Dow 23,000 Hats For Everyone!

The weekly Market Update is posted and includes the following; The yield on the Ten Year US Treasury Note jumped on Friday to close at 2.38% which is as high as it has been since early July. Barron’s cited a strategist from JP Morgan who opined that based on this point in the cycle, yields should be higher. He noted distortions that have been created by QE and other extraordinary stimulative efforts as being a “weight” on yields. Another fund manager is worried about the flattening trend warning of a recession in the offing. Actually, in the last month the curve has steepened but of course the trend for 2017 has been to flatten as the FOMC has hiked rates. Should the yield curve actually invert we will certainly bang the recession drum here, it won’t be different this time, but until that time it is important to remember
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The Great Firewall

We arrived in Shanghai late Monday night after a long four-airport three-flight day and all I wanted to do was crash. The Gotham Gal wanted to check her email so she logged onto the hotel WiFi and attempted to do that. As I was falling asleep I heard her call down to the front desk and complain that the Internet wasn’t working. I told her we could deal with it in the morning. So when we got up, we grabbed our laptops and went downstairs to have breakfast and fix things. I set up VPN software on both laptops and the Gotham Gal’s iPhone. For some reason that I don’t entirely understand, my Pixel with a TMobile SIM card seemed to be able to bypass the great firewall and access Google and Twitter without need for a VPN. But even with firewall software on our devices, accessing western Internet services
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Silly Rabbit…

Last month General Mills announced to Trix’s die-hard fans that it would return to artificial dyes and flavors, after two years and a lukewarm consumer reception to natural colorings from turmeric, strawberries and radishes. Turns out consumers far preferred Red #40, Yellow #6 and Blue #1 dyes. Trix For some time now, the healthcare industry has known that social determinants (items like food quality, residential address, access to education, etc) play a significant role in one’s health but the industry has struggled to properly assess, much less manage, such important factors. Coincident with this, my focus for some time has been about how close we are to actually developing tools to effectively accomplish this. The premise is that multiplexing a set of disparate data sets will provide some startling  (and hopefully actionable) insights. For instance, one question we should be close to answering is “what is the quality of caloric consumption
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Electric Bike Reviews

ElectricBikeReview — our electric bike purchases this year have been a very nice surprise.  We had no idea how much we’d like these, nor any idea how well they would work.  I can’t imagine buying a bike without this feature now.

Forward Partners Code of Ethics Regarding Sexual Harassment

Earlier in the year, there were a significant number of victims who came forward to share stories of sexual harassment by investors. Some of those investors were prominent VCs. At Forward Partners we were really saddened by the reports – clearly, any abuse of an asymmetrical power relationship for sexual gain is wrong. Doctors have been held to a high standard in this regard for as long as I can remember and investors should be no different.
So a couple of weeks ago we adopted a new Code of Ethics for Sexual Harassment, with a link at the bottom of our homepage and a new question in our FAQ. The code identifies four different levels of sexual harassment and is based on a template that TechCrunch published in July.
We don’t want to make a big deal of this announcement, but it is important that people know our code of ethics
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No you should not install 3rd party AV software

Between this news and the Kapersky revelations last week, I think the strategy most people should follow for their personal pcs is clear.
  • Don’t visit sketchy sites that are offering you free software, free movies, etc.  And never download software offering the same.  “If you aren’t the customer, you are the product.”
  • Don’t install 3rd party AV/Security software, this software digs into the heart of your system and just creates another source of vulnerabilities.
  • Do accept all patches from your OS vendor — Microsoft or Apple. You should probably allow them to auto patch your system without your intervention.  You have already thrown your lot in with them, why hold back.
  • Do run the latest OS from your OS vendor.  That is where their best and brightest people are working.
Microsoft and Apple have a gajillion people working on security, it is in their interest to protect their products Continue reading "No you should not install 3rd party AV software"

Spain is En Fuego…

When I arrived in Spain a few weeks ago the newspapers were bemoaning the extraordinary loss of global soccer star Neymar from Barcelona to Paris St.-Germain for a staggering $262 million transfer payment. Grown men were crying in the streets. A popular storefront in Ibiza captured the despair many felt, as they searched for meaning post-Neymar. Ibiza 2017 Tragically, only days later, everyone was now crying in the streets after the horrific terrorist attacks in Barcelona. In addition to the obvious devastation, tourism is 14% of the Spanish economy and given problems elsewhere in European, Spaniards were expecting a bumper summer season of 38 million visitors. Spain had been relatively insulated from Islamist terrorist attacks, although Barcelona which is in the Catalonia region of Spain has had a restive past with sporadic separatist violence. In three weeks, Catalonians are to vote in a referendum to determine if the region will separate
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James Montier Is Still Bearish

James Montier from Grantham, Mayo van Otterloo was interviewed in Barron’s over the weekend. Montier seems to always be bearish, certainly almost always bearish. The obvious criticism of a perma bear is that they are wrong the vast majority of the time. I believe the utility to a smart perma bear is that they can articulate the prevailing bear base quite eloquently. There is always a bear case (there’s always a bull case) and taking the time to understand it can minimize the odds of getting blindsided. IMG_20170801_154341_404 These days, Montier appears to be concerned about valuations and the heavy hand that central banks have played in the markets in recent years. He believes mean reversion is coming soon while his boss, Jeremy Grantham thinks it could take 20 years. He also unloads on passive investing saying that with valuations so high it isn’t investing it is speculating. When asked how
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CMBS Stumble

Via Bloomberg:
Grocery CMBS Stumble Suggests Repricing After Amazon-Whole Foods
2017-08-03 11:56:49.192 GMT By Adam Tempkin
(Bloomberg) — Investors gained concessions on the first
commercial mortgage bond backed by grocery-anchored centers
since Amazon announced it was buying Whole Foods Market,
suggesting a repricing of CMBS risk after that transformational
deal.
* Spreads on the bond, sold by Madison International Realty and
the REIT DDR Corp., widened considerably from initial guidance
* “Amazon buying Whole Foods has certainly brought grocery-
anchored centers into focus from a longer-term viability
standpoint,” Principal Global investors wrote in a 2Q CMBS
market review
** In addition to pressure on the sector from Amazon, foreign
entrants Aldi and Lidl are making a push to increase their
footprints in the U.S., adding more competition to the grocery
sector The bond was comprised of several pools, and some may have
fared better than others Continue reading "CMBS Stumble"

Dramatic Capital Inflows Continue in 2Q17…Trouble Ahead?

In an environment of microscopic interest rates, it is particularly interesting to read the Preqin 2Q17 Quarterly Update which exhaustively tracks all things private equity and venture capital. At the end of June 2017 there were 1,998 funds in market raising a total of $676 billion – a staggering sum – indicative of global investors desperately looking for alpha. Admittedly, Softbank’s $100 billion Vision Fund skews the data somewhat but at the beginning of 2017, there were 1,834 managers raising $525 billion which were already all-time highs. In 2Q17 private equity funds raised nearly $121 billion across 206 funds; buyout funds accounted for $88 billion of the totals, which coincidentally was approximately how much was invested ($83 billion) in 1,001 buyout deals. This investment pace comfortably returns the private equity industry to levels not seen since the Great Recession nearly eight years ago. Amidst of all the distractions swirling around the Russia Probe
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VIX Below 9?

The weekly Market Update is posted and includes the following; The Barron’s Striking Price column made a sort of tail wagging the dog argument about VIX-related exchange traded products causing a distortion in the market. The concern is that a large single day spike in the VIX (more specifically the futures that the funds use) could cause a repositioning on the funds’ part that would cause an “acceleration event” that pushes prices down even more and volatility higher. We would never underestimate the market’s ability to panic and while the scenario is of course plausible, it is not obvious that something that has never happened before be so easily predicted by one random article. The next panic will likely be caused by something else. Please click through to read the entire update. Diablo Lake in North Cascades National Park 20431558_10155472712779019_9054598130791359122_n The Seattle skyline from West Seattle 20280671_10155469602409019_2134029791568120474_o Neat apartment building in Seattle 20374799_10155467822559019_1235086102295924467_n

There’s A Storm A Comin’

Bloomberg interviewed Alicia Munnell from the Boston College Center for Retirement Research. She of course has come to be a thought leader for what ails the Social Security system. Shockingly it boils down to three things; cutting benefits, raising the cap one way or another or some combo of both. I’ve framed it numerous times by saying that something will have to give. 20258494_10155462021959019_1744644000023430759_n Included in there is what I will bluntly call nonsense about replacement rates as in how much of someone’s income Social Security is intended to replace. There was talk in the interview about replacement rate dropping from 36% to 27% over some long period of time. It’s nonsense for a long list of reasons including people making well above the cap won’t get anywhere near that sort of replacement rate, replacing X% of your income focuses on the wrong thing, income versus spending. Many people plan to
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Circulation and “On Demand” Healthcare…

This morning Circulation, one of our portfolio companies, announced a very exciting Series A financing of $10.5 million to scale one of the emerging leaders in the “on demand” healthcare economy. Circulation is the second of our Flare Ignite seed companies and with this financing, both companies have now successfully converted to be significant core holdings of the fund (Bright Health was the other). There are several elements to this story which are quite instructive. First and foremost, it is very rewarding to work closely with world-class entrepreneurs (Robin Heffernan and John Brownstein) who are also great friends of mine. Robin and I have worked together for nearly a decade over three companies – she was an investor at my prior venture firm, we backed her when she helped start one of our other portfolio companies, and now at Circulation. In parallel, I have been collaborating with
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Markets Continue To Melt (higher!)

IMG_20170722_062043_633 Macro   The Bank of Japan (the central bank) left rates on hold at -0.1% and also revised its timetable for achieving 2% inflation to 2020. There is a quote that goes something like “inflation is the easiest thing in the world to create, except when you need it.” Before the financial crisis, the only concern was that of inflation. The crisis was a deflationary event that fortunately did not create a deflationary debt spiral but global GDP has not really gotten going, for developed countries anyway, and countries are struggling to get inflation to levels that would go with healthy growth. The Great Depression from almost 90 years ago cast a pall over the country for decades and that appears to be a possibility with the Financial Crisis. One difference (there are many) is that developed countries have demographics working against them, moreso Japan and Europe. If
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Sunday links: stock sideshows

Only Perfect Hedge Is In a Japanese Garden

This is an interesting piece from Robert Sinche at Amherst Pierpont on the changing relationship between US 10 year and Eurpean govies on a hedged basis. The US is looking less attractive.   Via Robert Sinche at Amherst Pierpont Securities: One of the persistent sources of support for US Treasury debt, particularly at the longer end of the yield curve, was its relative “high yield “ status. Throughout 2015 and 1H2016 the yield of the 10-year Treasury exceeded the hedged yield (using a conventional 3-month hedge) of 10-year bonds in other developed countries. The dynamics of the hedged-yield analysis is driven by yield curve shapes, with a flattening yield curve in the US making the effective hedged yields in foreign markets more attractive.  As a result of the steepening yield curves across the EZ and UK, the hedged yields on benchmark 10-year bonds in France (2.82%), Germany (2.55%) Continue reading "Only Perfect Hedge Is In a Japanese Garden"

Delinquent CMBS Creeping Higher

Via Bloomberg: CMBS Monthly Late-Pays Spike Most in Six Years, Still Low: Fitch
2017-07-17 15:49:57.920 GMT By Adam Tempkin
(Bloomberg) — U.S. CMBS loan delinquencies increased 22bps
to 3.72% in June from 3.50% a month earlier, the largest month-
over-month spike in six years, Fitch said in a statement.
* This represented largest monthly increase in delinquencies
since the 9.01% peak in July 2011
* Silver lining is that halfway through 2017, loan delinquencies
so far remain considerably below Fitch’s estimate of between
5.25% and 5.75%
* Primary reasons are strong repayment activity of maturing
loans during the first six months of the year, many of which
were previously identified as highly leveraged and would face
difficulty refinancing
* Remainder of the year looks promising with only $20b left to
refinance in 2017 and new issuance still healthy
* Fitch lowering its year-end Continue reading "Delinquent CMBS Creeping Higher"

Is A Minsky-esque Moment Coming?

The weekly Market Update is posted and includes the following; In several previous weekly updates we have talked about volatility in political headlines increasing but not being matched by equity market volatility as measured by the CBOE Volatility Index. In addition to the above mentioned volatility in the slope of the yield curve, WTI has become more volatile as measured by the VIX for crude oil which can be tracked through symbol OVX. Since March 1st it has increased 19% while the VIX has declined 26%, closing last week at 9.51. Please click through to read the entire update. The rear of a Type 4 engine that I believe is from the Tonto National Forest in Arizona. Forest Service trucks usually are usually numbered with a state abbreviation like AZ or CA, then a three letter code for the forest like TNF in the picture and then the engine
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Even The “Experts” Get It Wrong Occasionally

My latest post for Alpha Baskets is published and includes the following; The best example of why this is, comes from the tech wreck. For a while, the options market appeared to be giving money away, you could sell a semi-deep out of the money put on a $300 stock and easily bring in a couple of thousand dollars. This worked for a time and then the crash came and put sellers were paying $250 for stock trading at $80 on their way to much lower prices. That’s permanent impairment of capital, Holmes. Please click through to read the entire post. Mendocino National Forest parked along side Goodyear AZ Fire Department 19984072_1972669693014474_2512660207258284605_o Private contractor type 4 engine 19944544_1972072786407498_899255900746100764_o Bureau of Land Management law enforcement 19800728_1970712076543569_5993159684632831630_o