator of Economic Sentiment is a leading indicator for the German economy. The recent ZEW Survey showed sentiment among investors fell to -44.1 from -24.5 in July, its lowest since Dec. 2011.

Germany Is Flirting With Recession After Investor Confidence Falls

Source

Since price broke the 12200 level and formed a “M” pattern, also known as a reversal pattern,

I’m not sure if price will get back to the 12220 level for a short,

so lets see if price to push to the downside and pull back for a short.

This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.

Lyft Thinks They Are Slick, Short The Stock Now

Back in late March Lyft made their debut on the stock exchanged and opened at $72 per share. Lyft is now down 18% since its IPO.  Despite the positive earnings last week, which included raising their full-year outlook, Lyft has further downside.  There have been countless questions and discussions surrounding Lyft’s business model.

 In fiscal 2019, Lyft expects to generate revenue of at least $3.47 billion with an adjusted EBITDA loss of $850 million to $875 million. In 2018, Lyft’s EBITDA’s loss was around $850 million.  Thus, Lyft may never make a profit, nor do they have a clear path to profitability.

But here is why I think Lyft is a short now.  During their earnings announcement last week, where they reported raised their full-year outlook, Lyft said they are cutting down their lock-out period from late Sept. to Aug 19th.

“The lock-up period is scheduled to end on September 24, 2019, which falls within the Company’s quarterly blackout period that commences at the end of the day on August 31, 2019,” the company said in the filing. “Therefore, in accordance with the lock-up agreements with the underwriters, the lock-up period will end at the open of trading on August 19, 2019, which is ten trading days prior to the commencement of the Company’s quarterly blackout period. The Company will also release the market standoff agreements when the lock-up period expires.”

Lyft expects that about 257.6 million shares of Class A common stock may become eligible for sale in the public market beginning August 19. This includes about 12.8 million of Class B shares of common stock converted into Class A stock.

Newly public companies are typically subject to a lock-up period preventing insiders including founders, directors and other employees from selling their shares for a designated period of time. The restriction is intended in large part to prevent these investors from injecting large numbers of shares into the market, which could send stock prices lower by quickly increasing supply.

Source

So there are about 274 million shares outstanding.  The founders, institutions that bought a stake in the company before going public want to cash out.  We are talking about potentially diluting the float (float is the number of shares actually available for trading) by almost 100%.

August 19th simply becomes a supply and demand issues, very similar to the supply and demand issues on Steem.  It’s way too expensive to short the stock by borrowing shares due to the borrowing rates, which was once 100%.  Thus, the best way to short Lyft is through options.  But give yourself so time for the trade to work.  The leap options, January 2012 options are too illiquid.  But the January 2020 put options gives one plenty of time for the trade to work, which also includes time for an additional two earnings report (which may not meet expectations).

So if you think Lyft will at least test the lows within the next five months,

Consider buying some January 2020 put options with a strike price at $50, but first ensure its liquid enough.

This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.

♻️ 3 Recent Examples of Corporates Which are Working to Counter Climate Risks ♻️

Big Money Starts to Dump Stocks That Pose Climate Risks (Bloomberg)

Image associée
  • As climate change related risks are becoming more pronounced, major investment firms have been increasingly pushing companies to address these risks and their role in exacerbating them.
  • This year, almost every major public oil company faced at least one shareholder resolution involving climate change, with proposals winning record support.
  • While most asset managers prefer engagement to divestment, frustration over fruitless discussion and resolutions has also led to a growing divestment campaign.
  • Earlier this year, Legal & General Investment Management (LGIM) reduced its stake in oil giant Exxon by US$300m, using its remaining stake to vote against the reappointment Chairman and Chief Executive Officer Darren Woods.

Analysis and Comments

  • The whole debate around divestment vs engagement is a potentially divisive one – not so much among asset managers but in discussions with asset owners and particularly retail investors.
  • Over the last few years, it has been interesting to watch the shift in focus, as the engagers have increasingly honed in on the stranded asset risk across a whole range of industries, which has real and tangible implications for value.

Google pledges carbon-neutral shipping, recycled plastic for all devices (Reuters)

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  • Google announced beginning of the week that it would neutralize carbon emissions from delivering consumer hardware by 2020, and include recycled plastics in each of its products by 2022.
  • According to Anna Meegan, the company’s head of sustainability for its devices and services unit, the company’s transport-related carbon emissions per unit fell 40% in 2018 as it increased the use of ships rather than planes in transport.
  • Currently three out of nine products for which the company discloses details online contain recycled plastic (ranging from 20-42%) – which trails behind hardware rival Apple’s sustainability efforts.  

Analysis and Comments

  • The trend may be slow, but for those companies that sell high profile products such as Apple & Google, the pressure to show their green credentials appears to be growing.
  • It is not clear how Google will fully “neutralise carbon emissions from delivery” – initially it looks as if at least part of the solution will be via carbon credits (which will gradually become more & more expensive to buy).
  • Hence longer term, this increase in carbon crédits price could be providing an incentive for the transport sector to accelerate its own shift to low carbon.

Diageo spends £180m on greener African operations (FT)

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  • British spirits maker Diageo is investing £180m into green energy and water recovery solutions such as biomass boilers, solar installations and water recycling systems at 11 of its breweries across Africa.
  • The investment is the company’s largest environmental investment in a decade, and will include £50m in upfront capital for solar, water treatment and biomass equipment, as well as £130m in long-term supply and maintenance contracts.
  • The company’s ultimate goal is to become 100% green and it plans to half its water usage and GHG emissions by 2020 as part of a group-wide commitment. It is also increasing its focus on sourcing locally in, with 78% of agricultural materials used in its 12 breweries across Africa currently sourced from local farmers.

Analysis and Comments

  • Africa contributes c. 13% of Diageo’s global turnover and about half of the company’s beer sales, and a minimum of 20 of the company’s African production facilities are in so-called “water-stressed locations”.
  • Unsurprisingly, water is an essential ingredient in all of Diageo’s brands (90%+ of beer and 60% of spirits) and the company has thus far been able to achieve a c.44% improvement in water efficiency between 2009 and 2018.
  • According to new data from WRI’s Aqueduct tools, 17 countries (including Africa) – home to one quarter of the world’s population – face extremely high levels of baseline water stress, as water withdrawals globally have more than doubled since the 1960s.
  • Of the 17 most water-stressed countries,12 are in the Middle East and North Africa (MENA), where growing demand and climate change are pushing already constrained countries even further into extreme stress.
  • According to the World Bank, this region has the greatest expected economic losses from climate-related water scarcity (c. 6-14% of GDP by 2050), stressing the importance of pursuing SDG 6 – ensuring the availability and sustainable management of water and sanitation for all.
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Rocket League is dropping lootboxes

Rocket
League is dropping lootboxes (VentureBeat)

  • Rocket League, a highly successful live-service video game (PC/console) debuted in 2015 is still very popular, ranking in the top 10 most played games on gaming distribution platform Steam.
  • Its developer, Psyonix, was recently acquired by Epic Games and is now dropping the lootbox-style crate system it used to generate revenues from its player base.
  • Psyonix has already shifted the main focus of its monetisation strategy over to premium progression passes (so-called Battle Passes), which have been very lucrative for Epic Games.

Analysis and Comments

  • Lootboxes and micro transactions have long been popular monetisation techniques in mobile games, but it is only more recently that the big-budget games from AAA studios have been introducing them as well.
  • The main reason we are highlighting this story is because it showcases the subsequent shift away from monetisation techniques based on randomized item rewards (in premium games), as they have received a lot of attention and criticism in the near past – and come with a looming regularity overhang.
  • Battle Passes, on the other hand, are a tried and proven method to generate revenue from a game’s player base (and importantly not hated by gamers, unlike the “surprise mechanics” of lootboxes).
  • There are many successful examples of companies using this technique (including Epic Games & Riot), with perhaps one of the best ones being Valve’s annual Battle Pass sale for the esports World Championship of its game Dota 2: the game’s prize pool is almost entirely crowdfunded via the Battle Passes, and while only 25% of the in-game sales actually go towards the prize pool, the total prize pool currently amounts to more than US$32m, with 18 days left until the crowdfunding ends.
  • Notably, the Battle Pass-funded prize pool has consistently broken its own record every year, with this year’s officially being the largest single-event prize pool in esports history.

Tencent’s Share price (majority shareholder of EPIC Games)