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Archive

December 14, 2018, Vol. 36, No. 24

For the next 10 years

In which we take a stab at the future course of interest rates. It’s a speculation of course, but we do know one thing for sure about futurity. Starting Friday, Grant’s will be making its offices at the Woolworth Building, where we started 35 years ago.

After the boom

It’s been a storied boom, 27 years young on Sept. 30, but we see in the Lucky Country the symptoms of post-boom deflation syndrome. Mortgaged houses and blue-sky equities.

‘Really, just IOUs’

If the free-and-easy portion of the credit cycle is behind us, better days – at least, for the intrepid, value-seeking readers of Grant’s – may be at hand.

Year-end review

An annotated list of our 2018 investment ideas, bonds and stocks, currencies and metals, longs and shorts, profitable and otherwise.

Governmental leaf blowers

As leaf blowers disperse leaves but do not destroy them, so financial regulators shift risk but do not remove it.

Tropical-storm warning

Anything can happen in Brazil, and new political complications do not narrow the range of possible outcomes.

Bring in the unicorns

Or has the IPO window already closed?

November 30, 2018, Vol. 36, No. 23

Neither stocks, nor bonds, nor things

News that, in the year through mid-November, 90% of the dollar-denominated asset classes monitored by Deutsche Bank delivered a loss, the worst such showing since the start of the 20th century, leaves Wall Street with certitudes to discard, expectations to reset, portfolios to rebuild.

Meeting of the minds

The New York Times and Donald Trump have at last found common ground.

Massive oil spill

Just why the price of West Texas intermediate has taken a 29% header is a mystery. But as clear as day are the bargains on offer among energy-sector equities.

Don't bank on it

If there were a corporate epitome of today’s frenzied finance, a certain leveraged, unicorn-sustaining, fashion-forward conglomerate would be the one.

Words to live by

“The public is well advised to be on high alert,” advises an Asian monetary authority. Excellent advice for speculators in the world’s most overvalued real estate market.

November 16, 2018, Vol. 36, No. 22

It ain’t necessarily so

It’s supposedly settled science that stocks deliver superior investment returns over any reasonable long-term holding period: superior to cash, of course, but also to bonds. Now comes a retired marketing professor to blow it to smithereens.

Children of QE

What sustains these profitless wonders? The still low cost of capital, of course. And a sense of entitlement.

Dept. of SNAFU

When acronyms adhere to the policies and procedures of other acronyms.

Returns to adversity

Last month’s reduction in the quarterly payout to one lonely penny was symbolic of a new seeming certainty, namely, that Thomas Alva Edison’s corporate brainchild is sick unto death. We write to sing the praises of one particular high-yielding security.

Art house picture

But the evening may be more notable for what didn’t happen.

Used and abused

The point of ultra-low interest rates is to yank consumer demand into the present from the future. For those industries whose demand has thus been accelerated, we expect falling sales and lower residual values. Knock-on effects for a known Grant’s pick-not-to-click are likewise in the cards.

Mex officio

“Ironic it is that markets are surprised.”

Central bank games

And the Swiss are the conservative ones.

November 2, 2018, Vol. 36, No. 21

What corrections correct

Markets are efficient, all right, but nobody’s perfect and errors cyclically crop up. Corrections set things right. We write to identify the errors that opened the October trap door.

Built by interest rates

The San Francisco app developers didn’t build this ride-sharing behemoth by themselves.

Wag the dog

At $34 billion in cash, (corporate nuptials are slated for late next year), it would be the largest-ever cash-only M&A transaction in high tech. It would likewise constitute a milestone in the credit cycle and in the long-term decline of a known Grant’s pick-not-to-click.

New ZIRP code

Weak as the market may be today, strength is on the agenda over the next five to 10 years, if indeed demographics are destiny.

Hold the bubbly

The meteoric rise and crash appears to be linked to a kind of digital credit creation.

October 19, 2018, Vol. 36, No. 20

What do you mean, reverting?

Concerning one cosmological proposition or another, Sir Martin Rees, Astronomer Royal, said he thought it was true. And he added that while he wouldn’t bet his life on it, he would bet his dog’s. So it is with Grant’s and the notion that interest rates have stopped falling and started rising.

For rising rates

No matter how much you invest in zero percent yields, zero is what you earn. For the many who need income, a survey of the opportunities on offer at today’s new and improved yields.

Trophies for all

“If you’re managing money and your job is to find strong companies and short weak ones,” observed Jason Trennert, leadoff speaker at the Fall 2018 Grant’s Conference, “it is awfully hard when everyone gets a trophy.”

Modern media leviathan

“The most levered nonfinancial company in the history of the world is also about as levered as Thailand or Portugal, if it were a country.”

Arise, prudent man

“There is no such thing as objective value. That is, all value is subjective to the person doing the valuing – and specifically insofar as he acts toward a desired end.”

Central bonkers

Seated with your editor onstage at the Plaza, the great wealth compounder Stanley Druckenmiller hurled thunderbolts at the conduct of monetary policy. “Where are the bankruptcies?”

Starbucks also mentioned

“Our approach usually is, if we don’t think management is good, we change the management.”

'Making stuff up'

“In the salad days of the 1980s and 1990s, a penny-per-share earnings beat could jiggle a share price. Now you need nickels or dimes, or more. And how does a company exceed expectations by such a wide margin?”

Sell the yuan

“There is no nuance involved in cutting credit growth in half, particularly in a system that is used to very rapid credit growth in previous years.”

Father of QE

The improbable, tragi-comic life of a certain Scottish “policymaker cum business projector, stock promoter and activist central banker holds a lesson for our own day.”

Relationship counseling

The standard 60/40 stock/bond portfolio-allocation protocol is more than a rule of thumb, our speaker informed the Grant’s audience, and “the relationship is in a period of transition.”

Times table

The money multiplier is inching up, but growth in the money supply is sputtering. What, exactly, is going on?

October 5, 2018, Vol. 36, No. 19

Tennis without a net

Inflation remains the order of the day, and the rate of inflation, by the standards of 800 years of monetary history, remains elevated.

Red river

Not at the 112-month mark of every economic expansion is the Treasury staring at a $1 trillion deficit.

Insurance runs

It’s nice to know that the forces of supply and demand, and the movement of interest rates, exert their (almost) intuitive effects on a field of business that sometimes compensates in opportunity for what it lacks in glitter.

Can’t take it with you

This Pittsburgh senior citizen is the exemplar of heavy borrowing against non-GAAP earnings for empire-building and share repurchases. A story for the many who buy long as much as for the few who sell short.

‘A great tragedy’

As Brazilians head to the polls, the question is not, “Which of the two is more bullish?” but rather, “Who’s the less bearish?”

The worse the better

Junk is the new gold.

September 21, 2018, Vol. 36, No. 18

Jay Powell, prisoner of history

No free agent is the chairman of the Fed, no matter what the prior chair contends. The consequences of past policies will tie his hands, and the monetary consumer will exercise his sovereignty.

She doesn’t work here

Carmen M. Reinhart, the Minos A. Zombanakis Professor of the International Financial System at the Harvard Kennedy School, is not, after all, a member of the staff of Grant’s.

Buy British

Brexit and the growth in digital commerce have thrown a spanner into the works of the UK retail industry. But a former force to be reckoned with is on the way back.

Tricks of the trade

What should a creditor expect in this time of debased accounting standards, eviscerated covenant protection and miniature interest rates? “Less” is the answer.

Golden primer

This is a sermon for the choir, and there is nothing impartial about it, or us. Suppressed interest rates and the radical methods of modern central banking are storing up trouble for the future. The readers of Grant’s need a hedge.

No more magic

Next time, the Fed will be debarred from this kind of abracadabra.

September 7, 2018, Vol. 36, No. 17

Progress skips a beat

You wonder how the same race of men who conquered smallpox and abolished the slave trade and spread democracy and invented the Internet could persist in the financial errors that periodically send the world into a tailspin. We have the answer.

Deal of the art

It’s good to be rich – everyone says so – but not necessarily good to cater to the rich. Watch out for splashy newspaper stories.

Pigs in blankets

On Wall Street, success begets failure. Take a good idea, emulate it and embellish it, drive it into the ground like a tomato stake. Voilà: It’s a bad idea. How a great idea of the last recession is poised to menace the next one.

America guzzles liquidity

The United States remains no less connected to the rest of the world because the president puts America first.

August 10, 2018, Vol. 36, No. 16

The trouble with economics

“I wasn’t impressed by the math, but I was stunned by the lack of data.”

Buck privates

A critical survey of the $3 trillion industry that will supposedly save the bacon of the country’s underfunded pension plans and income-starved endowments. We all live inside the private-equity force field.

His mother fired him

Michael J. Harkins, 1953-2018, ran an old-fashioned money-management business with the old-fashioned virtues of tax efficiency and low portfolio turnover. In a more just world, he would have drawn a Grant’s salary.

Here’s the plan, Elon

A little free advice on how to structure the post-MBO Tesla that would carry a debt load 10.9 times projected 2019 EBITDA. If Musk can pull this off, sell credit—his and everyone else’s.

‘Records’ tumble

You know it was bad when management, never diffident, could find only four opportunities to drop the word “record” into the press release. The really bearish case on a Grant’s pick not to click.

Better at a discount

On offer, a quintuplet of funds with better yields than the municipal bonds featured in the previous issue, with the proviso that a seemingly deep discount can always deepen.

Emergent trouble

In faraway places, the knee bone remains connected to the thigh bone.

July 27, 2018, Vol. 36, No. 15

‘Factors’ of the forest

Value, volatility, momentum, size and quality are foremost among the hundreds of “factors” that determine investment performance, say the quants. Following in the erroneous footsteps of the late Robert Lovett.

Search for survivors

The fat lady keeps her counsel, but it’s not too soon to speculate on the close of this prodigious cycle of lending and borrowing. We reaffirm our bullishness on a Grant’s income favorite and present an assortment of retail-oriented offspring.

Proof of concept

On July 19, the editor of Grant’s addressed the Sprott Natural Resource Symposium in Vancouver. The bullish case for armor against the consequences of adulterated interest rates.

Yields less low

The critique of the must-have income asset of the year continues. That demolition work complete, we suggest income-producing alternatives.

Mind the gap

Is it not, in fact, so very obvious that America is the only investment game in town.

July 13, 2018, Vol. 36, No. 14

Humphrey-Hawkins originalist

Where’s the good faith in premeditated inflation?

Back together again

Looking for a few good yields, this publication has settled on one. The close of a kind of journalistic trial separation.

Tomorrow’s debt hearings

The federal inquest into the credit smashup of, let us say, 2019 will not overlook leveraged loans. Testimony will uncover the facts that were as plain as day in 2018.

No more pretending

Some $2 trillion of assets and liabilities will appear as if from nowhere on the balance sheets of American companies come the first quarter of 2019. For asset-light businesses, “Shangri-La doesn’t go on forever.”

James Carville redux

“The trouble with elections, of course, is that somebody wins them.”

June 29, 2018, Vol. 36, No. 13

Credit where credit is due

Time Warner, Inc. was put on this earth not to produce Game of Thrones but to punctuate the cycles of investment enthusiasm. Having rang down the curtain on the dot-com bubble, the former Ma Bell marks the characteristic excess of the post-crisis era.

Crypto’s doppelganger

In the California gold rush, the pick-and-shovel vendors famously out-earned the starry-eyed Forty-Niners. So it may prove in the crypto field today. A good, hard look at the leading pick-and-shovel merchant of the bitcoin-mining mania.

Good dog

Inanimate objects, never having lived, can hardly die, though gold investments are making a stab at that morbid impossibility.

Arrow points down

Promising their investors more, the debt hounders pay more. And they keep paying more—and borrowing more—to present a respectable financial face to the world. Not a formula for success.

Big Bertha goes boom

Rescuing the debt-bloated Chinese economy may prove more difficult this time around.

June 15, 2018, Vol. 36, No. 12

The man in the argyle socks

Over the sweep of decades, the 10-year Treasury has delivered a 2.3% real yield. Apply that average to the 2.8% CPI for May. Anyone for a 5% government bond handle?

Fountain of youth

Optically, a certain corporate centenarian is a technology business. Substantively, it is more and more becoming a financial business. Welcome to the ultra-low interest rate business longevity center.

Still radioactive

A survey of alternative opportunities in the market that is (if possible) even more marginalized than gold.

Thunder Down Under

Liars’ loans, robo-signing, interest-only mortgages—10 years later, the Lucky Country relives the American experience. This time a different ending?

Postcard from Toronto

Another outpost of the British Commonwealth is showing what a bear market in residential real estate might look like.

Made in America

Not in 44 years have respondents to the earnings component of the National Federation of Independent Business survey been more bullish. A certain coterie of Silicon Valley insiders begs to differ.

June 1, 2018, Vol. 36, No. 11

Down and out and radioactive

A reaffirmation of the bullish case for a heavy element with an even heavier price. “Sometimes you have a bad decade.”

Rocket ship yields

Query: Has Mr. Market lost his mind, or has he found it?

All in the family

Soaring revenues paired with plunging cash flows is a hallmark of the San Francisco high-tech elite – and, curiously enough, of a certain East Coast construction business.

Corrected valuation

At the current share price, Alliance Resource Partners, L.P., after it merges with its general partner Alliance Holdings G.P., L.P., is valued at around 4 times – not 6.6 times – trailing EBITDA.

Cheaper, not cheap

We write to update the thesis, not (principally) to remind our noble subscribers why they pay good money to read Grant’s.

Where yen go to die

Japanese savers will soon have a “high-yield” domestic option.

May 18, 2018, Vol. 36, No. 10

A prospectus for the United States of America

In its power to tax, borrow, spend, expropriate and wage war, the government of the United States must be the world’s greatest temporal power. Still, you wonder what this almighty institution would have to say for itself if it were brought into the sunshine of the Securities Act of 1933. The Grant’s model Treasury bond prospectus—the sixth in a series that dates from 1985—realizes this enticing impossibility.

Not the color green

The reasons to avoid coal are too obvious to belabor. The reasons to invest in it (for any with a tolerance for pariahs) are equally obvious but maybe less familiar.

Bancos do basis points

Short-dated, speculative-grade and U.S. dollar-denominated. A trio of income opportunities in the Great Green Country.

May 4, 2018, Vol. 36, No. 09

I Can’t Believe They’re Covenants

The central banks are against you. The managements are against you. And the lawyers are against you. Good luck to you, corporate-creditor victims!

Mexican yield exports

“Income on which to build a safe and carefree retirement”—not, admittedly, the first thing you associate with the country due south of the rising Trump wall.

Concerning the 3-1/4s of ‘26

A threefold status update: on the bonds, on their issuer and on the risks attached to the burgeoning triple-B portion of the investment-grade corporate bond market. Opportunity beckons after the fall.

After-tax edge

Equities are volatile, junk bonds are rich and cash is, still – even with the up-creep in the London interbank offered rate – blah. Where to turn for income?

Don’t blame Keynes

The federal finances are none too solid in prosperity. What cascade of red ink might the next recession deliver?

April 20, 2018, Vol. 36, No. 08

This magic moment

Whether the transformation in monetary worldview from Martin’s generation to our own is a good thing or a bad thing is for the bondholders to judge.

For the newbies

“The bull market in everything” – stocks, bonds, Picassos, bitcoin, real estate – is over. Actually, not every bull market is kaput, contended David Rosenberg, leadoff speaker at the April 10 Grant’s Conference.

‘A special thing’

“A discount that you can actually do something about, that is objective and that, while you sit there is not dead money.”

Here’s the beef

“Big” and “asset-light” are the reigning ideas in the restaurant franchise business. “I’m here to tell you this Shangri-La doesn’t go on forever.”

No munis, please

Howard Marks reflected on the asset class which he wouldn’t go near—hasn’t touched, in fact, in 40 years.

Overreaction syndrome

When a company’s stock falls out of bed while the same company’s debt remains securely under the covers, someone is going to make money.

Hedging Mr. President

“Two assets: Both go up, and yet they are strongly negatively correlated day-to-day. Nirvana.”

So out, it’s in

This biggest risk in holding gold bullion? “Career risk,” came the answer. They’ll fire you for taking leave of your senses.

‘Somalia on purpose’

The blockchain is, “a crappy technology and a useless technology,” our speaker matter-of-factly informed the Grant’s audience.

Only the best

“The biggest mistake is actually the trades you didn’t do and the reasons for why you didn’t do those trades,” said the hedge-fund titan John Burbank.

Tax Bungle

In which Grant’s erred: U.S. investors may not, in fact, receive capital-gains tax treatment on bonds purchased at a discount to face value and held to maturity.

Who Say’s Law?

The Fed’s program of balance-sheet reduction brings to mind the punchline of the old trader’s joke: “Sell to whom?”

April 6, 2018, Vol. 36, No. 07

Make way for Darwin

The index is not a company you want to buy.

Box Checker, Inc.

A grand tour of the housing market and mortgage finance now that the bubble-era round trip in home prices is over and done. Also, the thriving mortgage vendor that’s poised to thrive less.

Odd fact out

South of the border, yields don’t comport with the news.

Doormats of Wall Street

The loneliest corporate stakeholders need a raise.

Pattern recognition

Managerial insult compounds interest-rate injury.

Let the ECB pay you

Profiting from the negative.

March 23, 2018, Vol. 36, No. 06

The nine lives of the modern leveraged company

The zombies didn’t just climb up out of the graves by themselves.

Slightly below par

No tax experts are we, but 20% is better than 37%.

Down Mexico way

Spread compression has lately been the story in fixed-income investing, in EM debt and junk bonds alike. Now comes decompression.

Gnomes roll the dice

The Swiss prepare to vote up or down on a proposition to abolish double-entry bookkeeping in the accounts of the central bank. Turning chocolate into kale?

Hedge your bets

The strategy of the “three arrows” is at risk. What next for one of the strongest monetary brands not on the blockchain?

March 9, 2018, Vol. 36, No. 05

Xi Jinping’s poisoned chalice

We hoist an amber light not only for the countries and markets in obvious and financially close proximity to the “biggest and strangest thing in the world,” but also to just about anyone, anywhere who has money at risk.

Silicon Valley’s zombies

Not all zombie firms are created equal.

Fair-haired orphans

The United States is poised to overtake Saudi Arabia in energy production this year, though you wouldn’t know it by the slump in the prices of a trio of known Grant’s picks to click.

Where you sit

The one-eyed bond is king in Mario Draghi’s land of the blind.

While you wait

Something beyond the grudging yield on Warren Buffet’s Treasury bills to compensate the patient investor?

Down in Toronto

Sooner or later, the inevitable comes to pass.

February 23, 2018, Vol. 36, No. 04

This is the way the world ended

Radical monetary innovations got a fair trial in France exactly 300 years ago. In the resulting spectacular boom and bust, a cautionary story for our time.

Clunkers, Inc.

You might not suppose there’s much to quarrel with in the results of this titan of second-hand transportation and known Grant’s pick not to click. Still and all, maturities are lengthening, rates are rising and prices are softening.

Pass the ketchup

Left with little more to cut, what next for the brilliant Brazilians?

Bears watching

Ordinarily, the Ten Commandments do not impinge on the legal interpretation of bond indentures, especially in very large transactions.

Let’s assume

The bull stock market is a fact, the coming bear bond market a hypothesis. Imagination is no substitute for a margin of safety.

Gross and grosser

Imagine if IBM accounted for its pension liabilities the same way as the Treasury does. No, don’t imagine. It’s too frightening.

February 9, 2018, Vol. 36, No. 03

The bond crop never fails

The government will borrow more in relation to GDP next fiscal year than it has borrowed in any fiscal year since 1945. A reason or two why Dick Cheney may yet stand corrected.

Cognitive dissonance alert

With valuations at record highs and high-yield credit spreads at decade lows, it’s the heyday of private equity. One question: Where are the limited partners’ yachts?

Bond light

Mispriced, profuse and – from the point of view of refinancing risk – vulnerable is the debt of a certain Goliath. Wherein brew masters meet leverage artists.

Bay Street blues

Visiting Yanks have shaken their heads before, but don’t Canadian house prices look a little high? Yours to ponder, Bank of Canada.

What happened

The whys and wherefores of the stock-market volatility storm in fewer than 700 words.

January 26, 2018, Vol. 36, No. 02

A cloud no bigger than a man's hand

At risk is the government's credit and the prices of the government's securities. What's the opposite of Fort Knox?

Inflate your income

The cyclical stars are seemingly aligned, except for the dim star of inflation. Now comes a survey of the opportunities in – bonds.

'More study needed'

Not even the irreplaceable heretic of the Bank for International Settlements can help but dither. It's the time for action.

Washing(ton) machines

Grant's lifts its fatwa on a known pick-not-to-click for reasons related not to where the company makes its headquarters but to the capital of rent-seeking.

Like no business

No mystery about the common equity of this particular enterprise. It goes up. The mystery concerns the bonds. Why does anyone buy them?

Breaking the mold

Whatever could go wrong as we approach the ninth anniversary of the stock-market bottom?

Still more overvalued

The Big Mac (adjusted index)

January 12, 2018, Vol. 36, No. 01

Crypto-monetary easing drive

Could the boom in alt-currencies disrupt the policy-making monopoly of the fiat central banks? What the consensual suspension of the law against private-sector counterfeiting has wrought.

His highest praise

Contagious, our bullishness is so far not. We write to freshen an equity story and to highlight a pair of fetching bonds.

Motoring City

In which we close out a deep value investment. Here’s to you, “the most exciting city in America.”

Checking out

Old-time travel agents are gone. Middlemen are going. Now taste and technology are closing in a supposed untouchable franchise.

Out of gas

Never mind sex, data breaches or intellectual-property jiggery-pokery. The trouble with Uber is that it has lost money, it is losing money and it will lose money.

Divine currency call

Yes, a certain large, picturesque troubled country deserves a break, but not with your money. Sell the stocks, sell the bonds, sell the currency.

Amber lights among the green

Not all signs are on-message, and more than a few are concerning.

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