Hello friends,

Today | 5 items


1. Price Action

Bitcoin


Bitcoin

My thought bubble

The $6,000 level is important, as buyers have stepped up several times at that level and took back control from sellers.

A move under there and sellers would likely take back control with further losses likely targeting the $5,000 level.


2. Dept. of Debt

U.S. Leveraged Debt Could be at Cycle peak

Fitch has a good report on the current state of the U.S. leveraged debt markets.

Key line: Cov-lite loans account for 80% of U.S. institutional loan issuance today versus 25% at the credit cycle peak before the last recession.
They make the argument that the reckoning could be prolonged because companies have secured financing on good terms and the risk of technical default should be lower.

Why this is important

If companies are able to skate by, who will be the big losers? The suppliers of capital who agreed to finance these companies with little recourse. If they need money and they can’t recover it in a timely manner, they will have to sell other assets if they need cash quickly.

Often times, funds must sell good assets in order to cover losses in other areas; creating opportunities to buy assets from distressed sellers, not distressed assets.

This story is not useful from a timing the market perspective, just a clue to put in your puzzle for later use.


3. Stocks to Watch

Carrizo Oil & Gas (CRZO)

  • Activist investor Kimmeridge Energy Mgmt. has taken an 8% stake and wants to merge or sell assets.
  • The article notes that Carrizo’s assets are likely undervalued relative to it’s peers, but that it has negative cash flow for the foreseeable future and leverage could be a problem.
  • Good breakdown of the situation. (Bloomberg)

Chart



My thought bubble

At current prices($16.50), I’m on the sideline. If it trades under $10, I will re-evaluate for a potential long position.


4. Foreign Markets

Sam Zell and Goldman Sachs are investing in Argentine real estate (paywall)

A venture led by Sam Zell’s Equity International and Goldman Sachs Group Inc. is investing more than $300 million in Argentine real estate, a vote of confidence in the economic overhaul being pursued by the three-year-old government of Mauricio Macri per the WSJ.

It’s good practice to pay attention where smart investors put their money. I consider Sam Zell a smart investor.

What kind of real estate are they investing in?

They purchased an office park and mall in Buenos Aries and land for future development.

From the article:

“Argentina has been a country that’s been shut out of the capital markets for over a decade,” he said. “From a real estate perspective, it’s been starved.”

Real estate takes capital to build. A country that has been shut out of debt markets for decades will need to upgrade not just real estate, but infrastructure.

What kind of reforms is President Mauricio Marci pursuing?

He has scrapped currency controls, cut taxes, and implemented austerity measures. If the reforms don’t live up to their potential, Mr. Zell has downside protection in that he earns rental income from the office building, which amounts to double-digit yields at today’s prices.

How can we invest?

The only good option is through an ETF. Global X has an ETF, ARGT, that tracks the MSCI All Argentina 25/50 index. Full document

However, to my surprise, the ETF has gained over 100% since bottoming in early 2016.

ARGT chart

Bottom line…

If you are looking to invest outside your home country and are willing to accept greater volatility, this might warrant a spot in your portfolio. Just be aware of the risk.

Also, if things really do turn around in Argentina, by the time it becomes obvious, the best time to buy will have passed…


5. Good Reads

How Not to be Tricked by Financial Hustlers

Do you want to grow wealthy? Do you want to not worry about money again? If I told you that I had the perfect financial product for you, would you like to hear more?

 

The sample line of questioning above can be used to get people on what I call the “Yes” train. Once you start answering “Yes” repeatedly, the commitment and consistency bias makes it harder to say “No.” The only problem with this bias is that if a financial trickster gets you to say “Yes” to products with extraordinarily high fees, you can get into trouble.

We are all susceptible to being tricked, don’t think it can’t happen to you:)


Have a great day,

Caleb

Category:
Pure Alpha

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