Whitney Tilson email discussing China; activism’s long road; hedge funds struggle; 2015: the year in charts; worst ideas for 2016; tax sleuth who took down a drug lord; George Hotz is taking on Tesla by himself; sued over old debt; Brazil’s fall; KBIO; 1975-15 data; 2015 was a good year.
Whitney Tilson on China’s balancing act
I’m sending you this email from the Beijing airport, about to catch a flight home. Note that I haven’t included the full text of three of the articles I comment on below because they’re from the NYT and Bloomberg – both of which are blocked here (along with the WSJ, Google, YouTube and Facebook) – in short, about 80% of my news sources and web usage (the articles below are ones I’d already copied and pasted into this email before I arrived here).
What a disgrace. This country is so modern and so regressive at the same time. I don’t envy the many balancing acts that that Chinese leaders are dealing with now re. the economy, the internet, battling corruption, increasing demands by the populace for freedom, etc.
RGA Investment Advisor 2Q20 Commentary: The Tale of Two Markets
RGA Investment Advisor commentary for the second quarter ended July 2020, titled, "The Tale of Two Markets." Q2 2020 hedge fund letters, conferences and more In our Q1 2019 commentary we expressed how “COVID-19 will kick off one of the most profound reshaping of our world any of us will see in our lifetime,” accompanied Read More
Whitney Tilson on China Animal Healthcare
2) Speaking of China, this has to be the press release of the year, by China Animal Healthcare Ltd., whose stock has been halted since October. It’s the old “truck-was-stolen-during-lunch-break” excuse – LOL!
Whitney Tilson on activism
3) I’ve long maintained that the rise of activism is a huge trend that is here to stay – and, overall, is very healthy for our markets and economy:
After decades of being treated as boorish gate-crashers, activist investors are infiltrating the boardrooms of large companies like never before. This year activists launched more campaigns in the U.S.—360 through Dec. 17—than any other year on record, according to FactSet. They secured corporate board seats in 127 of those campaigns, blowing past last year’s record of 107. Activists now manage more than $120 billion in investor capital, double what they had just three years ago, according to researcher HFR.
The industry has come a long way since the 1980s, when Carl Icahn, Saul Steinberg, T. Boone Pickens and other mavericks would amass large stakes in companies and demand a sale of the entire company. They were called “corporate raiders” and “greenmailers” and were widely criticized.
These days activists, while not exactly welcomed in corporate boardrooms, are rarely treated as ill-mannered outsiders. “These activist funds are just a different asset class who have the same pensions and endowments investing in them as other funds,” says Rob Kindler, head of mergers and acquisitions at Morgan Stanley. “The demonization of activists, when really what they are doing is providing returns to the same pension and endowment plans, just seems overdone.”
Several factors contributed to this shift, according to corporate executives, activists, bankers and lawyers. The financial crisis fanned dissatisfaction with corporate executives and brought low interest rates that helped activists thrive. Activists got more sophisticated about analyzing target companies and built alliances with other big shareholders, including mutual funds. And broad shifts in corporate governance gave more power to all shareholders, including activists.
Whitney Tilson on hedge funds struggle
4) It’s been a tough year for a lot of the smartest guys I know:
Hedge Funds Struggle With Steep Losses and High Expectations http://www.nytimes.com/2015/12/29/business/dealbook/hedge-funds-struggle-with-steep-losses-and-high-expectations.html
Kudos to anyone in positive territory this year. Flat is the new +20% I hear! ;-)
Whitney Tilson on 2015: the year in charts
5) Some really interesting data here. Very troubling data on declining workforce participation, productivity, wages and rising inequality in the US. And who knew that there were more deaths from terrorism in Nigeria than Afghanistan and Pakistan combined in 2014. And our insanity around guns continues to boggle my mind…
By the end of 2015, the economy — still leaving too many Americans behind — has regrettably almost disappeared from the news, overshadowed by the twin evils of Donald J. Trump and the Islamic State. Meanwhile, Congress continued to burnish its record of doing little that was constructive, and progress on a long list of serious policy challenges seemed stalled, at least until after the next presidential election. Here, for better or worse, is the state of the union in 10 charts.
Whitney Tilson on worst ideas for 2016
6) I enjoyed this column by Chris DeMuth:
What potential rewards are least worth the risk?
What are your worst investment ideas for 2016?
Here are mine….
Long. Levered long.
Cash is for wimps. So before you waste another moment with research, get every penny you have into the equity market. Then keep going. If you can borrow money, then borrow all you can and shovel it into market exposure on top of more market exposure in the S&P 500 (NYSEARCA:SPY).
If you are concerned about risk, then put in stops on all of your positions in order to pre-plan to sell what you are buying but at lower prices. Once you’re back in cash, then wait to re-acquire the same positions after their prices recover.
…Do whatever looks good
If you have to decide to do either what makes the most sense or what looks the smartest, just do what looks smart. Before the end of the month, quarter, and especially year, just sell anything that is embarrassing. That way, your investors will never know! The lower the price, the more important it is to get rid of it. This is a situation that may call for market orders in size.
Those are my (worst) ideas. As an investor, I consider it a mark of manhood that I am supremely confident in ideas because they are mine. I place consistency above all other virtues, so I will not revisit them regardless of subsequent data. A year from now, I will duck my failures and exaggerate my successes. Please comment below with your worst ideas (but insightful reactions will be overlooked).
Whitney Tilson on tax sleuth who took down a drug lord
7) I loved this story – this guy would be a great value investor!
The Tax Sleuth Who Took Down a Drug Lord
Gary Alford, a tax investigator, was the first to identify the mastermind behind Silk Road, an online drug bazaar…
George Hotz is taking on Tesla by himself
8) A fascinating profile of a brilliant entrepreneur:
Whitney Tilson on George Hotz Is Taking on Tesla
I am REALLY fired up about self-driving cars, a technology that I think will change the world – and be here a lot sooner than people think.
Whitney Tilson on the predatory financial system
9) Yet another example of our predatory financial system:
Encore and rival debt buyers are using the courts to sue consumers and collect debt, then preventing those same consumers from using the courts to challenge the companies’ tactics. Consumer lawyers said this strategy was the legal equivalent of debt collectors having their cake and eating it, too.
The use of arbitration by the companies is the latest frontier in a legal strategy orchestrated by corporations in recent years. By inserting arbitration clauses into the fine print of consumer contracts, they have found a way to block access to the courts and ban class-action lawsuits, the only realistic way to bring a case against a deep-pocketed corporation.
Whitney Tilson on Brazil’s Fall
10) An insightful summary by The Economist of what a mess Brazil is:
AT THE start of 2016 Brazil should be in an exuberant mood. Rio de Janeiro is to host South America’s first Olympic games in August, giving Brazilians a chance to embark on what they do best: throwing a really spectacular party. Instead, Brazil faces political and economic disaster.
On December 16th Fitch became the second of the three big credit-rating agencies to downgrade Brazil’s debt to junk status. Days later Joaquim Levy, the finance minister appointed by the president, Dilma Rousseff, to stabilise the public finances, quit in despair after less than a year in the job. Brazil’s economy is predicted to shrink by 2.5-3% in 2016, not much less than it did in 2015. Even oil-rich, sanction-racked Russia stands to do better. At the same time, Brazil’s governing coalition has been discredited by a gargantuan bribery scandal surrounding Petrobras, a state-controlled oil company. And Ms Rousseff, accused of hiding the size of the budget deficit, faces impeachment proceedings in Congress.
As the B in BRICS, Brazil is supposed to be in the vanguard of fast-growing emerging economies. Instead it faces political dysfunction and perhaps a return to rampant inflation. Only hard choices can put Brazil back on course. Just now, Ms Rousseff does not seem to have the stomach for them.
That said, I actually think things have gotten so bad that Brazil may finally be starting to address some of its most serious issues – slowly and fitfully, so be sure, but I’m bullish long-term on the country.
I recall being extraordinarily impressed with both the companies and the management teams I saw/met during my only visit to Brazil in 2010, when I went to a three-day investment conference in Sao Paulo – but by that time, all the stocks had doubled or more off their 2009 lows, so to this day I’ve never bought the stock of a Brazilian company. But I’d love to someday – I’m just waiting for someone to ring the proverbial bell when pessimism reaches its maximum point! ;-) I have no idea, but if I had to guess, I don’t think Brazil is there yet. It reminds me of one of Reagan’s favorite jokes about the Soviet Union: “One comrade says to another: ‘Do you think we’ve reached the highest stage of Communism?’ The other replies, ‘No, I think things are going to get a whole lot worse yet!’”
Whitney Tilson on KaloBios Pharmaceuticals
11) You really cannot make this stuff up. In the past month, this worthless bag of crap got manipulated from under $2 to over $45 – and now it’s back to zero. Kudos to Doug Kass for calling it a zero at the top:
Peak Speculation (Part Trois)
DEC 30, 2015 | 8:34 AM EST
Stock quotes in this article:
KaloBios Pharmaceuticals (KBIO) has filed for bankruptcy protection.
Here are two posts that I fairly recently delivered on the company:
“I saw and warned a few weeks ago of another peak — ‘Peak Speculation,’ especially in regard to KaloBios Pharmaceuticals (KBIO):
‘Add “Peak Speculation” to the long list of market “peaks” that I see.
Shares of KaloBios Pharmaceuticals rose more than $26 earlier this morning to hit nearly $46 a share before dropping back somewhat.
Talk about “Peak Speculation”! Or better yet, maybe “Peak Crazy”!!’
— Doug’s Daily Diary, Peak Speculation (Nov. 23, 2015)
Well, KBIO’s shares fell some 5% today after authorities arrested CEO Martin Shkreli. I predict that in the fullness of time, the stock — which was down to $23.59 before the Nasdaq halted trading — will likely fall to zero.”
— Doug’s Daily Diary, KaloBios Shares Could Fall to $0
(Dec. 17, 2015)
“KaloBios Pharmaceuticals (KBIO) is up some $21 a share in premarket trading this morning — a nearly 80% rise. It’s rallying on reports that insiders have decided not to lend their shares to short sellers.
This is ‘Peak Speculation’ — and joins the long list of peaks that I see!
KBIO won’t be a ‘Bull Market Killer’ in and of itself. But such speculative excesses are clear signs of a maturing bull market.”
— Doug’s Daily Diary, Peak Speculation (Part Deux) (Nov. 27, 2015)
Pride goeth before a fall.
Whitney Tilson – 1975-15 data
12) An old friend of mine, Tom Carpenter, with some interesting data from each decade since he graduated from college in 1975:
In the years from 1975 to 2015:
- Global population grew nearly 80%, while extreme poverty plummeted from one person in two to one in ten, creating wave upon wave of new middle class consumers.
- The US population increased 50%, but the country still has staggering natural resources and 100 years’ worth of hydrocarbon energy reserves.
- Real US GDP more than tripled, while the population increased only 50% (i.e., real GDP per capita has soared).
- The S&P 500 rose more than 20-fold, with an earnings increase in excess of 15-fold and a dividend boost approaching 12-fold.
- Significantly, these gains occurred while the general level of consumer prices increased by a factor of scarcely more than 4.5.
There’s no doubt that this spectacular economic and financial progress was helped by the continuing spread of capitalism (and free markets), as well as the exponential progress in information technologies. Can this continue? Let’s hear from Lowell Wood, who just recently surpassed Edison’s record for total US patents in one person’s name:
“It’s irrational. It’s frankly illiterate to not be optimistic. We’re going to see a blossoming across essentially every front, unprecedented in human technological history. This is not something that’s hoped for. This is baked in the cake.”
Whitney Tilson: 2015 was a good year
13) Another article highlighting the many good things that happened this year:
Yet in reality, 2015 was in many ways an annus mirabilis — a year of wonders and blessings. Sample some of the evidence.
- Twelve months ago, West Africa was being racked by the worst epidemic of Ebola disease in recorded history. More than 11,000 people, many of them health workers, were dying of a viral sickness for which no vaccine existed. Today, amazingly, the number of confirmed Ebola cases in West Africa can be counted on the fingers of one hand, and researchers in August reported finding a vaccine that appears to be 100 percent effective in preventing the disease.
- Girls and women in some of the world’s hellholes continue to be all too cruelly victimized. On the other hand, female literacy around the planet reached new heights in 2015. As recently as the 1970s, only 40 percent of females age 15 and older could read and write. Just four decades later, according to UNESCO, global female literacy has passed 93 percent.
- In the United States, mass shootings and terrorist assaults took a grim toll this year and drew intense media coverage. But the FBI’s newest report on crime in America (compiling data through 2014) shows that violent crime was down, not up. There were fewer homicides and robberies than there had been a year earlier — and far fewer than five and 10 years earlier.
- Thugs with weapons wrought undisputed horrors in places like Syria and Libya, yet there were democratic elections and peaceful transfers of power too — in countries ranging from Nigeria to Argentina to Myanmar to Burkina Faso. And Tunisia’s National Dialogue Quartet received the 2015 Nobel Peace Prize for proving that democracy and pluralism could be nurtured even in the Arab world’s stony soil.