The Long Term Investor

Just to bring a little REALITY to the BITCOIN rally and ETF story yesterday.

Lessons From Oil on the New Crypto Futures Fund
Always know what exactly you are buying.

https://www.fisherinvestments.com/en-us/marketminder/lessons-from-oil-on-the-new-crypto-futures-fund

(BOLD is my opinion OR what I consider important content)

"If you so much as peeked at the financial news world Tuesday, you likely saw there is a new ETF in town. Some, playing fast and loose with terminology, call it a bitcoin ETF, the first of its kind, a landmark development for investors. Finally, people can invest in bitcoin without venturing into the Wild West of crypto wallets and zero investor protections! There is one teensy little problem with this claim: It isn’t a bitcoin ETF. The fund actually manages bitcoin futures, and it may not end up tracking bitcoin’s price well at all. That is just one reason we are issuing a friendly buyer beware to anyone considering this. We aren’t inherently against it or bitcoin, or securities tracking bitcoin futures. But understanding what you are reviewing to properly weigh risks is key to making any investment decision.

People have been trying to get bitcoin ETFs off the ground for years. The Winklevoss twins started the push in 2013, but the SEC rejected multiple applications, citing concerns about market manipulation, illiquidity and outsized volatility. Several asset managers also tried and hit that brick wall. But over the summer, the SEC changed its guidance to imply it would bless funds that packaged bitcoin futures, rather than actual bitcoins. Unlike cryptocurrencies, futures trade on regulated exchanges, where officials can monitor for unusual and suspicious activity. So ProShares, a fund provider, got to work on the Bitcoin Strategy ETF, which will hold only bitcoin futures contracts. The SEC gave the green light last week, and it debuted Tuesday with ProShares execs ringing the New York Stock Exchange’s opening bell.

If you find yourself wanting to buy this, we suggest asking a simple question: Why? A parallel question: Why is this happening now? Well, probably because bitcoin is back near all-time highs after a massive summertime slump. It looked quite frothy when it first crossed $60,000 back in April, during a massive boom in all things digital (including joke cryptocurrencies like dogecoin and digital collectibles known as non-fungible tokens, or NFTs). Then came the hangover, which let the air out of crypto, special-purpose acquisition companies (SPACs) and other speculative assets.

Now bitcoin is bouncing back, and several asset managers are trying to follow in ProShares’ footsteps. While we don’t see as much froth in this niche area of markets as we did early this year in alternative cryptocurrencies or when SPAC ETFs rolled out just as the genre was peaking, we do see this bandwagon as a sign the broad optimism we discussed then persists now. Bandwagons are a big sign of heat chasing—they happen because everyone wants to get a piece of the thing going up, up and away. If bitcoin weren’t booming again, there probably wouldn’t be a race to own it. Witness the lack of investor interest over the summer, for example. Now, not only is there massive interest based on past price movement, but pundits are arguing bitcoin futures funds’ existence is a huge bullish driver for bitcoin itself. Their forecasts are increasingly outlandish, reminiscent of Dow 36,000. “It is up and people say it will go way higher” is not a good investment thesis, in our view.

Perhaps you disagree and want to take a flyer on bitcoin anyway, which, everyone is free to choose! But if that is the case, a bitcoin futures fund may not deliver the results you are looking for even if bitcoin rockets to the moon. Futures ETFs tied to volatile commodities tend to have a large tracking error, which—in plain English—means the fund’s price doesn’t track the commodity’s price accurately. A futures contract is an agreement to purchase a commodity at a set price on a given date. Unless you intend to take physical delivery of that commodity, you must roll over your contract—sell the maturing one and buy a longer-dated one. This is what the bitcoin futures ETF managers will spend their time doing, and the associated costs add up, especially if long-dated contracts fetch higher prices than short-term contracts. This phenomenon, known as contango, means that every time a fund manager rolls over a contract they must sell low and buy high, which further jacks up costs and erodes returns. As The Wall Street Journal noted last week, bitcoin futures are often in contango, potentially setting this fund up for a rough ride.

This isn’t a mere theoretical headwind. You can see the actual effect in the United States Oil ETF (USO), which made headlines in April 2020 for its wild divergence from crude oil prices—and not to owners’ benefit. Back on April 20, 2020, West Texas Intermediate (WTI) crude oil’s spot price dipped into negative territory due to some very technical quirks in the futures market. USO did not, which we figure is good. But a lot of people bought USO that day, thinking it would give them exposure to what was sure to be a quick bounce in crude. Instead, while WTI crude’s spot price jumped back into positive territory on April 21, USO fell -25%. It fell again the next day, while WTI’s spot price rose again. In response, USO switched from same-month futures to contracts expiring several months ahead and effectively transformed itself into a closed-end fund so it couldn’t get caught flat-footed by the need to create new shares (and buy the underlying securities) if people flocked to it en masse. Exhibit 1 shows the effect of the huge divergence on returns since.[ii]

Exhibit 1: USO Shows the Risks of Futures Funds


Source: FactSet, as of 10/19/2021. United States Oil Fund LP price and WTI crude oil spot price, 12/31/2019 – 10/18/2021.

Every investment decision is a tradeoff. When you buy stocks, you accept the risk of short-term volatility in exchange for the likelihood of high long-term returns. With a bitcoin futures ETF, we surmise you are accepting the risk of tracking error in exchange for the transparency and investor protections that come with owning a regulated fund. Some investors might think the tradeoff is worthwhile. Some might not. Some might want to avoid bitcoin entirely, concluding that speculating conflicts with their long-term goals. Only you know what the right decision for you is—just ensure you make that decision with all the relevant information and risks in mind."

MY COMMENT

YEP....buy bitcoin if you wish or buy this ETF if you wish. BUT at least......be an informed investor. Know that you are buying bitcoin futures....not....Bitcoin itself. AND....be aware of the above information about tracking error and "contango". The example above based on the OIL FUTURES is a very nice illustration of the difference between holding the actual asset versus trading in futures.

 

Since this little thread is based on LONG TERM INVESTING.......here is a nice little article that deals with the BASIC BASIS for long term investing.

Investors Should Prefer Camels to Horses

https://behaviouralinvestment.com/2021/10/19/investors-should-prefer-camels-to-horses/

(BOLD is my opinion OR what I consider important content)

"There is a common decision-making adage that states: ‘a camel is a horse designed by a committee.’ Although there is some doubt over its origin it is thought to have been first uttered by Sir Alec Issigonis, designer of the iconic Mini car. The ungainly camel represents the flaws of committee-led design, which is often defined by indecision, competing interests and compromise. The sleek horse is the result of individuals or small teams operating with focus and a distinct purpose. Although it is a wonderfully salient maxim, it is deeply flawed. Camels are a design / adaption marvel and in areas such as investing they provide invaluable lessons about how best to deal with uncertainty.

The idea that a camel is a poorly conceived horse does a huge disservice to a fantastically versatile creature. Adapted for desert living, camels must deal with dramatic temperature extremes from +50°c to -40°c. This means that they cannot use fat as insulation (as many animals living in cold climates do), but instead store fat in humps and have insulating fur. The energy stored in their humps mean they can go for sustained periods without food; whilst their technique for processing water allows them to survive for days in the severest droughts.

Although not as rapid as the fastest horse they are no slouches with certain species able to run up to 40mph. They are also ideally suited to long distance toil. Bactrian camels can carry 200kg (440lbs) for 50km (31 miles) per day. Camels have a range of other adaptions that allow them to survive and function in hostile environments such as wide padded feet, an extra-long intestine (to aid water absorption) and a fluctuating body temperature. They are creatures built for variability and uncertainty.

We are drawn to horses because of their appearance and speed, but their design is only superior to a camel if we are certain about the distance, environment and terrain. The less we know about our future path and the conditions we will encounter, the more valuable the resilience of the camel becomes.

The preference for the alluring features of a horse over the unwieldy camel is also suffered by investors. Most of us have long-term objectives requiring a portfolio that can withstand extreme variability in the environment and cope with material uncertainty. We are, however, so often tempted by options that have proved themselves ideally designed for the recent past and assume those conditions will persist. This leaves us sharply exposed to the realities of a complex and dynamic system.

Even when we acknowledge that the investment landscape will be changeable our tendency is to believe that we can foresee this and adapt our positioning accordingly. When we attempt to time markets or invest in funds that do, we are declaring that we can forecast the undulating path ahead and identify the investment ideally designed to navigate it. Although the promise of holding the perfectly tailored investment vehicle at the appropriate moment is an appealing aspiration, it is also an exercise in profound and costly overconfidence.

A prudently diversified portfolio is akin to a camel; it is not the most attractive choice and at any given time there will always be a superior option to deal with the current circumstances. It feels like we are always making concessions and carrying unnecessary burdens. Those fat storing humps on a camel seem superfluous when food is abundant, but much like the drag of holding anything but the most in-vogue asset class or fund, they are essential tools for an uncertain future.

If we are asked to undertake a long journey along an unpredictable path we should take lessons from the design of a camel, not a horse."

MY COMMENT

Many of the little articles and data you see on LONG TERM INVESTING seem so simplistic. In its most basic....and my opinion best format.....you dont have any of the reams of data, statistical analysis, banks of computer screens, etc, etc, that you see with short term and other sorts of investing. It is as simple as selecting.....REALISTIC AND REASONABLE......stocks and funds, and holding them for the long term.

Long term investing and investing success are.....supremely simple. Also supremely difficult and impossible for the average person to pull off. It is nearly impossible for people and the human brain to pick a great investment vehicle like the SP500 and sit on it for 30 years. Doing NOTHING.....especially after a bit of success.....is nearly impossible for humans.

EDIT: NOT that I have anything against horses....we have five of them......and.....they are family members at this point since we have had them a long time. Each one is a distinct personality.

 

With the recent changes you have made in your portfolio Zukodany.....it seems that we are now tracking each other much closer than before. I am NOW in the red for today....although by less than $100 at the moment. So basically.....DEAD FLAT. I still have high hpes for the after noon as we head to the close today. I have 6 stocks UP and 4 stocks DOWN at the moment. So for me......the day starts NOW.

 

Seems like the BIG TECH side of things is on hold right now. Perhaps awaiting the TESLA earnings that will come after the close today.

So in regards to EARNINGS today.........we have MASSIVE numbers of banks and financials reporting today. We also have ABBOT, VERIZON.......and the BIG one......TESLA.

TESLA should be a big DRIVER of the markets tomorrow.....or at least the SENTIMENT of the markets tomorrow. I note that saying something will be a market driver does not necessarily mean......UP.......it is also possible to be a market driver to the DOWN side.

 

BIG GREEN today.....yeah right, LOL......less than $200. AND...I got beat by the SP500 by 0.43%. The last few days the SP500 has been eating away at my lead......I have not calculated it.....not worth the trouble.....but my prior lead of about 2.14% is probably now down to about 1%.

 

HERE is the BIG ONE today.....the Tesla earnings.

Tesla posts record revenue and profits in third quarter

https://www.cnbc.com/2021/10/20/tesla-tsla-earnings-q3-2021.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• Tesla reported third-quarter earnings after the bell Wednesday, and it’s a beat on both the top and bottom lines.
• The record results were driven by improved gross margins of 30.5% on its automotive business and 26.6% overall, both of which are records for at least the last five quarters.
• The company’s stock dropped less than a point after hours on the results.

Tesla reported third-quarter earnings after the bell Wednesday, and it’s a beat on both the top and bottom lines.

The company’s stock dropped less than a point after hours on the results. Here are the results.

• Earnings per share (adjusted): $1.86 vs $1.59 expected per Refinitiv
• Revenue: $13.76 billion vs $13.63 billion expected per Refinitiv

The company reported $1.62 billion in (GAAP) net income for the quarter, the second time it has surpassed $1 billion. In the year-ago quarter, net income was $331 million.

The record results were driven by improved gross margins of 30.5% on its automotive business and 26.6% overall, both of which are records for at least the last five quarters.

Automotive revenue rose to $12.06 billion and costs of automotive revenue amounted to $8.38 billion for the quarter.

Tesla also generated $806 million in revenue from its energy business, which combines solar and energy storage products, and $894 million in services and other revenue, which includes vehicle maintenance and repairs, auto insurance and sales of Tesla-branded merchandise among other things, Tesla has disclosed in past financial filings.

For its energy and storage business, costs of revenue rose to the highest number in the last five quarters to $803 million during the third quarter.

In a shareholder deck that Tesla released before a call to discuss Q3 results, the company said, “A variety of challenges, including semiconductor shortages, congestion at ports and rolling blackouts, have been impacting our ability to keep factories running at full speed.”

Even with those issues, the company reiterated prior guidance that it expects to “achieve 50% average annual growth in vehicle deliveries” over a multi-year horizon.

The company recorded a $51 million impairment related to its investment in bitcoin, which it reported under “restructuring and other” expenses.

Tesla previously reported deliveries of 241,300 electric vehicles and production of 237,823 vehicles during the period ending September 30, 2021.

Unlike other automakers, Tesla’s sales rose during the quarter, setting a new company record, despite chip shortages and supply chain challenges weighing on the industry. (Deliveries are the closest approximation of sales that Tesla reports.)

Many other automakers have reported record profits during the semiconductor chip shortage due to resilient consumer demand, but they have not been able to produce better sales due to the supplier constraints.

In a Q3 2021 shareholder deck, Tesla remained non-committal on the start date for production of the hotly anticipated Cybertruck. The company is saying only that production of the non-traditional truck will begin at some point after Model Y production commences in Austin, where Tesla is building a new vehicle assembly plant.

Last quarter, CEO Elon Musk said he would no longer lead earnings calls by default. He may choose not to address shareholders and analysts on Wednesday, which would surely disappoint his fans.

Investors submitted questions to Say Technologies, a site Tesla uses to poll shareholders ahead of earnings calls, seeking updates on the now-delayed Cybertruck, Tesla’s 4680 battery cells, and whether a $25,000 electric car, which Musk teased last year, is still underway. The company’s strategy for weathering supply chain issues will also be in focus.

Tesla said on Wednesday that for its standard range vehicles, it will be “shifting to Lithium Iron Phosphate (LFP) battery chemistry globally.” Previously, Tesla used lithium-ion battery cells with a nickel cathode in its US-made standard range vehicles. Because iron is more abundant than raw materials used in other lithium-ion battery cells, like nickel and cobalt, LFP battery cells are generally more affordable to produce today."

MY COMMENT

BLOW OUT numbers. Amazing. Yet the stock was down by about $5.40 in after hours trading. what can I say......the company reported a GROSS MARGIN of 30.5%..........and.....$1.62 BILLION of net income.....versus.....$331 MILLION a year ago.

 

With TESLA.....so far.....it is "sell the news". But that is the after-hours people. I am sure they tend strongly to be traders and professionals. We will see what the little people......the regular retail investors.....think tomorrow. Probably not much....since those that hold the stock are fully invested and are just going to sit on it as a great investment anyway. They are not going to play the speculation and trading game.

 

EARNINGS that might count for something with the markets......tomorrow.....Volvo, Intel, AT&T, tractor Supply. Plus....a bunch of banks......and a bunch of airlines.

Typing the above made me realize how far INTEL has fallen when it comes to investor desirability and awareness. This company used to be right up there with the best of the BIG TECH. Now....it is hardly mentioned.

 

OK....two days left in the week. We need to.......HIT IT HARD......tomorrow and Friday. We need to close the week strong. The SP500 is UP by 3.95% over the past FIVE DAYS......ALL days were positive. For October.....so far....the SP500 is UP by 5.31%.

Lets keep this streak alive for at least the next two days. We can worry about next week over the weekend.

 

Well at worst...hopefully....the rest of the week will be like today. Some weakness in the NASDAQ and the big tech......but....the SP500 up and continuing its winning streak. We will see in about 10.5 hours when we open tomorrow.

 

Yeah....I owned INTEL for a long time back in the GOLDEN days when it was......"THE".....chip company and MOORE's law was raging for many years. It has been a long time since I have owned or even thought much about that company.

 

HERE is the economic data of the day...that no one will care about.

US unemployment claims fall to new pandemic low of 290,000

https://www.msn.com/en-us/money/mar...emic-low-of-290000/ar-AAPN7J4?ocid=uxbndlbing

(BOLD is my opinion OR what I consider important content)

"WASHINGTON (AP) — The number of Americans applying for unemployment benefits fell last week to a new low point since the pandemic erupted, evidence that layoffs are declining as companies hold onto workers.


Unemployment claims dropped 6,000 to 290,000 last week, the third straight drop, the Labor Department said Thursday. That’s the fewest people to apply for benefits since March 14, 2020, when the pandemic intensified. Applications for jobless aid, which generally track the pace of layoffs, have fallen steadily from about 900,000 in January.

Unemployment claims are increasingly returning to normal, but many other aspects of the job market haven't yet done so. Hiring has slowed in the past two months, even as companies and other employers have posted a near-record number of open jobs. Officials such as Federal Reserve Chair Jerome Powell had hoped more people would find work in September as schools reopened, easing child care constraints, and enhanced unemployment aid ended nationwide.

Yet so far, that hasn't happened. Instead, some observers are starting to consider whether some of those who had jobs before the pandemic, and lost them, may have permanently stopped looking for work.

On Tuesday, Christopher Waller, a member of the Federal Reserve's Board of Governors, said that two million of the 22 million jobs lost to the pandemic may not return anytime soon because retirements have accelerated so quickly since COVID-19 hit.

The Labor Department's report Thursday also showed that the number of people receiving jobless aid continues to fall steadily. In the week of Oct. 2, the latest data available, 3.3 million people received unemployment benefits, down from 3.6 million in the previous week.

A year ago, nearly 24 million people were getting unemployment aid.

About 7 million people lost jobless benefits in September after two emergency programs, set up in March 2020, expired. One of the programs provided aid to gig workers and the self-employed, who traditionally are not eligible to receive unemployment insurance, and the second covered workers who have been unemployed for longer than six months. And an extra $300 a week in federal unemployment benefits expired nationwide Sept. 6."

MY COMMENT

In line with what you would expect based on common sense. As usual.....step by step.....we will move through the re-opening. When we get to the end....there will be some aspects of the economy, work, and society that WILL NOT ever come back. BUT....for the most part we will get back to what we had before this mandated economic shut-down.

 

HERE is another bit of economic data that is ALSO good news.

Sales of existing homes rose in September, likely due to a brief decline in mortgage rates

https://www.cnbc.com/2021/10/21/sal...due-to-a-brief-decline-in-mortgage-rates.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• Sales of previously owned homes increased 7% to a seasonally adjusted annualized rate of 6.29 million units in September, according to the National Association of Realtors.
• The organization’s chief economist pointed to a brief drop in mortgage interest rates in August for the sales gain.
• First-time buyers made up just 28% of sales, the lowest level since July 2015.

Sales of previously owned homes increased 7% to a seasonally adjusted annualized rate of 6.29 million units in September, according to the National Association of Realtors.

The organization’s chief economist, Lawrence Yun pointed to a brief drop in mortgage interest rates in August for the sales gain. The average rate on the 30-year fixed fell below 3% before rising again more significantly in the last month.

Existing-home sales data is based on closed sales, representing contracts likely signed in July and August.

Sales were 2.3% lower than in September 2020.

First-time buyers made up just 28% of sales, the lowest level since July 2015.

The supply of homes for sale ended September at 1.27 million units, down 13% from a year ago. That represents a 2.4-month supply at the current sales pace.

Low supply continued to push prices higher. The median price of an existing home sold in September was $352,800. That is 13.3% higher than September 2020. The annual gains, while high, are now moderating.

“As mortgage forbearance programs end, and as homebuilders ramp up production – despite the supply-chain material issues – we are likely to see more homes on the market as soon as 2022,” said Yun.

That median price is heavily influenced by the mix of homes currently selling. Most of the activity is on the higher end of the market, as inventory is weakest at the low end. For example, sales of homes priced between $100,000 and $250,000 were 23% lower year over year, while sales of homes priced above $1 million were 30% higher.

Sales of newly built homes in August, which are counted by signed contracts and so would be comparable to September’s existing sales numbers, were 24% lower year over year. Prices for new homes were up 20% as builders struggle with supply chain issues and higher costs for land, labor and materials."

MY COMMENT

Yes....the dam has broken. The Millennials......the people that the "experts" in the media constantly told us were different and would NOT follow the path of prior generations......ARE.....in fact following exactly the same path. They are NOW rushing to buy homes as are the generations behind them. The more things change......the more they stay the same.

 

So.....today we are seeing the reaction of the....regular retail investors.....to the Tesla earnings. At the moment the stock is UP by about $30 per share. Market REALITY.