This commentary was recently published by money managers, research firms and market newsletter writers and has been edited by Barron’s.
THINK Economic and Financial Analysis
July 30: The economy of Taiwan relies on the production of semiconductor chips. Chip shortages mean cheaper electronics are selling out and factories in Taiwan are replenishing stocks with more expensive chips. And when it comes to chips, it’s all about the size of the wafer, which is essential in integrated circuit manufacturing.
Direct sales of 12-inch foundry wafers dominated all electronics [in the second quarter]. This is due to the shortage of eight-inch wafers. The larger the size of the wafer, the more expensive it is. And there have been almost no stocks of the eight-inch wafer. This has prompted users all over the world to advance their electronic products.
This has led to a higher export value of semiconductors and thus a better contribution to the GDP of Taiwan’s manufacturing sector, even though it suffered from difficulties from Covid, water shortages and power outages.
Opportunities in private credit
July 28: Taking illiquidity risks – being willing to hold income investments until maturity – remains one of the best ways to earn incremental returns in today’s market. Private credit includes direct loans to businesses and individuals through private transactions. Unlike publicly traded bonds, direct loans generally cannot be repaid before maturity, although the term is usually within five years. Direct loan programs are among the most common private credit strategies, although other credit strategies also include process financing, royalty financing, and life insurance plans. Like their high-yield counterparts, retail credit spreads have narrowed recently, although retail yield spreads remain attractive. The diverse nature of retail credit provides investors with returns from a variety of sources that do not ebb and flow with credit terms. For example, music royalties pay holders each time a song in the portfolio is played. While songs like white Christmas can be seasonal, it probably won’t be played less during a recession.
Insatiable demand for copper
In anticipation of the herd newsletter
Ahead of the herd
July 27: Oddly enough, copper is often overlooked when adding up the metals needed for clean energy transition and electrification. There is no shift from fossil fuels to copper-free green energy, which has no substitute for its use in electric vehicles, wind and solar power, and 5G.
Copper’s widespread use in building wiring and piping, and electrical transmission lines, makes it an important metal for civil infrastructure renewal.
The continued movement towards electric vehicles is a huge buyer driver. Copper is an important component in EVs, which is used in the electric motor, batteries, inverters and wiring, and in charging stations.
The latest use of copper is in renewable energy, particularly in photovoltaic cells used for solar power and wind turbines. The base metal is also an important part of the global 5G expansion. While 5G is wireless, its implementation involves much more fiber and copper cable to connect equipment.
The big question is: will there be enough copper for future electrification needs, globally? And remember, in addition to electrification, copper will still be needed for all standard applications, including copper wiring used in construction and telecommunications, copper plumbing, and copper needed for the core components of airplanes, trains, cars, trucks, and boats.
The short answer is no, not without a massive acceleration in copper production worldwide.
Yes, it’s a market bubble
Semi-annual letter for 2021
July 23: Despite the relative underperformance of growth year-to-date, growth stocks still rose in absolute terms, further stretching valuations, and signs of speculative mania only increased in the first half of 2021. Their foam over this period (
[ticker: TSLA] For example, the price peaked at more than $900 a share in early January and ended in June at about $680, a loss of a quarter of its value).
Still SPAC [special-purpose acquisition company] issuance is setting records, as is stock issuance in general, an indication that companies are seizing the opportunity to sell more of their shares at heart-pounding valuations to an overly enthusiastic audience. Single stock call options, referred to internally at GMO as lottery tickets, have the highest volumes in recorded history, with the only comparable period being the peak of the technology bubble of the late 1990s. The list of scary anecdotes is long and growing – Bitcoin, meme stocks, NFTs, art auction bidding wars over literally ‘nothing’ and so on.
In addition to these nervously laughable anecdotes, there is a litany of more traditional valuation metrics, all of which point to seriously overpriced markets, particularly in growth and the US combined, really expensive markets plus evidence of manic behavior are the ingredients of a bubble.
Underrated infrastructure game
The Lancz letter
July 22: Over the years, we discovered opportunities that had all the parts and just needed a catalyst for investors to realize the real potential in a company. This catalyst would be in the form of mergers and acquisitions (Alexion was recently acquired by)
[AZN]), change in management (core function Microsoft [MSFT] demonstrated this with Nadella replacing Ballmer), or generated internally with new governance or processes to protect shareholder capital to maximize both growth and profitability.
We don’t know the path that
(TPC) will find, but many of the roads lead to significant gains from current low valuations. TPC is trading at about 40% of book value and only 6.13 times last year’s earnings, so TPC has a lot of wiggle room. LanczGlobal seeks opportunities with three to four times more upside potential than downside risk, and the fundamentals qualify this stock with such a favorable risk return. The company has had issues with previous projects in terms of profitable completion and post-project claims. This will remain so for the next year or more, which should correspond to the initial activity for new infrastructure projects. The fact that TPC was founded in 1894 and is a leader in construction/engineering is an added plus. The short-term catalyst is the US infrastructure law. TPC does not need the potential revenue streams from legislation to recover. Investors should buy the recent weakness below $13 a share for a potential increase of 50% to 100% in the next 12 to 18 months. Our buy limit is $15 per share, with a target price range of $20 to $26.
A fun fact
The week in 60 seconds
July 30: According to Bloomberg data, SPACs accounted for 9% of equity issuance announcements (in dollars) in 2018, 6% in 2019, 41% in 2020 and 68% in 2021 YTD.
—Christopher P. Harvey and Team
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