September Idea of the Month: What about Deflation?

by Travis Johnson, Stock Gumshoe | September 16, 2016 9:32 pm

A buy for the pessimists, and checkins on Altius, REITs and more

This is premium content. To view this article (and to have full access to the rest of our articles), sign up. Already a member? Log in.

Source URL: https://www.stockgumshoe.com/2016/09/september-idea-of-the-month-what-about-deflation/


21 responses to “September Idea of the Month: What about Deflation?”

  1. hendrixnuzzles says:

    Travis, thanks for the outlook on the insurers and the REITS. Been kicking tires a little, but as you say the valuations look high now and I’m worried about the overall market.

    Glad also to hear your opinion on Altius. I sold out when I felt the precious metals were an immediate opportunity, but I may re-enter.

    On Yamana and Chapada, check out Sandstorm’s deal on Chapada. What’s good at Chapada is good for Sandstorm.

  2. gumshoetree says:

    Hi, Travis.

    I’ve not posted on this site before, so would fully accept correction if I am posting in the wrong place for the following subject.

    Basically, I was wondering if you have any views on offshore brokerage Investors Europe Gibraltar / Mauritius and their trading platforms? The platform (normally) lets you access stock trading and options trading primarily in US and Canadian markets.

    Investors Europe Gibraltar / Mauritius have a variety of trading platforms, including ArcticTrader. The latter decided to “upgrade” recently, in the middle of the market trading week and I could not access for days! That was intensely worrying, as the only info upon login attempts was that it was unavailable and undergoing upgrade. Very stark, and, in view of the world banking situation generally, I began to wonder the worst! But, it turned out ok, today, and I regained access.

    However, it was a scare! And, though I did some due diligence upon originally opening an account with Investors Europe Gibraltar / Mauritius, I still think the “upgrading” of one of their trading platforms during market trading days, and for so long, and with such limited explanation, was very strange. The brokerage gave no further information while the situation existed, other than to state that they were looking into rectifying it, and I have had no other explanation.

    So, I am left wondering just how safe Investors Europe Gibraltar / Mauritius with its Arctic Trading platform (and other platforms, too) really are. Any light thrown on this by you or anyone else would be much appreciated.

    Regards.

  3. backoffice says:

    Travis what puts did you place with WATT? Thanks I’m trying get some experience with options and have limited myself to calls at the moment

  4. Playfulhair says:

    Hi Travis, So are you sting that Fairfax used to be
    Good? I scuttled some dough back into Appl ‘@
    Watts. A good idea to take it out i think. Whatshisname, Trembly, said he’d dble my dough if it it doesn’t move and that’s not the stock
    I think it went up .20 on Friday. Man, can I catch a
    Break around here ? Trembled would be out the
    Door if he worked for me. This is the second time
    That bozo has done it to me, and once I was mad
    Cause I didn’t put any dough into something,
    Good bye Ernie. Harry

  5. Playfulhair says:

    Don’t laugh at me, but if the stock market goes
    Bust, dont I lose all my money? Why should I hang in there? And they talk about buying after a crash, I see it two ways, the market is going to be
    Manipulated, or God will put a stop to this insane
    Culture of getting screwed all the time. They stabbed 8 people today, and said their’s more coming, right where I was yesterday. They say a bombing isn’t a bombing unless it’s Isis. And now they’re supposed to be
    Bringing the Isis “thugs” into the country to do the
    Dirty work . Why isn’t all this taken care of? Why isn’t Hilary and her rapist husband In jail, and
    The Big “O” says we’ve got plenty of money and he’s never heard of a “rigged ” election. Why are t they in jail? We are all worried about the stock market and we’re going to be marched into boxcars to take a little trip. There’s been so much treason and lies and I think we oughta kick NATO
    Out of our country! Am I nuts? Walmart has closed 250 stores cause those are going to be the new “fema” joints for us. How in the hell can we make any money? Hilary said were going to
    Tax the middle class. See ya! Can someone answer why these people aren’t locked up? It’s not getting better. I think we’re stupid for investing. And if we don’t change it to a different currency before they turn the electric off, we’ll have nothing. Have they bought off the world?
    God Bless, I don’t understand why the military isn’t all over those people. And they talk about making new bombers. I flew in a B-52 over Cambodia, and Vietnam. Evertime we buy something are change something we’re all gonna
    Have bad haircuts one of these days! If we can’t make million dollar option trades, I think we should play cards. Sorry , but this country is really pissing me off! No one cares. No one can do anything about it. We are all locked down!
    So why in the hell are we even trading!
    Sorry , but this is insanity! Maybe the Daily Planet
    And Superman would help! I don’t get it, and if you guys do, will you please tell me where I have to dig a hole and then get shot when I come out?
    Good night!

  6. wal.schwager says:

    Coal: metallurgical coal has been soaring, explaining the parabolic growth in Teck resources, and possibly in Westshore terminals. I hold a number of medical reits, and today HLTH is doing well on the basis of a new acquisition.

  7. I know there are a great many folks who would like to respond to the comment from cmilone following up on Playfulhair, but I don’t want to host those debates here — please move it to the “clubhouse” where discussing religion and politics is welcome and those who don’t want to engage in that don’t have to see it, you can find the latest iteration of the “clubhouse” here.

    I’ll move the comment from cmilone to that space as well, for those who want to join that conversation.

  8. oldguy says:

    Travis Do you have a link for this company?

  9. Comment from a reader:

    “You wrote about Fairfax financial – FRFHF – and its leader Prem Watsa. I was interested because of the prediction history on the real estate collapse by Mr. Watsa. So I bought in a month ago. Soon the news was that he connected again by selling $5 billion of treasury bonds 2 days before the elections. With the fall in bond prices in the last 10 days he should have made or saved about $250 million. Instead the company stock has fallen about 15% and the market cap is down nearly $2 Billion. Does anyone have any idea what is happening?”

    My response: “sort of” — what’s happening is that Fairfax Financial has a large bet on deflation and a bear market, and that’s what has helped the stock to get a bit of a premium valuation as an insurance company. The spike in inflation expectations (the opposite of deflation, that is) means those deflation bets are likely worth a lot less than they were a week ago… and with the market currently rising, the bearish bets are also worth a lot less.

    Watsa is far quicker to make big macro bets than are other well-known “baby Berkshire” investors or value investors, and he has already made some adjustments post-election — he did cut back on long bonds before the election, here’s a short piece about that, and he did substantially reduce his hedges after the election (as reported by the Globe and Mail here, he went from over 100% hedged to about 50% hedged), so things are very much in flux for Fairfax and they have a HUGE amount of cash on the balance sheet (thanks to the sale of those long bonds) that’s not doing anything.

    The stock is now much less of a “hedged” bet on a bearish market, so investors who were holding primarily for that reason may be losing interest (and that may, indeed, be the reason for the selloff), but it’s still very much a bet on Watsa’s predictions about the macro economy and his investing acumen.

    I’m trying not to make any big macro bets right now, but I’ll look at Fairfax in some more detail when some more of the dust settles… the valuation is down to about 1.2X book value now, so it’s reasonably valued as a high-quality insurance company and there’s no obvious reason why the stock should be a bad bet for the coming years, though it is suffering some from the cost of the bearish positioning Watsa has had for a couple years. I still think it’s worth having exposure to the stock, and that move out of long bonds was very prescient of him and (assuming that this week’s trend is not reversed) may help the balance sheet versus some of his competitors next time Fairfax reports, but if Watsa is walking back all of his bearish exposure there’s less reason for me to hold this one versus other high-quality insurers who are not as active in trying to predict broad market moves. It’s still cheaper than some of my favorite insurers, like Markel, and it’s always interesting to follow Fairfax, but it’s no longer as much of a direct “hedge” exposure for bear market worriers (we don’t know if he has walked back his specific deflation bets in addition to the bearish market exposure, but those are worth dramatically less now than they were a week ago)

  10. brenda says:

    REITS gold Ernie Tremblay FDA options

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.