Weak Signals
A weekly newsletter about the small signals that usually get lost in the noise.
I always loved the Warren Buffet analogy ‘there's no such thing as a called strike in the stock market.’
Staring at this week’s major headline; the purported death of Kim Jong-Un, I am applying this analogy to newsletters as well.
Eager as I am to go out on a limb, I don’t have anything particularly prescient or original to offer.
Mark Bowden’s 2017 article ‘How to Deal with North Korea’ thankfully does
A cogent, erudite analysis on the geo-politics of the North Korea and the options the West has to confront them. Well worth re-visiting.
Another week, another 4.1 MM in US job losses, and another up-week for the U.S. stock market.
With U.S. Mega caps now comprising 20%+ of the S&P 500, the U.S. stock market is more concentrated than ever, and the dichotomy between Wall Street and Main Street is real.
Michael Batnick of Ritholtz Wealth gives some good perspective on why.
Simply stated, markets have tri-furcated:
Mega-cap tech stocks are up
Nimble companies that can response to COVID-19 are up
Everyone else is down
The problem is most people work for ‘everyone else’, or the private equivalent of everyone else. That is why job losses continue unabated.
Weak Signal: Andrew Yang goes two for two. With UBI now adopted across Western democracies, expect Andrew Yang follow-up funding proposal - a VAT tax on digital ads to re-emerge in the 2020 presidential election. Don’t focus on the mechanics, focus on the target.
Continuing with the theme of big tech, one of my favorite articles of 2020 was Ben Thompson’s Stratechery’s The End of Beginning.
In it Thompson laid out the case that Amazon, Microsoft, Apple, and Google are the GM, Ford, and Chrysler of the 21st century.
The era of challenger mainstream tech is over. Incumbent tech companies now have inherent and insurmountable advantages. Companies that force the next wave of innovation have to assume their presence.
Picking up on signal is John Luttig piece this week, ‘When Tailwinds Vanish.’
Luttig lays out the case that Silicon Valley is plateauing as we approach full online penetration and the next phase of innovation from Silicon Valley is going to be harder than the last.
“Internet companies have spent the last 20 years capturing opportunities with the highest margins, lowest operational complexity, and strongest market pull: search, social networks, CRMs, ecommerce. As the Internet growth tailwinds subside, what’s left?
Harder problems. Today, startups tend to focus on problem spaces where there is higher operational and go-to-market complexity.”
What does that mean?
More focus on SG&A and less R&D
The next wave of tech unicorns are less likely to be pure internet companies. By fiat, to succeed, they must have real world touch points.
Weak Signals: The era of the 13-employee $1 billion tech start-up is over. However hated and misunderstood, the Uber, AirBnB, and Wework model – software layers for real world industries - still represent the Silicon Valley firm of tomorrow.
With this week’s negative $37 print on the May front month WTI contract, return to Jeffrey Curries 03/30 Oil Views: an Industry Game-Changer for analysis and understanding.
The full doc is behind a paywall but feel free to me email me directly for the PDF.
My three favorite takeaways:
1. The quicker and harder capacity constraints are reached, the quicker and more violently the market will re-balance when production shuts in
2. This (low oil prices) will likely be a game-changer for the industry. Once you damage the capital stock in oil it is an expensive and time-consuming process to rebuild, assuming it can be rebuilt at all.
3. Technological hysteresis is already occurring. People are adapting to a more local existence and living off more sustainable activities
What does this mean for Canada, our oil sands industry and Alberta proper? I’m reminded of an old quote from my favorite Hemingway novel. ‘How did you go bankrupt? Gradually, and then suddenly.’
Low oil prices and an unaccommodating federal government combined with a 25 year persistent provincial policy to under fund the Alberta Heritage Savings Trust Fund, and perpetually low provincial income taxes are exacerbating Depression like conditions in the prairie province.
There is precious little room for the province to maneuver.
Weak Signal: Western Canadian conservatives always had a lot more in common with U.S. Democrats than they’d care to admit – both parties rely on immigration (in their own unique ways) as electoral strategy.
In the postmortem of the oil bus; with emigration out of the province set to accelerate; for the Albertans who stay - a new Western political consciousness will emerge.
Western Separatism is the last gasp of an old guard. Alberta politics of the 2020’s will look more like the new American rust belt (Localist, intra-generational, collectivist) and less like the Reform party of yesteryear (individual, extractive, isolationist, economically maximalist.)