The News Radar

Timely links to external news and articles, usually valuation related, with occasional commentary. Most recent items shown below - for more, check the archive in the sidebar.

Friday, 28 October 2022
We Should Just Accept We’re Going to Have a Blah Economy

If you follow financial commentary, it sounds like we’re about to hit the inflection point — that moment when the economy turns and we enter a recession; the stock market crashes, inflation deflates, people lose jobs and housing prices tank. But if there has been one thing consistently true over the past two years, it is that what everyone consistently predicted has turned out to be wrong. That’s because we’re in uncharted territory. We have never before turned the economy off, then turned it back on again as we did in the pandemic.

Welcome to Hell, Elon

the problems with Twitter are not engineering problems. They are political problems. Twitter, the company, makes very little interesting technology; the tech stack is not the valuable asset. The asset is the user base: hopelessly addicted politicians, reporters, celebrities, and other people who should know better but keep posting anyway. You! You, Elon Musk, are addicted to Twitter. You’re the asset. You just bought yourself for $44 billion dollars.

The problem when the asset is people is that people are intensely complicated, and trying to regulate how people behave is historically a miserable experience, especially when that authority is vested in a single powerful individual.

Wednesday, 26 October 2022
Fed’s Yield-Curve Barometer Starts Flashing Recession Risk

The 10-year dipped as much as 0.08 percentage point below the three-month in US trading Wednesday, after brief and smaller inversions Tuesday and in early August.

This is my most closely watched indicator. Bad times ahead.

Thursday, 13 October 2022
‘Soft Landing’ Is Unlikely for US Economy, JPMorgan’s Dimon Says

Jamie Dimon said the Federal Reserve probably can’t cool the red-hot economy without bringing on a recession.

“I don’t know if it could be a soft landing -- I don’t think so, but it might,” the JPMorgan Chase & Co. chief executive officer said at an industry conference in Washington Thursday, adding that the alternatives would be a mild or a severe recession. “In a tough recession, you could expect the market to go down another 20% to 30%.”

Valuation models easily support another 30% drop from here, particularly if rates keep increasing.

Wednesday, 5 October 2022
Elon’s Back

All of this seems unlikely, though, and I assume that the deal will close. The stock closed at $52.00 yesterday, very close to the $54.20 deal price and up 22% from Monday’s close of $42.54. Several reports suggest that the deal might close “within a matter of days” or “as soon as next week.” Last night Musk tweeted that “Buying Twitter is an accelerant to creating X, the everything app,” which sounds exhausting. The app will do everything, but it will start with two functions: You can read tweets, or you can be shot on a rocket into space. Choose wisely.

Why? Why would you spend this much time and money trying to get out of the deal, and be this annoying about it, and then just unconditionally surrender two weeks before trial? One possibility is that it became increasingly obvious to Musk that he was going to lose the trial, and that didn’t seem fun, so he seized the initiative (?) by surrendering instead. 3 If this did go to trial he’d have to testify (and be deposed this week), his text messages with his friends have become public and more might come out, and the whole thing would be more distracting, unpleasant and embarrassing than he really wanted.

Similarly, Jessica Lessin’s theory is that Musk “has bigger challenges to contend with elsewhere. Spending hours and hours preparing for a trial everyone thought he was going to lose didn’t rank high on the list.” Musk’s efforts not to buy Twitter were becoming too distracting, so he decided to become the owner (and interim chief executive officer!?) of Twitter instead to minimize distraction. That seems right. Sure, running Twitter will be distracting and time-consuming, but in a fun way. Trying to get out of running Twitter was probably fun initially, but now it has become a drag.

National treasure, Matt Levine.

Tuesday, 4 October 2022
Opendoor Follows WeWork Into Non-GAAP Land

Consider loss-making mobile-games company Skillz Inc., which claimed last year to be profitable on an adjusted ebitda basis, when adjusted for the cost of acquiring new customers. Yet user acquisition marketing expenses were almost two-thirds revenue that year. When Skillz sought to reduce marketing spend in recent months, its revenue plunged, and so has the stock. (Skillz has said the metric helps investors understand “the value of existing users on the system.”)

Adjusted ebitda is especially problematic because companies have huge discretion about what to include. Last week, Singapore-based Grab Holdings Ltd. vowed to break even on an adjusted ebitda basis by the latter half of 2024, but its definition includes more than half a dozen add-backs. This isn’t unusual.

Great article on one of my favorite accounting / financial statement analysis red flags.

Sunday, 2 October 2022
Investors Aren’t Betting on Post-Midterm Rally

The S&P 500 has moved higher in the one-year period following every midterm election since 1942, according to Dow Jones Market Data. The benchmark on average has gained nearly 15% in post-midterm years since World War II.

This time, tightening monetary policy and worries about an economic slowdown cloud the outlook. Market participants are still contending with the Federal Reserve’s aggressive rate-raising campaign aimed at bringing down persistently hot inflation. Investors expect corporate earnings to weaken as the business environment gets tougher into the year end.

And recent wild swings in government bonds and currencies are threatening to further destabilize financial markets.

“While history is a great guide, it’s never gospel,” said Sam Stovall, chief investment strategist at CFRA Research.