Saturday, May 14, 2016

Projects worth ₹80,000 cr coming TN’s way : Nitin Gadkari


We need cooperation from State governments for infrastructure development. In Tamil Nadu, unfortunately, we had to terminate two projects,” said Nitin Gadkari, Road Transport, Shipping & Highways Minister. “We never mix politics with development and development with politics,” claimed Gadkari, speaking at ‘Breakfast with BusinessLine’, an interactive session with senior executives from the corporate sector. But in Tamil Nadu, he said, his Ministry had to give up on the Maduravoyal-Chennai Port elevated road project as there was no progress. Gadkari said he had “written many letters to the State government” to no avail.
Another road project, by L&T, also had to be shelved, said Gadkari, who is touring the State to campaign for the BJP in the Assembly elections, which will be held on May 16.
“We need an atmosphere in the country for development of infrastructure. Our government and my ministry look for ways to help develop infrastructure in different States with different political parties but sometimes we are helpless,” he shrugged.
“I am not speaking politically, but I am talking of practical issues such as forest and environment clearances,” claimed Gadkari.
There is strong political will at the Centre and speedy decision making. Positive cooperation from stake holders will help achieve goals, he said.
Sagarmala programme

Tamil Nadu will be a huge beneficiary under Sagarmala, a ₹4-lakh-crore flagship programme of the Centre envisaging port-led development. Conceived as a 10-year project, he hopes to complete it in five years.

Gadkari listed out projects totalling more than ₹80,000 crore relating to port and industrial investments in Tamil Nadu. Under Sagarmala, the State will get an LNG terminal at Ennore at a cost of about ₹3,000 crore; at Tuticorin Port, a North Cargo Berth, a foodgrain berth, an additional container berth and a coal jetty are planned.
Also in the pipeline is the development of ports at Sirkali and Colachel. Work on all of these will start within two years, he said.
Huge investments are also planned in developing inland waterways using the major rivers in the State, including the Tamiraparani, Manimuttar, Cauvery, Palar, Vaigai and the Bhavani. These present a huge opportunity for private sector investments, he said.

Solar energy: The new sunbathers


THE sun is the world’s battery pack. Photosynthesis captured the energy that is burned in fossil fuels. The sun drives the wind and ocean currents. And in an hour and a quarter the amount of sunlight that threads through the clouds to the Earth’s surface could power all the world’s electricity, vehicles, boilers, furnaces and cooking stoves for a year.
Yet solar power produces less than 1% of the world’s commercial energy. For a long time it was dismissed as a luxury only the rich could afford; it spoke volumes that Germany, a place where the sun shines for less than five hours on an average day, used to lead the world in installed solar capacity. Now, however, solar is coming of age  
Solar power garnered $161 billion in new investment in 2015, more than natural gas and coal combined. A trend that began in northern Europe, where electricity demand is stagnant and clouds proliferate, is taking root in countries where power needs are growing fast and the sun shines brighter. For the first time last year, developing countries attracted more investment in renewable energy than rich ones. Poorer countries, from China to Chile, are increasingly getting their electricity from giant solar parks in arid places linked to their national grids. This year America hopes to triple the 3 gigawatts (GW) of solar capacity it added in 2015; China, the new world leader, and India each plan to add about 100GW in the next four and six years respectively.
Lower costs help explain this extraordinary expansion. The price of solar panels, which are produced almost exclusively in China, has fallen by 80% in the past five years. A new business model is proving just as beneficial. Grid providers are offering long-term contracts to private firms to produce large amounts of solar energy, which in turn helps those firms secure cheap finance and cut prices. A recent tender in Mexico will generate electricity at a record low cost of $40 a megawatt hour—cheaper than natural gas or coal.
That is good news for almost everyone (oil firms may beg to differ). The industry is expanding in hotter climes mostly without lavish subsidies; China is an exception, but it plans to cut its feed-in tariffs in June. The sun provides power when it is needed most, during daylight hours when air-conditioning systems are running at full blast. And by reducing the need to import carbon-burning fossil fuels, solar power helps the planet as well as the balance of payments in such countries.
Flying closer to the sun
When industries sizzle like this, some caution is usually warranted. Bids to provide power may prove to be too ambitious. Two stricken renewable-energy providers, America’s SunEdison and Spain’s Abengoa, provide salutary lessons on the dangers of financial engineering and taking on too much debt in order to expand quickly.
Bottlenecks in energy infrastructure are another problem. Developing countries will need to invest more in building transmission lines to connect the solar power being generated in far-flung deserts with its users. Makers of solar panels should focus not just on slashing their cost but on improving the technology so that more of the sun’s energy is converted into electrical power. The intermittency of the sun will remain an issue. But if storage costs continue to decline, the possibility of combining batteries on land with energy from the giant battery pack in the sky could be unbeatable.

Riding the ‘Solarcoaster’ as Shares Plunge Even More Than Coal


For all the upbeat forecasts about the growth of solar power, this is a punishing year for the industry. And it won’t improve anytime soon.
SunEdison Inc., the world’s biggest clean-energy company, is bankrupt. Yingli Green Energy Holding Co., once the top panel maker, warned it may be inching toward default. And SolarCity Corp., the largest U.S. rooftop installer, plunged as much as 27 percent Tuesday after scaling back its installation forecast for the third time in seven months. 
They’re not alone. A Bloomberg index of 20 major solar companies has slumped more than 30 percent this year. Soaring installations and growing global demand for clean energy is being trumped by investor concerns that the debt-fueled strategies employed by SunEdison, Yingli and SolarCity are endemic to the industry and dangerous for shareholders.
“They call it the solarcoaster for a reason,” said Nancy Pfund, managing partner of DBL Partners and a SolarCity director. With so much happening, both positive and negative, “it’s been hard for investors to follow.”
At a time when falling prices, renewed U.S. tax breaks and the Paris climate deal are fueling solar sales worldwide, solar shares are performing even worse than coal stocks.
Solar turbulence isn’t new. The past decade has been marked by booms, busts and failures that included Suntech Power Holdings Co. and Q-Cells SE, which both were once the world’s biggest panel producers. 
Despite the ups and downs, the general trend is up. Developers will install 48.4 gigawatts of solar by the end of 2020, more than double the amount in the prior five years, according to Bloomberg New Energy Finance. Problems at a few major companies don’t necessarily carry over to the rest. At least they shouldn’t.
“It’s more perception than true fundamentals,” said Angelo Zino, analyst at S&P Global Market Intelligence. “The fundamentals continue to improve.’’ 
That means there may be bargains, said Leslie D. Biddle, a partner at Serengeti Asset Management, a $1.5 billion New York hedge fund that specializes in distressed debt.
“At the moment,’’ Biddle said, “solar equities are a buying opportunity.’’
Solar investors remain rattled, with legitimate questions about leverage and financing. The markets are looking for proof that companies can make and install panels profitably.
“Investors lost a lot of money on SunEdison -- and quickly,” said Carl Weatherley-White, former president of developer Lightbeam Electric Co. “They’re nervous. We’ll need to see a steady quarter or two of success by the public companies.”
Against that expectation, the drumbeat of bad news continues. Abengoa SA, a builder of solar-thermal power plants, is seeking investor support for a 9.4 billion-euro ($10.7 billion) debt restructuring plan to avoid becoming Spain’s largest corporate failure. And last week, hedge fund manager Jim Chanos said SolarCity, which is down more than 50 percent this year, will face more “financial trouble” in 2016, in part because the largest U.S. rooftop solar provider loses money on every installation. His view was backed up Monday when SolarCity posted a wider first-quarter loss than analysts were expecting.
While there are a variety of reasons Wall Street has soured on solar, the conversation always comes around to SunEdison, the industry’s biggest-ever failure, which cited $16.1 billion in liabilities when it sought protection from creditors April 21.

Buying Binge

The company spent billions on a debt-fueled buying binge, which peaked in July when it announced plans to acquire the rooftop installer Vivint Solar Inc. for $2.2 billion. The deal prompted analysts to take a closer look at SunEdison’s finances, revealing an overleveraged, overcomplicated behemoth that’s financially entangled with two publicly traded holding companies.
‘’It is impossible for people not to be concerned when the leader nosedives like that,” said Shawn Kravetz, founder of Esplanade Capital LLC, a Boston fund manager with a decade of investing experience in solar.
SunEdison’s decline shows another unusual trend. In past boom-bust cycles, the carnage was within specific parts of the solar industry; sometimes manufacturers, other times developers. This time, it’s both.
With SunEdison in bankruptcy, the industry’s one-time leading panel-maker is teetering toward default. Yingli, which hasn’t reported a quarterly profit since 2011, has 1.4 billion yuan ($215 million) of notes due on May 12, and said in April it would be “very difficult” to make the payment.  
Financial problems are hardly isolated to the marquee names, said John Berger, chief executive of the closely held residential solar installer Sunnova Energy Corp. Many solar companies have “growth-at-any-cost’’ business models that are neither profitable nor sustainable.
“When you don’t generate the returns for the equity holders that they are expecting, you don’t make money,” Berger said. “There are a lot of management teams in this sector that haven’t figured that out.’’
Even profitable companies are revisiting business models. First Solar Inc., the biggest U.S. solar manufacturer, detailed in April a plan to focus on future growth from making and selling high-efficiency solar panels rather than large power plants. A few weeks later it announced plans to replace its CEO. Its shares are down more than 20 percent this year.
Ethan Zindler, a New Energy Finance analyst, said the economics of solar economics have never been better, given low equipment costs and surging demand.
“But that’s not reflected in the share prices.”

Sell in May and Go Away?: James Mauldin


Sell in May and go away” is market wisdom that actually came from Britain, based on market patterns there. My friend Art Cashin has often noted that the financial market cycle is actually related to the agricultural cycle, when farmers had to borrow in spring but could then sell their crops in the fall. I would posit that we are no longer subject to the agricultural cycle; but, even so, the sell in May (buy in late October) cycle seems to have pertained for the past 20 years. Again, on average. You can see in the chart below from the Stock Trader’s Almanac (courtesy of my friend Jeff Hirsch) that since 1950 (the black line for those of you who are looking at color) average performance was essentially flat for the period between May 1 and November 1.
Jeff notes, by the way, that this advice still works in election years.
The green line is interesting. It shows the seasonal pattern for the years 1988–2015. For those 28 years, you would have done well to revise the market wisdom and sell on August 1, buy in mid-October. That said, the “ride” from May through mid-August has been rather bumpy. As in, fasten-your-seatbelt bumpy. Which may be another indication that the impact of the agricultural cycle on financial markets is fading.
But any way you look at it, that nervous feeling you have about the market now is quite justified by the historical data.
On the other hand, I’m sure that my friend Barry Ritholtz and others of the bullish ilk (which technically I am, just more selectively so) can point to numerous years when “sell in May and go away” was really bad advice – as in you left a lot of money on the table by not being in the market. So what’s the point of timing if you can’t know how things will go from year to year? Well, let’s see what the data tells us.
First, let’s look at a chart courtesy of my friend Jeff Gundlach at DoubleLine, one which came to him from another friend, Jim Bianco. (It’s a small world, and we all “borrow” from each other. I do try to note whom I am lifting things from; and anyone can freely come to me and asked for a cup of sugar without having to worry if I’m going to ask for it back. It’s all just part of the pay-it-forward world in which we financial analysts live. The guys who are selfish and don’t freely share their sugar miss out on a lot of fun.)
Anyway, what Jim shows us is that early estimates of earnings have been falling dramatically in real time since 2012, which is another way of saying that analysts are wildly optimistic at the beginning of a forecasting period and get their asses kicked (that’s a technical economics term) by the end of it. Their records in 2015 and 2016 have been particularly embarrassing (or at least should have been).
Falling earnings – especially when they go negative, as they have for the last few quarters – are not typically associated with rising markets. Not that it can’t happen, but that’s not the way to bet the horse race. There was a reason that Majesto came off the line at 56-1 in yesterday’s Kentucky Derby while Nyquist was at 2-1. (Hat tip to short trader and horse aficionado Doug Kass, who called the Derby in advance and who also suggested that if Nyquist got past the Derby, he might be a good bet for the Triple Crown. Please note, gentle reader, this does not qualify as investment advice. Just a tip, is all.)
You can see the whole PowerPoint presentation from Jeff Gundlach here.
But price-to-earnings ratios, when quoted in the papers and or encountered in company reports, can be misleading. Companies highlight what is euphemistically called “adjusted earnings per share before extraordinary items.” The concept being that in the preceding quarter or year there were extraordinary expenses that are nonrecurring and will not happen again, so you shouldn’t hold them against the company’s actual earning power or future value.
Except that if you pay attention over the long term, these “extraordinary items” keep popping up every year, year after year after year. And amazingly, company financial officers manage to find more “extraordinary items” each year that they want investors to ignore. There is a significant difference between the P/E ratio when figured on adjusted (that is, more or less real) earnings, which in the trade we called EBITA, versus the earnings that I call EBBS – or more colloquially, “earnings before the BS we want you to ignore.”
The Wall Street Daily gives us the following handy little chart. It shows that for the past year or so we have had a local extreme between the two accounting methods. Guess which accounting methodology a reputable analyst and advisor is going to want you to look at? Seriously, if you don’t know the answer to that question, find yourself a qualified investment advisor and vow to never even think about managing your own portfolio again.
Last week we talked about the general decline in productivity over the last 50 years. And a drop in productivity is a precursor to a general decline in the growth of the economy. The following chart from Bureau of Labor Statistics data suggests that this year US worker efficiency (productivity) will show its worst back-to-back quarterly decline since 1993. That is not a good indicator of future rising profits.
Here is the stark reality. Overall, profits in the economy cannot grow faster than the economy itself does. The profitability of individual companies can, of course, vary widely. Companies that are “hot,” that have a new cool toy and are taking market share, and that perhaps even have brilliant management, can see their earnings rise far above average GDP growth. But, taken as a whole, corporate profits are a function of GDP growth. And as I detailed last week, we are going to be lucky to see 1.5%, let alone 2%, growth for the next five years. That performance is basically all presaged by productivity and worker participation rates, both of which are ugly. And that’s not even taking into account that we are due for a recession within a year or so. Just saying…
So if you are in index investor and you think you are going to continue to get historically average returns, PLEASE take some time to review the fabulous data on the website of my friend Ed Easterling at Crestmont Research, and see what happens to people who want to get average returns. You should not even consider managing your own money until you have absorbed the free research on Ed’s site. At least then you’ll go about investing in today’s environment with your eyes wide open.
What you will see is that today’s price-to-earnings ratio is rather remarkably high. We are not at all-time highs like we were in 2008 or 1929, but if the S&P 500 or other similar indexes were a mountain you were climbing, you would need to be wearing an oxygen mask.
Where Are We in the Cycle?
The table below is from Doug Short, as reproduced by Michael Lebowitz at 720 Global. Check out Michael’s report for a full explanation of the table. It’s very bearish.
Says Michael:
The current P/E is 55% above the historical mean and surpasses 92% of all P/E data. Only multiples from the 2000 and 2008 bubble periods were higher than today. Doug Short created a simple model that averages four common equity valuation techniques. Based on his analysis, the market is 76% overvalued as compared to the average dating back to 1900. According to his analysis, current valuations are only surpassed by the exuberant markets leading into the depression of the 1930s and the tech crash of the early 2000s. Suggesting that equities are at lofty valuations and prices is not an overstatement….
The possibility of a recession while equity valuations are extreme is deeply troubling. Since 1929, there have been 14 recessions. All but one, in 1945, coincided with a period of negative returns for stocks. Included in this data, as shown in the table [above], are periods when stock valuations ranged from greatly undervalued to extremely overvalued. Data and Table courtesy Doug Short.
I went to Doug’s letter at Advisor Perspectives and read his commentary and decided that you should actually see the analysis of the four valuation techniques that Michael talked about. Below we have Doug’s average of Robert Shiller’s cyclically adjusted price-to-earnings ratio (CAPE), Ed Easterling’s Crestmont P/E, Nobel laureate James Tobin’s Q ratio, and Doug’s own monthly regression analysis of the S&P 500.
By almost any measure, we are at very high valuations. I’m not saying overvalued; I am saying very high. As in there is not a lot of room for valuations to go much higher without some serious growth and actual earnings. But as we saw from the data earlier, earnings estimates are chronically too high, and the prospect for future earnings is not reassuring.
This overall picture is not exactly encouraging if one wants to look past the summer into October.
Next, let’s look at two charts from J.P. Morgan Asset Management. What they show is that we are rapidly approaching the third-longest expansion period of the past century. The graph to the left shows that we have been in the weakest recovery since World War II – which everybody knows. And the chart on the right shows that recoveries have been getting weaker over the years, with the current recovery the weakest by far. My personal opinion and my reading of the enormous body of research available is that this weakness is associated with the present massive debt of the US. If you look at the same data for Europe and Japan, you see the same trend.
The chart below reiterates what I said last week: the long-term drivers of economic growth are increases in the working age population and productivity. In the chart, “growth in investment in structures and equipment” is substituted for productivity, which is just another way of looking at it. The results are the same: future economic growth is likely to be weak.
Finally, let’s look at a few charts from my longtime friend Steve Blumenthal’s letter, On My Radar. (Personal note: Steve and I are quite close. He is one of the nicest human beings I have ever met. He’s one of those guys you can trust with your wife and your life. I have watched him grow as a writer and analyst – and money manager – for almost 20 years now, and he makes me proud. Happily, he has no objection when I steal – I mean borrow – from him.)
Steve works closely with the noted firm of Ned Davis Research. I see their work from time to time, and I’m always impressed by it; but their work can be a little pricey, and they (justifiably) tend to keep their data close to their chest. So I am going to pull the following chart from Steve’s already-public letter of yesterday (http://www.cmgwealth.com/ri/radar-stan-says-sell/).
What sort of returns can we expect over the next 10 years? If you take the median P/E ratios of the last 16 years, as the chart above does, you see that follow-on 10-year returns don’t get your heart palpitating all that much. We are now at a starting median P/E ratio of 22, which, looking back over the last 16 years, suggests forward 10-year returns of 2% or lower. Ugh.
Let me quote from Steve’s letter for this next part:
Median P/E reached 22.7 at the end of April. That is higher than any point looking at median P/E data from 1964 to present with the exception of the crazed pre- and post-tech bubble period.
The next chart is courtesy of Ned Davis Research. The traffic light and arrows are my notations as I attempt to simplify the chart. What I like about this chart is that it does a good job estimating overvalued, fair value, and undervalued levels on the S&P 500 Index. Kind of an investor reality road map.
With the S&P 500 Index at 2065.30, it (by this measure) means that the market is overvalued by 3% (red light) by historical measures. In the chart, NDR uses a 1SD (standard deviation) move above fair value (it uses the 52.2 year median P/E of 16.9 to determine fair value) to identify the market as overvalued at 2003.69.
In English, a one standard deviation move is a movement away from a historical trend – it is something that doesn’t happen very often.  In the case of median P/E, a 1SD move has happened about 10% of the time since 1964. Two SD moves happened about 2% of the time since 1964 (tech bubble).  The point is they mark periods of extreme.
Fair value is determined to be 1534.60 (yellow light).  Most of us would be happy with adding more to equities at that level, and we’d be ecstatic to get really aggressive should the S&P 500 correct to 1065.50 (the green light).
Again, this is saying that we are in the most expensive quintile or decile or however you want to measure it, in terms of historical valuation averages.
What Would Stan Do?
Possibly the most successful and legendary trader in the history of the world is Stan Druckenmiller. He and George Soros were partners for years, and Stan’s personal story is inspiring and a little bit intimidating. You simply cannot discount his sense of timing. There is an investment gathering (held earlier this week in New York) called the Sohn Investment Conference (run by investment guru Ira Sohn) that pulls together some of the greatest traders and hedge fund managers in the world every year. The concept is that you need to bring one idea to the table. Long, short, sideways – it doesn’t make any difference: what’s your best idea? The conference is widely attended and followed.
(I had a friend of mine take copious notes, which he allowed me to forward to my Over My Shoulder readers. OMS is where I post great third-party pieces that I think my readers need to pay attention to. It’s sort of like looking over my shoulder as I read – but only having to read the important stuff. The service is, in my humble opinion, justifiably popular. Click on the link above if you want to know more.)
Stan was his usual pull-no-punches self. Basically, Druckenmiller said, “Sell your equity holdings.” CNBC has a good summary:
“The conference wants a specific recommendation from me. I guess ‘Get out of the stock market’ isn’t clear enough,” said Druckenmiller from the conference stage in New York. Gold “remains our largest currency allocation.”
The billionaire investor expressed skepticism about the current investment environment due to Federal Reserve’s easy monetary policy and a slowing Chinese economy.
“The Fed has borrowed from future consumption more than ever before. It is the least data-dependent Fed in history. This is the longest deviation from historical norms in terms of Fed dovishness than I have ever seen in my career,” Druckenmiller said. “This kind of myopia causes reckless behavior.”
He believes U.S. corporations have not used debt in productive investments, but [have] instead relied on financial engineering with over $2 trillion in acquisitions and stock buybacks in the last year. This is finally showing up on the books of companies as operating cash flow growth in U.S. companies has gone negative year-over-year, while net debt as gone up, according to the investor.
Druckenmiller was negative on China’s economy going forward and believes recent attempts at further stimulus in the Asian country will not work and “aggravated the over-capacity in the economy…. Higher valuations, limits to further easing... the bull market is exhausting itself,” he said.
So What Do I Think?
Not that you should pay any attention to me after reading what Stan thinks, but in a fit of hubris I will give you my personal two cents. Please note, the following does not constitute financial advice. For that you need to consult your financial advisor, unless of course, you are a financial advisor, in which case you need all the help you can get at this point to figure out what you’re going to do for your clients.
True bear markets, the ones that cause gut-wrenching pain and take years to recover from, are always and everywhere associated with recessions. In contrast, the 1987 crash, 1994, 1998, etc., all showed relatively quick recoveries. Those are extremely difficult to time.
I look at the grand global macroeconomic scheme, and I find making a recession call to be very difficult. Slow growth? Absolutely. But that is different from a recession. Could we see a recession (as none other than Donald Trump has suggested) in the near future? Maybe. There is always another recession. And I sincerely think we will have a recession within the next two years, simply because the current recovery is so long in the tooth and near exhaustion, not to mention the exogenous shocks that could come from Europe and China.
And that brings me to a story (doesn’t it always?). In late 2006, I was on The Larry Kudlow Show with Nouriel Roubini and John Rutherford. Larry and John were aggressively bullish, and Nouriel and I were arguing that there was a recession and hence a bear market in equities coming.
Technically, I was right. A recession started in 2007 along with the collapsing bear market. But my timing was a tad off. That is, if by “a tad” you mean six months. Because for the next six months the market proceeded to rocket up another 20%. This was October, and evidently the “buy in October” crowd was operating at full throttle. However, I wasn’t making a market timing call; I was simply pointing that the negative yield curve was shouting at us that there would be a recession in the coming year. As in screaming, double exclamation points, at the top of its throat shouting.
So, noting that my timing is not particularly adept, let me offer the following thoughts.
Sell in May and go away has on average been good advice. Given that we have very high valuations in early May, I think it is appropriate to adjust your portfolio. Also, given that we don’t know if we’re going into a recession (a development that would cause you to go completely negative or even short), I think it makes sense to just make your portfolio “neutral.”
In essence, make your equity portfolio in general neutral and then poke your head up again in late September or early October and look around at the macro situation.
This is a general market call and not a specific equity call. The bulk of my personal portfolio is in funds that have the ability to go long or short. I trust their management to figure out what to do. I am pretty well diversified in that portfolio. I can tell you right now that some of those funds are going to knock the ball out of the park and some are going to be more than a little disappointing. The problem is that I can’t tell you which ones will go which way in advance. But they all have the potential for making money in a sideways and/or down market.
That said, I do own a few stocks that I am not going to hedge and that I have no intention of selling. These are specific companies that I would tell you to buy today (if it were legally possible for me to do so), even in the face of all the information above. I am a long-term investor, and I think the prospects for these firms are very good.
So, when you look at your portfolio, you have to ask yourself, would I be happy if my equities were down 20 or 30%? There is a difference between an index fund and specific equities. I look at an index fund as a place to park money and perhaps do a little trading, not as an investment. The equities I do own are those that I fundamentally believe will be far more successful than the general market will be. I will admit that I don’t own many such stocks, but I believe in the ones that I do own. Other than those stocks, I generally let other managers do my investing for me. Yes, I do the occasional trade when I see something just stupid crazy, but in general I do my homework on managers and not equities. Doug Kass tells me to short Apple, by the by, but I don’t necessarily agree on that one.
And that brings me to my last point. I am not telling you to short the market here. Shorting is for professionals and big boys. People who decide they want to short the market can get their private parts handed to them faster doing that than any way I know. I know a lot of professionals who make a good living shorting various stocks; but none of them bet the farm, and all of the successful ones have systems that tell them when to cover their trades.
To summarize, the data suggests to me that the upside just isn’t there for being in the market from May through September. Again, the market could rip 20% to the upside, and you’d come back and tell me I was an idiot.
However, given the high valuations and the historical lack of performance in the May through October period, I think that going neutral makes a lot of sense now.
How do you do that? Well, it’s a little tricky. If you have an advisor (and 97% of you should), go to him or her and ask about the wisdom of going neutral. I get that there are special situations (like those I mentioned above) and that you also have tax considerations. Selling a stock with a 100% gain just to give Uncle Sam a chunk is painful. But there are ways to neutralize the downside in your portfolio. This of course means that you have foregone any upside, but we all have to make a decision.
Your decision today is what you should do with your portfolio over the next few days. In fact, that is what your decision should be every day. You should look at your portfolio and say, do I want to own that stock today? Would I buy it at today’s price? Honestly, if you don’t reevaluate your portfolio regularly, then you should get somebody to do it for you. Pay a reasonable fee and go back to doing what you really want to be doing. Bottom line: somebody should always be paying attention to your investment portfolio. You worked too hard to accumulate that portfolio to ignore it.

Combustion engine era goes up in smoke as tech revolution shapes tomorrow’s cars



Evolution, rather than revolution, has been the watchword of the global car industry for decades. Engine tweaks and fresh designs mask one important fact: that the cars driven by more than a billion consumers today are broadly the same as those that trundled along the roads half a century ago.
But revolution — with a capital R — may be on the way.
The rise of electric vehicles, supported by emissions regulation and championed by the likes of Tesla’s Elon Musk, is expected to eat away at demand for combustion engines.Traditional automakers find their business models under attack from a host of assailants. This report will identify these problems, how they threaten carmakers and how the world’s motor companies are rallying their international and financial might to respond.
Diesel has a black cloud hanging over it following the industry-shaking revelations from Volkswagen in 2015 that it installed devices in 11m vehicles worldwide designed to cheat emissions tests.
Other emissions investigations all over the world have implicated others, from Mitsubishi to Daimler.
The probes cast a shadow over the integrity of the sector, says Stuart Pearson, auto analyst at Exane BNP Paribas. “Consumers won’t know who they can trust.”
The unstoppable march of technology has seen cars become increasingly connected, partly in an attempt to make them attractive to young drivers more concerned with being online all the time than with horsepower. With internet access comes the risk of online troublemakers causing havoc. The dangers of cyber attacks that could result in fatalities is the stuff of nightmares for auto executives.
Technology brings fresh competition. The shadows of Apple and Google loom over motors manufacturers that are steeped in history.
Others are preparing to enter the market. Samsung has developed vehicle-tracking telematics with UK technology group Tantalum and is reported to be developing its own driverless car.
These brands are well known — are even loved — and such technical challengers threaten to upset older companies for whom customer trust is everything.
At this year’s Davos summit, Mary Barra, the chief executive of General Motors, said: “We are moving from an industry that, for 100 years, has relied on vehicles that are standalone, mechanically controlled and petroleum fuelled, to ones that will soon be interconnected, electronically controlled and fuelled by a range of energy sources.
“I believe the auto industry will change more in the next five to 10 years than it has in the last 50.”
Car-evoulution animation
Older manufacturers are responding to these challenges. For many, the question is not how to make an electric motor run or how to get a sensor to activate the brake, but how to make these technologies affordable enough to put in family cars, rather than being gadgets for the rich.
But one form of disruption — a Silicon Valley term that for once is unusually apt — threatens to undermine car sales: the sharing economy, embodied by the likes of ride-sharing company Uber.
In future years, so the thinking goes, no one will own a car. Driving — or “mobility” — will be an on-demand service, activated at the tap of a smartphone, a service Uber already offers.
One great fear of carmakers is that ownership is falling among younger generations, and there are worries that individual cars will go the way of the horse and cart.
“What we want from our cars is changing,” says Tim Lawrence, manufacturing specialist with PA Consulting Group. He adds: “Younger customers care less about actually owning the car. Car sharing and hiring are back on the agenda.
“That means [established companies] need to be looking at alternative business models and using the potential of new connected technologies to meet a wider range of mobility needs in different ways.”
Of particular worry are millennials, people in their 20s-30s, among whom car ownership may be dwindling. A study from the University of Michigan this year found 69 per cent of 19-year-olds in the US had licences in 2014, compared with 87 per cent in 1983.
But other evidence suggests these fears may be unfounded. In 2014 in the US, the world’s second-largest car market, people aged roughly 21-38 bought 4m cars or trucks, making the generation second only to baby boomers (those born from 1946-1964) for vehicle sales, according to research group JD Power. Customers under the age of 34 account for a fifth of GM’s sales, a figure that has increased by 5 per cent since the start of the decade.
The fears are based on the idea that lower rates of car ownership will mean falling sales for the manufacturers. However, analysis from Deutsche Bank suggests that, contrary to this view, sales may actually rise as the fall in vehicles numbers will be offset by more frequent replacements because shared cars will wear out more quickly.
“US sales nonetheless increase under every scenario we’ve examined,” wrote Deutsche Bank analysts. Reports of the death of carmakers may therefore be greatly exaggerated as well as premature.
BMW offers DriveNow, its car-sharing scheme which is available in London and Europe as well as the US, while Mercedes-Benz owner Daimler has its car2go service. Audi is launching a car-sharing scheme called Audi at home and General Motors has taken a share in Lyft, Uber’s US rival.
New entrants in this market face significant problems. As well as lack of brand recognition, they must have sufficient scale to rival car ownership. Building this from scratch means either drivers deliver cars to customers or there are sufficient pick-up points to make the service workable, something that will require significant outlay in big cities where demand will be highest.
Young people in cities can use metros or Uber and many do not have off-street parking. This adds to the hassle of owning an asset that research suggests will sit unused for more than 90 per cent of its life.
Successfully tapping into that unused vehicle time will be the step that prevents today’s big names from becoming tomorrow’s dinosaurs.

How Airbnb has lost its soul


 It was the summer of 2008 in San Francisco and a small company called Airbnb had a dream. People with spare bedrooms would welcome strangers into their homes and share their restaurant recommendations with them for a small fee.
Fast forward to 2016 and the now quite big and successful Airbnb is considered one of the mainstays of what we have come to call “the sharing economy”. It is also, in every article written on millennials, the business that defines the mentality of a generation. 

Why? First, because it has subtly commoditised the “unique” experience. It offers people a way to feel both spontaneous and that they are somehow circumventing the world of big business. The word that Airbnb uses to describe the kind of holiday its users might have is “authentic”. “We make it easy for you to get to know hosts,” boasts the website, picturing a smiling lady with a half-chopped cucumber.
But Airbnb has lost its soul. No longer is it just about one human sharing their home with another. Something quite annoying has happened: companies offering property management services have emerged to help hosts get the best deal for their rooms. This is great news for hosts, but bad news for everyone else. It is also something of a reversal of one of the principles that first made Airbnb different — disintermediation.
Along with low cost and singularity of experience, disintermediation is one of the big themes of the Airbnb business model. Here is an accommodation provider that owns no property; it merely connects homeowners with holidaymakers.
Look at the London listings and you’ll find there’s an apartment squirrelled away behind the St Pancras clock tower. This is not the sort of thing a hotel can offer you — and the appeal of it is the illusion that this is something money can’t buy. But guess what? If you pay a man called Peter £150 a night you can stay there, because it’s his home.

This is a relatively high price for properties on the site: the cost of staying in an Airbnb is typically low because people are using spare capacity. By definition, there is no break even to be met. Whereas this month the average price of an Airbnb room in London is £86 per night, the average cost of a hotel room is £130.
Airbnb is also about deprofessionalisation. The temporary accommodation industry is no longer about Mr Ritz marketing his ample suites to the profligate. It’s about Jerry from Barnet and his mad Princess Diana-themed bedroom.  e


There have been stories of guests trashing the joint. When responding to these cases, Airbnb typically says it has “zero tolerance for this kind of behaviour”. But the point is that it can’t predict human behaviour in any meaningful way and it certainly can’t prevent unpleasantness — or worse — from happening. The company does operate an insurance policy of sorts for your possessions, called the $1m host guarantee. Because, as Airbnb puts it, “you’re part of the Airbnb family, and we stand by our family”. Elsewhere it reminds users that being a host on Airbnb is about “so much more than money”.
This causes problems. It’s not great for Jerry if his spare bedroom — or even his entire house — becomes the location for someone’s bacchanalian revels. On the other side of the bargain, guests are understandably wary of finding themselves staying in the home of someone who turns out to be a knife-wielding maniac. Airbnb’s answer to these concerns is “trust”. Airbnb, according to its website, is “built on trust”. It proudly adds: “Trust is what makes it work”.
But Airbnb does make money. And it has a problem in that the demand for rooms to rent outstrips supply, so to continue making money it needs to persuade homeowners to host more often. It recently tried to adjust its pricing structure to make hosting more lucrative. Time will tell if this works, but in the meantime, there is another answer in the form of a brand new phenomenon: Airbnb estate agents.
In Los Angeles there is Pillow, in San Francisco there is Guesty, in New York there is Happy Host — and now in London there is Airsorted. You may have seen their advertisements on the London Underground. Much like the property management arms of estate agents, all of these companies offer services for lazy hosts who don’t have the time to welcome guests or change the sheets. Much less if they have multiple properties — and the British Hospitality Industry estimates that 40 per cent of Airbnb hosts in London are marketing more than one place. 

Airsorted promises to “make more money” for hosts. This is not a new aim. Scott Shatford, founder of another property management company, who describes himself as “a professional” Airbnb host, has written a book on the subject, called “The Airbnb Expert’s Playbook — Secrets of a Six-Figure Rentalpreneur”.
But Airsorted says it has a competitive advantage over people marketing rooms themselves because it has data analytics systems that work out the maximum price it can charge and has hired a team of commercial analysts to solve the problem too. Its business model? It takes a 12 per cent cut of the rent.
Why are people so happy to give over such a potentially hefty slice of the rental income? Because they don’t really want disintermediation. They’d rather have a more complicated supply chain in which experts calculate the optimum price, push for more rent and deal with tiresome property issues.
Will this re-intermediation push up the price of an Airbnb room? Almost certainly. In February Airbnb published a report called “Discover Greater London: The Impact of Sharing an Authentic London”. Although it uses the language of a public authority — it is an “impact assessment” — this is actually an advertisement. A key boast is that the number of guests staying in outer London boroughs has more than doubled in many cases.
One of the hallmarks of the London rental market is the creep of young renters to the outer London boroughs as inner London boroughs become more expensive. So if anything, this shift to the suburbs is testament to the rising costs of short term rental. “London boroughs like Hillingdon and Barnet are trending over Westminster and Kensington,” it says — but that’s just another way of saying Airbnb users like a good old-fashioned low-cost option. It’s probably not about Barnet being the next Shoreditch.
The market is maturing. Or rather, regressing into its former intermediated state. Is this an economic problem? No. Is it a brand problem? I think so
Airbnb is understandably keen to maintain that its hosts are not all just professional hoteliers or buy-to-let landlords cynically using the Airbnb brand as a distribution tool — it says the majority of its hosts are freelancers or work in creative industries (maybe a rentalpreneur would call themselves a freelancer?). It describes the “countless families” for whom home sharing is an economic lifeline.
The British Hospitality Association takes a dimmer view. Although it “welcomes the opportunities the sharing economy brings to owners letting their homes from time to time”, it does not like the idea of “illegal hotels” using platforms to “circumvent regulations and tax”. Then it goes in for the kill: “‘Sharing’ has become big business with ‘hosts’ acting as ‘landlords’ in all but name”.
The market is maturing. Or rather, regressing into its former intermediated state. Is this an economic problem? No. Is it a brand problem? I think so. There seems to be little to prevent Airbnb turning from being a low-cost accommodation provider beloved of young travellers to a ragtag property empire administered by the future Foxtons of the short-let world.