Weekly Market Comment: Friday, January 15th

Like getting a haircut, trimming strong positions can make a portfolio look better

As the political fallout from last week’s breach of the U.S. Capitol building has led to a second presidential impeachment, stocks continued to shrug their shoulders and power higher. This “V” shaped stock market recovery has been one of the most counterintuitive moves in memory. Oh sure, one can explain it: piles of government “helicopter” money being rained down on the economy with more to come, unprecedented medical success in creating multiple vaccines and counting, investors no longer feeling fearful, etc.

But who would have thought we’d be into second or third waves of the virus – with places like Ontario announcing a fresh month of total lockdowns, combined by all sorts of vaccine roll-out snafus and a new warning by the C.D.C. that the more virulent strain will small America by March– and stocks don’t seem to care?

We care, and have taken some profits in our Legacy portfolios after seeing the latest ugly jobless claims, a clear symptom of heightened lockdowns and layoffs. We trimmed some JP Morgan and Bank of America (gains of about 40%), and sold some Boralex and Innergex (up 150% and 115%, respectively). As much as we love clean tech, it’s gotten too optimistic after Biden won. We also trimmed Burcon, the exciting little protein isolate maker that completed its first protein plant build despite Covid lockdowns. We’ve followed this company closely for 10 years but added it to Legacy only in the past couple of years. The position weighting was getting too high with the stock trading through $4 (our cost is in the 80 cent range).

Was the name Twitter was inspired by the word “twit”?

Twitter’s Jack Dorsey defended his company’s decision to ban the U.S. President from his platform but admitted that the internet should not be controlled by a handful of private companies like his. He believes the internet should be open and that such bans “sets a precedent I feel is dangerous.” He then strangely started to praise Bitcoin as a foundational internet technology that is not controlled or influenced by any single individual or entity. Surely he noticed Bitcoin’s over 20% crash over two days this week, from almost $42,000 to under $33,000, and that it facilities an unknowable amount of money laundering and “funny busines,” as the IMF’s Christine Lagarde recently lamented. Bitcoin is more casino than currency.

But internet users do value the ability to express independent thought, autonomy and anonymity. This past week, Facebook drove scores of WhatsApp users to sign up for the competing messaging service Signal and other rivals after alerting its two billion users of changes to their user policy. Essentially, Facebook now has the right to share WhatsApp data with Instagram and Facebook, whether or not you want the data to be shared or even have accounts with the broader Facebook network. In the past, it was voluntary but as of Feb. 8th, it will be mandatory.

What was supposed to be a totally private chat platform is still private: it is end-to-end encrypted and Facebook doesn’t know what you are typing to friends and family. But metadata such as your usage characteristics, your phone’s unique identifier – information that can pretty easily be used to identify you and customize ads for you – and your phone’s contacts are now subject to pillage by Facebook to be turned into even more marketing profits.

Zuckerberg just can’t seem to help himself: the guy is possessed with turning every and any user data he can into marketing dollars. The $21.5 billion in revenue it collected in Q3 (the third quarter) did not record any revenue from WhatsApp and Zuckerberg doesn’t like that.

A lot of users are voting with their feet. Elon Musk endorsed rival Signal to his 42 million Twitter followers. To be clear, a lot of people probably are under the mistaken impression that content within WhatsApp is being read.

By the way, Facebook’s new policy changes are not happening in Europe, where internet regulations are more clear. In 2016, the EU expressed “serious concerns” about WhatsApp user data being shared, punishable by fine companies up to 4% of global annual revenue for breaking EU rules. It suggests Facebook is capable of sitting up straight when compelled to.

Marriage is good for people and can be good for stocks, too

We were on a UBS O’Connor Merger Arbitrage’s monthly call this week and their head PM, very much a New Yorker, started by joking “well, things have actually been very quiet here in America in this new year.” It solicited a belly laugh from us. UBS’s performance, like America, has been anything but uneventful, up 10.31% net in 2020. They expect the Biden administration to be more predictable in terms of what M&A transactions they approve or stand in the way of. The beauty of their investment mandate is that its pretty indifferent to what the broader stock market is doing. It doesn’t require a bull market to perform well. With a correlation of 0.1 to the S&P (out of a range of -1 to +1), this fund marches to the beat of its own drummer. It makes for extra diversification for portfolios when correlations between holdings are low, and is why we carry a position in some Legacy portfolios.

And who can tell for sure how much longer the stock market can keep its torrent upward trajectory before another inevitable correction?

Noteworthy links:

  1. U.S. campaign finance system rocked as Facebook, Dow and other major firms pause or halt donations
  2. Michigan charges ex-governor Rick Snyder over willful neglect in Flint water scandal
  3. Yes, the pandemic is ruining your body
  4. Twitter must face Frank Giustra defamation suit in B.C., court rules
  5. The health benefits of tempeh
  6. Child weirded out after bumping into teacher outside laptop (nobody does satire quite like The Onion)
  7. TheMetUnframed.com invites online visitors to explore digital galleries
  8. 20 Photos of the Week


Musings Beyond The Markets

Here’s an out-of-the-box idea for vaccine policy makers. Set aside 10% of vaccine supplies and hand out vaccination vouchers at houses of worship, veterans clubs and schools that are open. Get each of those local communities to organize who will administer and receive available supplies. Leaders within those communities can canvas for volunteers among its members, such as nurses and doctors and ambulance workers to help out. There would be a torrent of good people stepping forward to help out. It would be great for community spirit and give people a sense of empowerment to act and do good.

The vaccine roll-out has been too slow because it is too rules based and confusing. Speed should be the priority of policy makers.


Word of the Week

defenestration (n.) – the act of throwing someone out of a window. “Sally finished her apple and defenestrated the core.”