The level of auto traffic along the Cedar Street, Pecos Texas is a very clear proxy on the health status of the US Oil industry.
Factors negatively impacting economic activities in the area:
US Elections: Oil companies operating in area put activities on hold awaiting for forthcoming mandate
Holidays: Demand for oil drops
COVID pandemic: Demand for oil drops
Responsiveness of lagging indicators:
Lag time between events and lagging indicators within the region is typically 24 hours
Layoffs can happen within 24 hours of environment triggers
Rapid hiring can happen within 24 hours of environment trigger
On occasions, rapid hiring and layoffs could happen simultaneously in different sectors
On mornings during times of Economic boom in the Oil industry, the Pilot center across the street could be observe lined with trucks rushing to fuel up as they go about transporting out their cargo to their destinations.
On such days, the empty parking lot in front of Custom Mufflers Tire Repair center could be seen filled up with trucks getting their wheels serviced.
Investment Funds market exposure strategies can be categorized primarily into three types.
Type 1: Long only strategy: funds that buy and hold positions.
Type 2: Short only strategy: funds that primarily borrow and short shares
Type 3: Market neutral strategy: funds that hold half their position in long and half their positions in short attempting to gain from some form of arbitrage between performers and losers.
To increase profit funds would typically be leveraged. Levels of leverage is dependent on how aggressive each individual fund is. Long Term Capital Management for example, a fund that went bankrupt in 1998, was leveraged up to 20X for some of its positions.
Depressed share prices due to the unwinding of long positions by Type 3 lead to a follow on cascading effect where Type 1 had to unwind their leveraged long position.
This large scale unwinding activity could be inferred from the inverted yield curve observed on 31st Jan 2021. This inversion could also be interpreted as funds opting to maintain liquidity levels by moving heavily into positions like short term US Treasury and cash as they await for the market gyration to settle.
stopped over at truck stops when he used up his daily miles
gets to shower for free at pilot truck stops because of the amount of fuel he purchases
References EpochTimes as a news source. Distrust CNN
Trump supporter – sees him as the only president that is not drawing a salary for his work.
Believes Democrats want to turn the country socialist by controlling the media and its messaging hence concludes the media is rigged
Further believes Democrats want to ban guns so as to exert more control over its people like a policed state
Believes in the ownership of guns to as a means to counter balance the power of the state to prevent involuntary drafting likes those imposed upon the people by the Confederates during the American civil war
Pilot Travel center
sells a lot of the equipment needed by truckers
internet and resting facilities
Truckers have their own social network which is ran on Garmin.com
they text each other using the app
the app also tracks where they drove
Federal Law restrictions
Truckers hour limits by
70 hours of driving per week
11 hours of driving per day
14 hours of working time per day which includes loading time
Yearly health checkup is required to operate a truck
Speed and alignments during operations after actively monitored by the Federal government through an onboard Qualcomm system
A typical truck runs at 7.7 miles per galleon
back axles 18000 pounds
front axles 18000 pounds
fully loaded truck 80,000 pounds
3 separate braking system
regular brakes using air
emergency brakes which will damage the axles if used abruptly
A brand new trucks cost around USD150,000
Truckers can enter into a lease to own agreement with the trucking company to eventually own their truck.
typical monthly installment is around USD500 to USD1,000
installment payment accrues based on miles driven USD0.15/mile
a truck which has accrued 300,000 miles will sell for USD50,000. Value of the truck is depreciated at USD0.33/mile
operating profit and loss
Trucking contract typically paid revenue of approximately USD2/mile
Gross margin from a truckers point of view for an assignment is around 50%
net profit should be around 25% of that
Long haul job for 500 miles
variable expenses USD 500
trucking company dues
amortized fixed monthly expenses USD 250
when operating with truck leased from company, assignments are provided by company. Company takes 50% cut in exchange
if own truck, can take assignment from a trucking company which has cargo to be hauled
can opt to generate lead to assemble own cargo to be hauled.
Human values like justice and mercy is hard if not impossible to encode as rules
Data scientist use proxies as an approximate gauge for the existence of values. These are inherently inaccurate if not downright wrong
While using of race as a feature to determine if loan should be approve is obviously racist, the use zip codes though not obvious is equally racist since race tends to segregate around geographical territories
Models are increasingly used to across various domains to help increase the speed of decision making. This increases the negative impact of badly designed models will have on humans
A feedback is necessary to ensure continuous correction of badly design models – transparency of how your credit score is calculated
Regulations are necessary on the use of models as companies driven by quarterly reporting requirements of shareholders are primarily be focused on the bottom line
no matter how much research you done regarding a stock you don’t have a contract what the future price should be
with high yield bond there is a contract for a certain price in a future, if you are correct about the calculation, you will be correct about your yield
bargain price: liquidation price 75cents on the dollar buy at 20 cents
when you are not a big established investment firm like Lehmen brothers, you have no franchise to protect. You are free to go the unconventional route for potential outsized returns
great ideas are born bad. Its easy to make your way to a great idea from crazy outrageous ones than cautious and sensible ones. Investment bankers by default filter out the crazy outrageous ones.
Contrarian thinkers need to train themselves to see things via unconventional routes
ways to structure a bond
give money back sooner
give higher interest rates
give more stock
give stocks cheap
It is easier for corporation to pay interest which is tax deductible than dividends which are not
Bonds offer process
first tier high rollers offer liquidity get to buy at cheaper price and exit earlier
second tier payers, with franchise to protect, who want to avoid stigma of being junk bond buyers will come in later at more expensive price and exit later.
Successful leverage buyout scenario: after buy out use cashflow from business to pay off the junk bonds thus deleverage the business
Mutual fund arbitrage: compare value of underlying portfolio and stock price
If you are right about a company being undervalued and it is willing to put itself up for sale, there will be buyers
Poison pill: defense mechanism against corporate take overs. When would be acquirers crosses threshold of ownership, existing shareholders are given extravagant rights rights making it less desirable as take over target
perception versus reality, see what the world could not.
Vision is Strength.
capital is abundant, vision is scarce.
excess capital is not strength but opportunity for weakness
capital put in the hands of someone with vision will result in drastically different results.
return of the owner manager as opposed to the corporate manager
by-pass the China wall principle where companies try to isolate the deal making and arbitrage departments
herd instincts: investors are constrained by appearance. A manager of a respectable financial institution will shun “fallen angels” so as to avoid appearing imprudent to his colleagues
forces wishing to keep a large company afloat are far greater than those that wish to see it perish
credit rating systems are flawed. It focuses on the past instead of the future. Ignore large fortune 500 companies in favor of ones with no credit standings to find a good deal.
The market which may be quick to digest earnings data was grossly inefficient in valuing everything.
Lessons from Solomon brother traders
I don’t pat myself in the back, because the next sensation is a sharp kick lower down
those who say don’t know, those who know don’t say
Despite the valuable lessons history can offer us, its shown that man does not learn any of these valuable lessons.
Benjamin Graham: The more elaborate the mathematics, the more uncertain and speculative the outcome. Avoid substituting experience with theory.
Key historic events:
1933 Glass Steagall act: separation of investment banking and retail banking
July 1944 Bretton wood systems: World currencies agree to a fix exchange rate against the USD, USD agree to fix exchange rate with Gold.
1971 Collapse of the Bretton Wood systems: US, faced with increasing pressure to maintain the USD gold exchange rates as its foreign reserves were depleted by a extended Vietnam war, went off the gold standard to prevent a run.
6th October 1979 The Volcker Act : money supply will be fixed, interest rates would float
12th Nov 1999: repeal of the Glass Steagall act: banks can now take use consumer deposits for investment purposes.
Good news reporting should seeks to inform rather than sensationalize with attention grabbing headlines. Its easy to appear data driven but still be misleading if you do not use the proper frame for understanding the numbers
On investment bank predictions
When on the receiving end of predictions made by external parties it is important to understand the underlying agenda they are trying to achieve. When examined thoroughly, predictions made by investment banks are so bad and contradictory, they should just stop making public declarations.
However if taking into account their objective is not to inform but to incite a trading decision by their clients so as to make a commission or offload losing positions on their trading books, it makes perfect sense.
Liar’s poker: Rising through the wreckage on Wall Street, Micheal Lewis