Brook Reef

Happy Fathers Day! I'll be seeing my dad later today. My kids have been asking if it's Fathers Day for the last 4 or 5 days, so the fact that it's finally here will make them relieved. The big news items yesterday were Trump's rally and the continued spiking coronavirus cases in Florida, Texas, Arizona, and California. Below is Florida, but it's representative of most of the re-opened states. Florida's governor even walked back comments that testing is driving the new cases - after hospitals began reporting being at/near capacity - something I talked about in Texas last week at some point. Hospitalizations are a pure way to measure the virus's spread - it's not dependent on testing. Just like "excess deaths" is a clean way to look at how many people have died - and remove the fudging of numbers that can happen. "Excess deaths" are something like 80,000 vs. a reported death toll of 100,000+. So there's some amount of gaming ...

Just a quick note: volatility, as measured by the VIX, is still very high. Like in the 30s. That's nuts. It means investors are thinking there's significant risk in the markets. I obviously agree with that notion. So don't let today's modest move (as measured by closing prices) to trick you into complacency. Risk is elevated. And that means you have to be and stay nimble. And protect the downside.

Double pair trade: Long DLR & IRM vs. short VNQ 2% Long DLR @ $142.49 2% Long IRM @ $27.07 5% Short VNQ @ $81.48 I did this trade last week and closed it for a really modest gain, 0.25%. With DLR and IRM underperforming VNQ again the last few days - it's time to put it back on. DLR and IRM are not typical REITs. They don't have issues with customers paying rent. They are digital landlords who benefit from more things going online - digital storage, servers, etc. VNQ, the Vanguard REIT ETF, has exposure to tenants not paying rent because customers aren't shopping or using office space. The difference is very important. And the reason I'm confident in the trade.

It's been a long week and it's finally Friday! It's easy to get sucked into "feeling" every tick throughout the day - but looking back, it wasn't a crazy week when looking at closing prices. Obviously, the VIX is still elevated. And volatility is high. But still. Perspective is important. Jobless claims came in yesterday morning. Another print over 1.5 million. But slowing, so that's good news? It's hard to see a strong recovery with millions of people losing their jobs every week. But maybe jobs aren't relevant anymore? ___________________________________________________ 1) "We'll let the economy grow to reduce our debt as a percentage of GDP." - J. Powell 6/17/20 Also, this has never happened. 2) If you like cool charts, this is the one for you! It's fun to see how the largest sector of the market has changed over time - and how much more diversified financial markets have become. 3) Implied correlations are crazy...

Shorting NVDA @ $366.88 2% position NVDA trades a multiple of revenues (and earnings) comparable to a startup. It's not a startup. It has pretty weak margins (7-9%) vs. INTC at ~20% margins. So it's expensive and has low margins. Even if margins improve, the valuation becomes in-line with Intel. I'm no tech expert, but with more work being done on Chromebooks, integrated chips, etc. I don't see where NVDA and their graphics-specific expertise comes into play. Maybe I'm wrong - but that's my understanding of the story and lay of the land. Plus, it looks over-extended on a chart and I want a tech short.

Buying KR @ $30.93 2% position Kroger reported amazing, stupendous results today. Frankly, it's so good that they can't even forecast guidance for the year. No hyberbole. The stock is down today because investors wanted strong guidance - which I can understand - but it doesn't matter. The story doesn't need to get better. Kroger is a cheap stock with a resilient, #antifragile business model. I've seen this enough times to know what to do: When a company reports great numbers and is punished, it's a buying opportunity. Furthermore, if stagflation hits, people still need to eat. Margins might get hit. Heck, even a return to "normal" is marginally bad news for a grocery store if people start eating out again. But buying cheap stocks on down days is almost always a good idea. 

Buying AWK @ $128.12 *Adding 0.25%* *Total position 1.25%* Not a great price, but better than last week - and below that crazy $130 level. Remember, this is my best long-term investment idea but the current price is somewhat crazy. Because valuation is so high, I plan to buy a bit every week. This is that purchase. Below is the write-up from the initial purchase. A question was posed on Twitter on 5/9/20 asking if you could only make 1 investment from here on out, what would it be? Many of the answers were various index funds, Amazon, or gold. After thinking about it for a long time, the answer became clear: U.S. regulated water utilities. And there is really only one of them that is worth considering: American Water (AWK). Before getting into AWK, this is a different kind of purchase. It's not a "cheap" stock. As such, we aren't buying it in a "normal" 2% position size. It's going to be one we add to each week in small amounts until a real posit...