Facebook Equity Research and Analysis!

Dear Reader,

Here I am going to make an attempt to value Facebook.

Facebook's stock fell precipitously on Q2 earnings announcement. Facebook's stock has been falling ever since driven by negative news about how Facebook was allegedly used to meddle in the 2016 US Presidential Elections. What is more, more negative news appeared related to privacy concerns in using Facebook and whether Facebook was selling off data about its users to third parties.
Facebook's stock is trading at around 128 USD today.

Facebook's market value fell from around 550 bln, USD to around 366 bln. USD today. This is a staggering loss of nearly 200 bln. USD.

So what is Facebook worth at the moment?

I believe Facebook is worth 30% more than its current stock market capitalization. I believe that the 30% higher value will be realized in the next 1-2 years. Basically, Facebook's stock has been oversold and too severely punished for recent company's missteps. So Facebook should be worth around 490 bln. USD.

In the last reported quarter Facebook's revenue grew by 32.91% and Facebook's net profit margin is a staggering 37.42%.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich

Snapchat, Snap Inc. Equity Research and Analysis!

Dear Reader,

I personally think Snap Inc., the mother company of the eponymous social network Snapchat is worth more than 50% than its current stock price of 5.92 USD and market capitalization of around 7.67 bln. USD.

Why? Because Snapchat has a loyal user base of young people who are yet to be fully monetized by Snap Inc. What is more Snapchat has proven its ability to innovate which is easily proven by the fact that Facebook Inc. is betting its future on clones of the Snapchat version of stories. In addition, I think there is place for one more general social network, aside from the dominant player Facebook and the more niche players like Twitter and LinkedIn.

And Snapchat is a perfect candidate to fill that void. Facebook boasts a market capitalization of more than 400 bln. USD even after its steep fall from above 550 bln. USD of market capitalization. And if Snapchat turns out to be a real social network competitor to Facebook, Snapchat could actually rise more than 5 times in the next 3 to 5 years.

Yes. Snapchat is loss making and will most likely loose more than 1 bln. USD in 2018. But Snap Inc. was trading at 27 USD before falling back to the current 5.92 USD, so there has been a valuation reset. I do think there is a much higher brand equity and innovation and revenue and earnings potential than the current Snap stock price and market capitalization suggests.

In short, I think in the next 1-2 years Snap Inc.'s stock could rise more than 50% and in the next 3 to 5 years Snap's stock price could more than triple.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich

Tesla Equity Research and Analysis!

Dear Reader,


Tesla Inc.'s stock recovered after the steep fall during the previous months. Tesla turned profitable in the third quarter of 2018 mainly due to sales booked for future periods. The current price of Tesla's stock is 357.96 USD.

What is the real, intrinsic worth of Tesla's stock today? In my opinion, Tesla stock is worth  200 USD currently.

Why? Because Tesla and the electric automobiles business is inherently uprofitable without government subsidies. As Elon Musk recently confessed, Tesla was on the brink of going bankrupt. An innovative company with huge aspirations and potentially disruptive and inovative product should never have come close to going out of business. The company is constantly burning money. The ferrous metals contained in electric vehicles are too expensive to produce a mass market car. Tesla pins its hopes on the model 3, but it is nearly impossible to produce the model 3 profitably at scale. Elon Musk does not seem to have the know-how to produce automobiles at scale.

Absent government subsidies, the business with cars running on electricity is simply not viable. If Tesla does not achieve a technological breakthrough which would help it produce electric automobiles profitably, the company could go bankrupt in the long run. Even with the profit in Q3 2018 Tesla would still most probably record a huge(more than 1 bln. USD) loss for 2018.

In short, I think Tesla's stock is worth around 200 USD currently.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich

The Price of Oil. Where to Next? Russia. Russian Stocks.

Dear Reader,


WTI Crude Oil futures are currently priced at 50.42 USD while Brent Crude Oil futures would trade at 58.80. Both oil benchmarks are down circa 30% from their recent peaks.

Are the current prices a near-term bottom? In my opinion, Yes. Why? Because the global economy is simply too strong in order for WTI Oil, for example, to stay at 50 USD. USA, Israel and Saudi Arabia are intent on containing Iran which is the fifth largest oil producer with the largest proven oil and gas reserves in the world.

If Iran oil deliveries are disrupted this could make WTI oil shoot up to 70 USD again. But my main thesis is that the global economy, although slowing down, is too vibrant at the moment to keep oil prices around 50 USD. What is more, even for the USA it is nice to have somewhat higher oil prices. Much of the gains in industrial output in the USA in the last 10 years are due to oil production. One of the most vibrant regions economically in the USA is Texas. People without college degrees could earn up to 100 000 USD a year in the oil industry. Houston and Texas constantly grow their populations due to the influx of people looking to earn higher wages and lead a good lifestyle. So, relatively higher oil prices from the current levels are good for almost everyone. There are strikes and protests against high oil prices at gas stations in various countries, but the economic benefits of producing more oil at higher prices are better.

I forecast that in 2019 WTI Oil and Brent Oil prices would go to 70 and 80 USD respectively.

This would make Russian oil and gas majors stocks go up substantially. Russian oil stocks and the Russian stock market are grossly undervalued at the moment. Yes, there are sanctions but the Russian population is well educated and the current wages make producing and exporting from Russia hugely profitable. The Russian economy has already adjusted to the new realities.

A rising oil price in 2019 would lift the sails of other large oil producing markets such as Brazil and Mexico.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich

Emerging Markets. The Effect of Rising US Dollar and Rising US Rates!

Dear Reader,


The current level of the target for Federal Funds Rate is 2.25%. The Federal Funds Rate is the main policy tool and target of the Federal Reserve, the Central Bank of the United States and undeniably the most powerful Central Bank in the world which exerts great influence over financial markets globally.

Currently the EUR/USD exchange rate is 1.14. The US dollar keeps appreciating against all major currencies and especially against emerging markets currencies as the Russian Ruble, Turkish Lira, Indonesian Rupiah, Argentine Peso, Indian Rupee, Chinese Yuan and others. Since many of these emerging markets countries and their corporations have borrowed in United States Dollars the rising USD rates and appreciating USD threaten to increase emerging market real debt exponentially and cause many of the above countries to go bankrupt.

Will there be a LARGE emerging markets crisis as in 1997? No. Why? Because many of the above countries have low Debt/GDP levels and their economies are much more sound, relatively larger and more flexible than in 1998. Brazil, Russia, India and China's economies are much larger and with flexible exchange rates to the United States dollar which provided an adjustment cushion which would soften any exorbitant blow to their economies. Will there be a smaller crisis in emerging markets? Yes. Why? Because as sound as emerging markets economies are still the appreciating USD, rising dollar rates and rising emerging market debt will cause pain in the economies of Brazil, Russia, India, China, Turkey, Indonesia, Argentina and others.

China - a wild card? But still there is China. The total debt to GDP ratio is 240% compared to 140% before 2008. The Chinese government has much less room to maneuver this crisis around, There is also the shadow banking sector in China which worries many analysts, Nobody really knows what is the total debt in China due in part to unreliable statistics. There have been studies that if GDP growth in China slows below 6% the Chinese workers from smaller cities will not be able to find jobs and move in the bigger cities. The Chinese economy will not be able to quickly replenish itself if growth falls below 6%.

So in short, if there is global crisis soon, I would bet that the trigger and fundamental reason will be an economic crisis in China!

Disaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich

Emerging Markets. Brazil, Russia, India, China, South Africa!

Dear Reader,


The major emerging markets as Brazil, Russia, India, China and South Africa are in a bear market.

The trade war the USA is waging with China took its toll on the Chinese stock market and the main gauge for Chinese equities CSI 300 suffered a fall of more than 30%.

The US levied sanctions on Russia and the Russian stock market tanked. What is more, the US is widely expected to levy new sanctions on Russia which will hit banks, financials and even may touch Russian government bonds.

The US is slowly 'dealing', 'handling' its opponents. Will such behaviour fly? Yes, as long as the united states dollar is king, the US will win, even when battling on many fronts.

But the current dip is a buying opportunity for long-term emerging markets investors. Especially Russia looks quite undervalued. When the pending crises connected with US sanctions fades, Russian stocks will look especially cheap. The world will continue to need larger and larger resources of energy to feed its insatiable appetite for economic growth. And Russia with its huge oil and gas reserves, leading position in nuclear energy generation is uniquely position to benefit. The economy of Russia has the potential to  double from the current circa 1.76 trillion USD in the next 5 to 10 years. Due to the huge depreciation of the Russian Ruble, labor in Russia is cheap, the market is relatively large, untapped and the quality of human resources is of a very high level and at the current wages it is a huge bargain to produce, sell and develop in Russia.

India, currently, has evidently no enemies in Washington. India's IT sector is growing exponentially, payments services have huge adoption in India. India's economy is poised to grow faster than even China's economy. So long-term India's equities do look very undervalued. The standard is low,labor is cheap and relatively highly qualified. So the future of India looks bright.

Disaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich

Walmart Valuation!

Dear Reader,

Here I am going to attempt to value Walmart Inc., the worlds largest retailer.

In short, the company is 25% undervalued. Why?

Because Walmart grew its revenue in the last fiscal year. No, I do not believe Walmart is in a declining industry. People will always shop in retail outlets. Amazon is good for books, may be electronics and a lot of other stuff. But "brick and mortar" outlets like Walmart and Bestbuy are indispensable. The world's population and income are growing so it is safe to assume that the revenue of retail chains of the type of Walmart will grow in line with the world's GDP - 3% to 5% a year.

Last fiscal year Walmart realized 500 billion USD of revenue, which is a staggering sum. Yes, I know Walmart mainly resells other firms' products, but doesn't Amazon also? Major retail chains have their own product lines, so they are still producing stuff, not only service. Wallmart is trading at a trailing 12 month Price/Earnings ratio of 58.20, but the profit for the last fiscal year was 9.86 bln. USD and Wallmart's market capitalization is 296.8 bln. USD, so the real Price/Earnings ratio is close to 30. What is more, the declining profit speaks that Wallmart is reinvesting in its business. The acquisition of Jet.com gave Walmart a foothold in a younger demographic and a platform to really compete with Amazon. In addition, Walmart acquired a range of hip clothing brands which again will attract the younger audience of millenials.

Walmart has been suffering from the Amazon effect. Everybody seems to think Amazon will evaporate the retail industry and everything will move online. As recent years have shown this is not going to happen or at least not to such a large extent as Wall Street analysts seem to assume. Recently, Amazon's stock fell 25% while Walmart's stock rose 5%. If a recession ensues or a bear market in stocks Wallmart will provide the proverbial margin of safety and fall much less than the stocks of major technology stocks. Since I forecast a global recession and a US stocks bear market somewhere in 2021 or 2022, I believe Walmart's stock has the potential to go up by 25% between now and 2021/2022.

Disaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich

Is This US Stock Market Fall to Become a Bear Market?

Dear Reader,


The S&P 500 and Nasdaq dipped into correction territory in the past week. Is this the end of the longest bull market in US stock market history, the beginning of a bear market and an ensuing economic recession?

In my opinion, no. Why? To cause a bear market or an economic recession in the US and globally there has to be a large shock to the economy usually due to internal or external fundamental reasons. The 2008 economic recession and a stock market fall was caused by a fundamental problem with the banking sector - souring real estate mortgages and the connected with them derivatives which were placed around the globe and the financial crises became global.

Now I do not yet see a large fundamental problem with the banks. Yes, many financial bubbles have been blown up, but we are not yet at a tipping point, although we are close. The banks are still relatively sound.

The banking business, though, is inherently leveraged. If people start withdrawing their deposits, the liquid means of the banks are only 10% of their assets. So if 10% of the assets get withdrawn as deposits, the banks are basically bankrupt. So there is the implicit and not so implicit deposit guarantee of the global governments regarding banks.

So are the globally systematic banks stable? Yes, they are. Several smaller financial bubbles have been blown, though. The US stock market, especially technology stocks, leveraged loans, the ETF assets, real estate, China to name most. Real estate is not yet in a huge bubble, but commercial real estate prices have gone up  a lot. Some of the bubbles like China and some technology stocks have partially burst.

Although there is no one huge bubble, a perfect storm could cause many of the bubbles above to pop simultaneously which will threaten the banks.

So is this a buying opportunity for stocks, US especially? I expect when the S&P 500, DJIA and Nasdaq fall around 5% since the beginning of the year the time is rife for buying the dip.

I expect in 2021 or 2022 the financial system will be close to an economic recession and a prolonged bear market, because many of the financial bubbles above will have simply become too large and unsustainable.

Disaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich

How to Detect a Financial Bubble?

Dear Reader,


There is a huge literature on how to detect a financial markets bubble. Many seem to claim a financial bubble can be detected only after the fact. I do not agree. Financial bubbles are quite obvious beforehand. The problem is, it is very difficult to pin down exactly when a financial bubble is going to burst, so one can protect his/hers assets or make money by buying put options or shorting the underlying asset.

There are various approaches in the financial research literature on how to detect a financial bubble. Some say you have to witness two standard deviations yearly change.

From my experience, the best way to detect a financial bubble is to examine the graph of the underlying asset. If on a 1 year or 5 year basis the underlying asset goes up by a steeper than a 45% angle, this is most certainly a bubble=temporary, if not long, a deviation from the asset's underlying fundamentals.

As John Maynard Keynes adeptly put it: "Markets can stay irrational longer than you can remain solvent."

So, when has a financial bubble popped. I define a bursting of an asset price bubble, if the price of the asset falls more than 30% or even better 40%. We have witnessed even larger falls of the main US and global stock market indices like DJIA, S&P 500 and Nasdaq like declines of more than 50% from their 2008 peaks. Recently many technology stock bubbles burst. Examples are GoPro, GroupON, Zynga, Snapchat and even Facebook recently.

So are DJIA, S&P 500 and Nasdaq Composite in a bubble territory currently or overvalued significantly based on their fundamentals? Yes, they are. I do expect a major correction of the major US and Western European stock market indices in 2021 at the latest. Since the bull market in the US was the longest on record I expect the following stock market slump to be deep, larger than 30% fall, and one of the longest in duration on record.

In such a period the buy and hold, value investing strategies that many leading investors as Warren Buffett embrace will not work. Actually, value investing has not worked for the past 10 years driven by the rally in technology stocks, which are momentum stocks. What will work in the coming stock market correction is timing the market and picking stocks for the short run and selling them in a short while when they reach short-term peaks.

Disaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich

What Will Happen When the Stock Market Bubble Pops?

Dear Reader,


Tesla's stock fell a lot, so did Facebook's. Many information technology companies like GoPro, Zynga, Group On suffered large drops in their stock prices in recent years. In the last week S&P 500, DJIA and Nasdaq, especially, fell a lot.

Sooner or later, the equities bull market will end. What will happen afterwards?

Since this is already the longest bull market in history, it will be followed by shallow, but prolonged recession and a long and ultimately deep bear market, which will resemble the one during the Great Depression.

Why do I think that? The US, European and other advanced nations authorities seem to try to engineer a stable growth environment. It is either that or simply we are in a low growth state of the economy. I actually think it is a combination of both. The Keynesian macroeconomics the Western governments are embracing will end badly. The economic expansion has been shallow, but went far too long. Slowly, but surely a stock market bubble built up, especially for technology stocks. A real estate bubble in major economies is already obvious. The large growth of leveraged loans, although obscure part of the financial system, is also a cause of concern.

In my opinion, these bubbles will pop somewhere in 2020 and/or 2021. The bear market that ensues will be a prolonged one, akin to the one in the Great Recession. Due to the world's aging population, automation and the increased size of the global economy, currently the world economy is not so agile, so as to bounce back quickly as it did after the bursting of the Dot Com Bubble in 2001 and partly after 2009. What is more, central banks now have much less ammunition to counter the coming recession. The Federal Reserve(Fed) has started shrinking its balance sheet and raised the reference rate, but the Fed's balance sheet is several times larger that it was in 2008. There is still time until 2021, though. This time around, however, the Debt/GDP ratio of USA is very high at 105.4%  as of end 2017. So there is not much room to maneuver on the fiscal side, i.e. start issuing new government bonds and increasing government spending.

Bit if I have to name one economy that will survive best the coming long economic recession and bear market, it will have to be the USA. The US has some room on its monetary(the Fed) side and the (still) embedded dynamism of the US economy with its purest capitalist system will ensure the USA will weather the coming crisis and thrive again after that.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!

Kind regards,

Petar Posledovich

Jerome Powell, Head of the Fed Implies "The Economic Expansion Could Continue Indefinitely"!

Dear Reader,


In the past week the Chairman of the Federal Reserve, the central bank of the USA, Jerome Powell implied in an interview that the "economic recovery could continue indefinitely"!

Can it?

In my opinion, in two words, it cannot! No.

Why do I think the economic recovery could not continue indefinitely? For one, there has never been an endless period of global constant economic growth. Nor for any single country for that matter. Sooner or later, global GDP falters and the global economy enters into recession. The global economy has always developed in up and down cycles, since basically economic growth is measured. If Jerome Powell turns out to be right, this will be a huge paradigm shift in economic thought. Financial markets have always moved in up and down cycles. The second reason I think this economic recovery is unsustainable, is because the current expansion has been financed by debt. China's total debt to GDP ratio is 460%! The US government debt/GDP is above 100%, an almost historic high.

So when will the recovery end, the next recession ensue and the stock market crash? I think we are somewhere in the fourth from five known phases of the economic cycle. The rise of the economy and the stock market is not yet stratospheric. If the stock market goes up by more than 20% for two consecutive years, I would forecast on the next year there will be a deep and prolonged stock market recession. If I had to bet, I prognosticate that the economic recession and stock market fall will come in 2021.

Nobody has discovered perpetuum mobile yet.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Elon Musk, Tesla. Why the Difficulties?

Dear Reader,

The mainstream financial news media in the last two weeks was filled with news about Tesla and its founder Elon Musk. The news were predominantly negative - from Elon Musk supposedly misleading investors by tweeting he is going to take Tesla private. From him smoking pot on air and lately the SEC charges and the subsequent  settlement of Tesla and SEC whereby Elon Musk has to give up his post as Tesla Chairman and remain only CEO.

But these news are wayward of an important caveat. Why actually is Tesla facing so many difficulties in quickly producing a high enough number(>5000 units) of Model 3?

In short, I think Elon Musk underestimated how difficult it is to manufacture cars at scale? Hey, if it was so easy to produce automobiles at scale anybody could start up and become the next Volkswagen or Toyota! Developing the know-how to produce cars is not accomplished by simply reading some books on the matter.

Tesla is simply too young a company. Ford has produced cars for more than a century. Volkswagen and Toyota have produced cars for many decades. Tesla simply does not have the know-how yet to manufacture automobiles at scale. Tesla hired some of the best and most experienced in the car production business to work for it, but still it seems it is not so easy to produce cars at scale. Throwing money at the matter, much of it through government subsidies, simply will not work.

Will Tesla survive? Hardly. Producing electric cars is simply too expensive. One of the reasons is they contain a lot of ferrous metals. The German automakers were basically coerced by Angela Merkel's government to ramp up production of electric cars. And sill the electric car adoption in Germany is very low. Angela Merkel's governments have tried to persuade VW, BMW and Daimler  in the virtues of electric cars many times. But the production of electric cars is simply not profitable, even with subsidies. Tesla is the poster child of the elctric car industry. If Tesla fails, this would deal a heavy blow to the whole electric car industry and could even stop it in its tracks. To make electric car production profitable what is needed is a technological breakthrough which would make the manufacturing of electric cars viable.

Will Tesla succeed in disrupting the combustion engine car industry? Without a technological breakthorugh which would make electric car manufacturing profitable, Tesla would fail when governments stop keeping Tesla afloat with subsidies.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Value Investing, Warren Buffett, Benjamin Graham and so on!

Dear Reader,


Warren Buffett has been famous for beating the stock market indices year in, year out.

Other followers of value investing strategy like Benjamin Graham, Seth Klarman, Joel Greenblatt have been able to beat US stock market indices by stock picking as well.

What is value investing actually? It is a strategy of investing in mature, profit making, dividend distributing companies in mature businesses that have low Price to Book and Price to Earnings ratios.
In the book 'The Intelligent Investor'  it is quoted that Price to Earnings ratios above 40 would make Benjamin Graham cringe. Benjamin Graham, after all, is the 'father' of value investing.

Why does value investing generally beat the market over long periods of time. As far as I am concerned, the answer is as follows. The mature, large, lowly valued, dividend distributing companies value investing favors, actually tend to fall less in bear markets or financial crises or they have the proverbial 'margin of safety' popularized by Benjamin Graham in his book the 'The Intelligent Investor'. Why does this happen? Basically, it seems that valuation in some peculiar way seems to matter. Investors seem to think high flying technology and growth stocks that rise exponentially during stock market boom periods are more likely to fail and their stock prices fall more in bear markets than the stock prices of established companies from established industries.

Why then doesn't everybody follow the value investing strategy and become exponentially rich.
Well there are two problems with value investing. First, the out performance of value investing with regards to the main stock market indices is minor - usually 2-3 percent a year so high fee structures like the typical hedge fund fees of 2% of assets and 20% of profits are not feasible. Why do large established companies' stocks not move more? Size effect. They are too large and if they continue growing very fast they will subsume the global economy in their respective industry. One way to circumvent this is to break into other industries. Many research analysts seem to push this explanation for Amazon's crazy high valuation.

Another problem with value investing is that the value companies seem to change. Once they are growth companies like banks before the Great Recession in 2008 and now banks are value stocks. Energy companies were growth stocks when before the Great Recession oil was trading at 140 USD. Now energy companies are value stocks. A typical example is when Warren Buffett said he would not touch airline stocks and recently he bought quite large quantities of them. Growth stocks also have spanned different industries during the years.

Now growth stocks are the global IT leaders like Apple, Amazon, Microsoft, Google and Facebook.
Facebook is down 25% from its recent peak. Basically, Facebook's growth stopped and Facebook's stock exhibited the large fall typical for growth stocks.

Warren Buffett's Berkshire Hathaway invested circa 23% of its stock portfolio value in Apple's stock. I read some explanations that Apple is now an industrial company and it should not fall hard as a technology stock. I do not think this is true. When Apple's current 13% revenue growth falls t let's say 1-2%, Apple's stock will fall hard, similar to Facebook and if Berkshire Hathaway's is still heavily invested Warren Buffett will lose a huge sum of money.

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

George Soros, Reflexivity Theory and the Efficient-market Hypothesis!

Dear Reader,

I recently read the following book by George Soros:

The Crash of 2008 and What it Means: The New Paradigm for Financial Markets

Mar 31, 2009

In it the famous investor George Soros proposes his view of how financial markets work by putting forward the Theory of Reflexivity. Basically, he says financial market participants are not casual observers of the situation in markets. They are able to influence the present and future developments. This he calls the manipulative function. This is  supposed to dismantle the Efficient-Market Hypothesis which says that market participants take the events as exogenous. Supply and Demand in economic models are exogenous. Soros shows that Supply tends to influence demand and vice versa, so they are endogenous.

Yes, Donald Trump, Federal Reserve Chairmen Ben Bernanke, Janet Yellen and Jerome Powell have the power to influence markets, so Soros is right that to a certain extent there is a manipulative function of market participants. But the problem is, with open market economies, freely flowing capital and markets in existence you never quite know what the effect of a certain policy will be. During Chairman Greenspan's tenure the Federal Reserve raised rates only to see the yield on ten year treasuries actually fall- which is known as the "Greenspan's Conundrum"- this happened in 2004-2006 period. Classical economics, on the other hand, is preoccupied with the fact that market participants only observe and analyze events - or what Soros calls the cognitive function. Classical economics seems to assume that no market participant is large enough to influence supply and demand - supply and demand are exogenous. That obviously is a long stretch, because the economy of the USA makes up about 20% of world's GDP and is obviously large enough to change reality or the world. The same is true for the actions of the Federal Reserve and the President of the USA.

George Soros wonders why his theory of reflexivity has not gained enough traction in both academic and practitioner circles. One explanation is that the theory is difficult to model, according to Soros. That, actually, is not true. Refelxivity theory could quite easily be modelled. You just assume that Trump's or market participants' actions are a shock  which influences prices. This shock changes the price in one moment, than the price itself exudes a shock on market participants or Federal Reserve Chairman's beliefs, they adapt, change their beliefs and again exude a shock on the market. The markets are in constant flux or change. George Soros never mentions Bayesian statistics, so I am not sure whether he is familiar with these methods. Bayesian statistics models the current state of events as the prior, which the new information changes, so the prior changes and the posterior results change. Then the prior changes again and so on... The problem with all this is that with democracies and free markets you never quite know what effect Trump or Jay Powell's actions will have on the market. You do not know the shock outcome. But yes, reflexivity theory is not very difficult to put into models.

The Efficient-market hypothesis. Ah, that great academic construct. To put it straight, there are at least 30-40 portfolio managers whose track record in managing investments disprove the Efficient-market hypothesis. As far as I am concerned,  a portfolio manager needs to beat the market in at least 5 from 10 years to make the Efficient-market hypothesis invalid. There have been MANY occasions on which portfolio managers have disproved Efficient-market hypothesis. Warren Buffet, George Soros, Bill Miller, Benjamin Graham, Seth Klarman, Joel Greenblatt, Philip Fisher are just some of the most famous examples. Let's take a deep dive. Why is the Efficient-market hypothesis not true. First, it is very difficult to test the truthfulness of the Efficient-market hypothesis. Second, the Efficient-market hypothesis assumes that the aggregate market participants' views are always correct and there is no way to extract 'abnormal' profits. Basically, the Efficient-market hypothesis assumes there is GOD who knows all- God is the aggregate market participants' views, which are ALWAYS right. Why is this NOT true? Anyone who has invested in the markets knows why. There are simply too many frictions. Market participants DO NOT have the same information. What is more, in the Efficient-market hypothesis there are the implicit classical assumptions of classical economics that people are always rational and Supply and Demand are given or exogenous. Basically, that is NOT true. The iPhone supply created its OWN demand. Supply constantly influences Demand and Demand constantly influences  Supply. Kahneman and Tversky, Arielly and Richard Thaler have pretty clearly documented that human beings are not always rational, especially in the short term.

To put it in a one single sentence:

YES. IT IS POSSIBLE TO EXTRACT ABNORMAL PROFITS FROM FINANCIAL MARKETS. CONSISTENTLY. PERIOD(.)

Where does that leave classical economics? I am a classical economist in the sense that markets always know better than a single person or dictator. I am a free marketeer. I believe there should be minimal government intervention. I believe there should be both state and private hospitals and universities, where people could choose according to the financial means they have. However, I am Keynesian in the sense the regulators should get involved from time to time to correct the markets' excesses. Why? Because unbridled greed could cause severe damages to the capitalist system in the short run. Yes, as George Soros says, hunans are always fallible, their knowledge is imperfect, but society is after all a human construct. 

P.S. Hats off and deep bow to the Chicago School of Economcs and Eugene Fama who developed the
Efficient-market hypothesis and the Columbia Business School which since Benjamin Graham has contended that markets can be predicted and abnormal profits can be extracted from financial markets. I have always dreamt of studying in such universities!

Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich

Are the Top IT Technology Stocks in a Bubble and When is it Going to Pop?

Dear Reader,

Many leading investors claim global leading technology stocks as Apple, Amazon, Google, Microsoft and Facebook are in a bubble. I concur with that hypothesis.

Why? Simply put, global leading technology stocks are overvalued. Some of the bubbles like Tencent and Facebook already popped partially. Others, smaller, like GoPro, Zynga, GroupOn popped years ago. Why are technology stocks overvalued? Because they trade at too high earnings, revenue and book value multiples. Amazon and Netflix, for example trade at Price-to-Earning values of above 100. The others like Facebook, Microsoft and Google trade at too high both Price/Sales and Price/Earnings multiples. The market seems to be pricing that the revenues of these technology giants are going to go on growing at above 20-30% a year, which is almost impossible? Why? Because they are just too big already. Apple, Microsoft, Google and Amazon have market capitalizations either exceeding or close to 1 000 000 000 000 (trillion) USD. Just because of size effect the revenues and sales of these companies can not go on growing exponentially(at above 20% a year). The only way that could happen is if they enter successfully other huge markets like trade, finance, energy, transportation or whatever.

Wall Street Investment Banks' analysts seem to imply in their research notes and forecasts that the IT technology party is going to go on forever. As the former Citibank CEO Charles Prince famously or reportedly said "As long as the music is playing, you have to get up and dance". The music, as far as I am concerned, is going to stop soon. I forecast a deep correction of the US and global stock markets in 2020 or 2021. Wall Street's analysts have an interest in pumping up the prices of the hot technology stocks. As long as the stocks' prices of the FANG and other technology stocks keep going up, hedge funds, high net worth individuals, mid-sized clients and other short-term investors keep trading and huge stock trading commissions flow to Wall Street banks.

Many would say that the formation of bubbles is irrational. Well, in my opinion, it is not! Some people keep making money while the market is going up and on the way down, no matter that the mass investor looses. Bubbles are NOT irrational. They will keep forming and popping until the end of time in one form or another. Why? Because of fear and greed. These are prehistoric emotions since the beginning of mankind, which ensured, ensure and will ensure mankind will survive and thrive.


Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed in the blogpost and posts on social networks(Twitter, LinkedIn etc.) are the author's and they in no way express the opinion or official position of the company where I am working currently!

Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!


Kind regards,
Petar Posledovich