Swords to Ploughshares – Buffett & Gold, UK Jobs Collapse, Tesla goes to the Moon

Swords to Ploughshares – Buffett & Gold, UK Jobs Collapse, Tesla goes to the Moon

(Wizards of the Coast owns the copyright for the featured image above.)


Hello there!

I’m still here and just as committed to this website as ever before. I needed to take a short break, for the “public service” of adding to the Covid-19 debate.

You’ve probably read more about Covid-19 than you ever wanted to. I know I have. And over the last few months, I have resisted the urge to speak out as often as I might have, despite having a contrarian view which I felt was well-supported by data and plenty of background reading.

Earlier this month, I finally felt I had to say something. There were some facts around the debate which I just didn’t think had been properly appreciated by a wider audience. So I published two threads on my Twitter (it’s at @grahamneary – I’m guessing there’s a good chance that you follow me there already!)

The first thread was very successful in terms of impact. Getting raw data from an Irish statistical office, and applying some common-sense adjustments (I think), I expressed the view that overall mortality in Ireland in 2020 has been completely normal on a year-to-date basis, and that the excess deaths seen in the month of April may be attributable mostly to factors other than Covid-19 (especially the closure of the healthcare system).

This thread enjoyed a total of 500 retweets and 1,300 likes. Pretty good!

Emboldened, I started to reflect on the bigger picture.

Months ago, I had read the papers which triggered the UK government into locking down. I knew that those papers had influenced policy in the USA and their estimates had been applied to other countries, heaping pressure on European governments (e.g. Ireland, which locked down, and Sweden, which didn’t). It bothered me that not enough people knew where the estimates in these papers had come from.

And so another thread was born, giving the origin story of the predictions which helped to trigger lockdown. I wanted to remove the (in my view, unjustified) aura of respectful mysticism which surrounded them.

I think It’s fair to say that this was achieved. The tweets in the second thread have been retweeted 12,000 times and liked 24,000 times. Total impressions can be counted in the millions.

So, for now at least, I will say “my work here is done”. When more data emerges for Irish mortality, I will probably look at that again and update my estimates. I would still like to have a better understanding of deaths caused by changes to the healthcare system vs. deaths caused by Covid-19. This needs to be done both for short-term impact and long-term impact.

But I can’t do that today. Today, I need to get back to my day job and my first love: writing and speaking about shares and the financial markets.

Market recap

The UK FTSE Index has moved very little in my absence. Here are 1-month and 6-month charts from Google Finance:

As mentioned on this website on August 6th, I was structuring an options trade on the FTSE that day. The index was just below 6000 when I executed this trade.

So I’m more exposed to the index at this point, and my leverage has increased modestly (if the market crashed, I would be able to fully collateralise my trades).

One of my goals is to write up the rationale for this trade in more detail. Watch out for that.

Some major stories which have been of interest:

Berkshire Hathaway buys stake in Barrick Gold

The latest 13F for Berkshire Hathaway ($BRK, in which I have a long position) showed the acquisition of 21 million shares in Barrick Gold ($GOLD). This will have cost something in the region of $500 million. Naturally, Barrick’s shares are higher since this was announced.

Granted that $500 million is not exactly going to deplete Berkshire’s cash balance, this is still a remarkable news story. Because:

  1. Berkshire was also a net seller of banks during the period.
  2. Warren Buffett has spent decades putting down gold as an investment.

In relation to 2., it must be said that WEB himself might not have made the decision – it could have been one of his two investment managers.

Also, we have to make the distinction between gold itself, the commodity, and gold mining companies. Buffett’s argument against gold has always been that it doesn’t do anything, and so it can’t be expected to generate much of a return. The same can’t be said for gold miners (if they are good at allocating capital, at least).

The trade is powerfully symbolic because Buffett’s father, Howard Buffett, was a notorious gold advocate. Part of me always suspected that WEB’s attitude to the yellow metal might have been a sort of rebellion against that position. Is he now coming around to the view, which his father would share, that the endgame for the current monetary system is very high inflation?

His business partner Charlie Munger has also been outspoken against gold. But perhaps these two gentlemen, keen students of history, now expect the effects of excessive money-printing to repeat themselves.

Vulnerable UK jobs market facing huge risk

Some of you will know that my largest personal investment is in a small UK turnaround investment vehicle, whose most frequent strategy is buying companies out of administration.

This makes me particularly interested in the UK’s Covid schemes and in corporate health – I want to know if and when there is going to be a wave of corporate redundancies.

The red flag report from insolvency practitioner Begbies Traynor (BEG) is helpful, in this regard. In July, they said:

…it is likely that the true impact of the coronavirus pandemic will only become apparent during the third and fourth quarters of 2020 as government support initiatives are unwound and courts fully reopen so that enforcement action can be taken.

This is in line with the consensus view that I have heard from other sources. Much will depend onwhat Chancellor Rishi Sunak decides to do with the UK jobs furlough scheme. It is due to end in October, but will it be? Personally, I would expect some form of support to continue, but I can’t predict how large it might be.

Saving millions of people from becoming officially unemployed (instead of de facto unemployed) will require a combination of relaxing Covid-19 restrictions, extending the furlough scheme, and other business supports. Naturally, the jobs at risk also represent business plans and companies at risk.

Whatever happens, I expect budget deficits to remain elevated. All roads lead to gold (and yes, I do have gold exposure!)

Tesla goes to the Moon

(For the avoidance of doubt, I currently have no position in $TSLA.)

The Tesla share price continues to head for the moon (or maybe Mars?). It’s in 100-bagger territory:

The most recent cause for exuberance was the announcement of a 5 for 1 stock split. This makes no difference at all to the value of the business, but the value of the business has never mattered much to the stock.

It will be a tremendous short, some day.

I continue to watch it with fascination.

 


 

That will do for a quick roundup as I get back into gear, investment-wise.

I’m can’t wait to forget about Covid-19, at least for the immediate future, and deal with more peaceful matters.

For out of Zion shall go forth instruction, and the word of the Lord from Jerusalem. He shall judge between the nations, and shall arbitrate for many peoples; they shall beat their swords into plowshares, and their spears into pruning hooks; nation shall not lift up sword against nation, neither shall they learn war any more.

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COMMENTS

Wordpress (9)
  • comment-avatar

    Good to have you back Graham.

    “will require a combination of relaxing Covid-19 restrictions” – indeed but the government, in the UK at any rate, seems intent on going in the opposite direction. Today they’re floating the idea that the wearing of masks will become mandatory in the workplace. Someone please explain how that is going to help. Research is already showing that footfall in the high street is down since wearing masks in shops became compulsory and as for “impulse” buying, forget it. People are going to specific shops to get specific items and can’t wait to get out into the fresh air again. They’re not browsing.

    The UK government’s messaging has gone completely to pot. Why can’t they realise that the only way to get the economy going again is to put out much more positive messaging – constantly telling people to avoid public transport if possible and asking people to go back to offices for the sake of the economy simply isn’t going to cut it. I could go on – but my blood pressure thinks it’s on a SpaceX mission.

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    Great piece of Covid and Gold both of which I agree with. (as you know from Twitter!)

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    I am afraid Graham that your ideas on covid are , like Whinny Froths , somewhat deluded . They may apply to Ireland but certainly not England . First off the statistics you rely upon for your thesis were born as a result of the actions of having lockdown in place , using masks etc and statisticaly would have been far different results had NO ACTION against the epidemic been taken . Secondly England did not follow the USA in methods used against the pandemic but that of China and South Korea , the latter successful in combating SARS and other COVID type disease in thier countries previous epidemics .
    Thirdly the thing you and all the armchair non medical experts like Whinny Froth forget is that the disease of COVID 19 is spread by proximity to other infected humans . England has the highest population density per square mile in Europe . It is multiples more dense than many countries including IRELAND & the USA . This makes the disease far easier to spread in England and the control measures appropriate at the time . As usual your thinking is biased by being young and feeling imortal due to the disease being more lethal to those over 45 . However there are many of us who are not young . I have four Doctors of medicine in my immediate family and none of then have advised me that I should ignore the Government restrictions or disguard a mask in public . The key is population density and guides the health policy from country to country accordinly .

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    Sorry to raise the Covid thing again here! Not a twitteratti mysellf, though I read your writings, as I always do. I used to work for the ONS and at the General Register Office. Mortality figures need to be 24 months in arrears before they can provide any useful comparison. It will be 2022 or 2023 before a meaningful comparison of 2020 to previous years can be made. I think wildrides’ mentioning of the importance of urban development is crucial. Check the varying infection rates in the states of the US. National infection and death rates are most likely to correlate closely to levels of healthcare, is my guess.
    I have tested positive for antibodies, so had the virus back in May. It was not nice. A work colleague spent 24 days on a respirator, and in all probability will never return to work. Though recovered, I have never seen a man more wasted by a sickness.

    Anyway, Fletcher King reported interims today. The company manages property and provides property-related services in London. They forecast a loss for the first half. Conditions remain hard, so it may well be that we see a small loss on the year. Interestingly no mention was made of an interim dividend, so this will be lost in the mists of falling rents! This company, though small and illiquid, can be seen as a bell weather for the London property market. The last year there was no interim dividend was 2010, and the last year a loss was recorded was 2009. This may well be a true mark of darker things to come, in property and perhaps the wider economy too.

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    Hi Graham, can you please share your position on exposure to gold. Cheers.

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    As we are touching on Covid I feel enabled to join in but only as an ‘armchair non-medical expert’ (indeed no expert at all!). I think that that last phrase is relevant to the discussion because it seems to me that the response to Covid in this country seems to have been driven almost entirely by medical experts. While this is primarily a public health emergency I think that it needs to be viewed through the lens of social policy as well. If this were the case, maybe we would have had more of a Swedish response (protect the vulnerable – or try to – but leave the economy largely open). I just feel that this would have resulted in less long term damage to the economy and our social fabric.

    For that reason I would not be a supporter of a new general lockdown. From my reading of the situation, it appears that the public health system in the UK, though under great strain, did not come particularly close to breakdown at the height of the initial wave and recent upsurges in cases do not seems to have noticeably increased hospital admissions. My understanding of the rational behind lockdown was to prevent the public health system breaking down (not primarily to reduce deaths). A side effect does appear to have frightened a lot of people to death.

    I am over 70 so I was brought up at a time when complete annihilation from nuclear war was a background permanent possibility so the idea that we severely damaging the economy in the interest of my health and well being and that of my ilk, seems rather bizarre.

    I think I ought to sign off now (Baby boomer now taking not contributing – cave for some tax)

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    Hi Graham – If you have some time, would appreciate a piece on how to value investment companies like Tek Capital.
    This is prompted by today’s RNS on one of its investee companies, Salarius, signing a major distribution agreement. The result is TEK’s share price is up some 40% as I write.

    How does the market value a company such as TEK? After doing basic research, I found that TEK owns 91% of Salarius and at the last valuation it represented some 10% of the total investment portfolio (£22.5m in Nov last). NTAV is 0.4 so well below asset values.

    I have no sense of the interplay between share price, NTAV and Price/NTAV for this type of stock.

    Thanks

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    Hi Graham
    I hope all is well in your world.  Up until the last month I have enjoyed this site and your interactions on the stock market and interesting businesses.
    I was previously a paying member on this site but that has lapsed a while back now.  I’ve seen your COVID focus on Twitter but do hope we can see you back here covering your portfolio and small / mid caps in the near future. What are your plans ?
    All the best, 
    James

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