Day: April 7, 2020

Vol. 6 No. 3 I’ll have a Corona; hold the virus!

Readers note: this combines both my former market blog and resurrects my wine blog. The opinions expressed are my own and disregard any you don’t agree with. Thank you for reading!

TB

I’ll have a Corona…hold the virus!

Another day, another boring press conference. Don’t know what happened to Trump in the last 24 hours but his press conference was awful. He stumbled through his notes, blamed the WHO for the failure to warn us (?), and then threatened to withdraw our support. All this while spouting disinformation on the number of tests completed. The station I was listening to (CBS) cut out to there scheduled programming before it was even over…a relief for TB who was starting to feel like HE had the virus! Too harsh? TB doesn’t think so! This the same day that his “Acting” Secretary of the Navy, Modly, who TB discussed in yesterday’s column, resigned rather than be fired, making him the second Secretary of the Navy to do so, the other following Trump’s tantrum about the Navy SEAL who was convicted, and then overturned by the Dumpster…oops, Trumpster.

So how did the markets fare? Uh, not well even with a continuation of the VIX decline, albeit modest. They started out strong, following a rally in the overnight markets that was fading, reversed the slippage and then made a U-shaped top, sliding into the close. Oops!

Which stocks did the worst? How about any stock that has been in favor but still lacks positive earnings? This was especially true in internet stocks like information technology. Negative earnings, even with positive growth combined with high or infinite multiples were losers along with real estate and lodging stocks, which like their companion REITS opened up, then caved all the way into the close, ending with modest gains but still within inches of their 52 week lows. Anyone hear a fat lady singing? Not TB!

Early on we heard that AirBnB had secured $1 billion in funding…later we learned that they had to pay 10%+ for it! Ouch! Can’t blame the VC’s though as they have been handed their lunch by the market. No way TB would consider staying in one even after the virus has passed not knowing how much cleaning was done. Only a gambler would touch the travel and leisure industry here.

How about Warren?…Buffett that is? The Oracle of Omaha is going to have problems, yet everyone keeps turning to him for advice. I’ll give him integrity based on my prior experience. When TB left his old firm to start his own RIA business he decided to reallocate his 401(k). Never having the timing right, he had never owned Berkshire Hathaway so it was one of the first stocks he bought…seemed safe enough. The year was 2004 and unbeknownst to TB Warren decide to place a $1 billion bet against the dollar! When this was announced, after the stock had tumbled, TB decided the Oracle’s run had ended like so many other ‘gurus’ in TB’s 45 year career. To his credit, in his yearend letter, Buffett praised every one of his managers for hitting their marks but that it was his bet that cost them money. Wasn’t it Warren who said, “if you can’t explain to me in five minutes why I should buy a stock, I won’t”? Guess he didn’t try to explain his reasons for making a $1 billion bet against the dollar. Since then however the stock has performed well but anything could have since March 2009, right? Till recently that is! TB bought it in March at $63 and sold out in November at $56 and remember that BRK doesn’t pay dividends

Just last week it was announced that he was pumping money into Occidental Petroleum whose stock has imploded since the Russians slashed the price of oil. Good money after bad? Time will tell.

Okay, here’s your choice: AirBnB or OXY…choose carefully and wisely…TB? He’ll just avoid both!

Wine

Size isn’t Everything

Who knows who the top two wine companies in the world are? Hint; the first is private, the other is publicly held and both are in California!

Gallo is the largest wine company in the world and still family owned. Their premium brand, named Gallo because that was the only way Gina Gallo’s dad would fund it, has proven to be a success. They are far and away the biggest wine producer in the world and provided quality in whichever price range their wines were in. TB used to say, “dollar for dollar Gallo is the best wine in the world.” You may not like it but in each category they appeal to their market.

Number two is Constellation Brands which appeared on the scene in 2004 when it bought out Robert Mondavi winery! The question was who were they? Nobody knew of them but their one and only ‘brand’ at that time was My Wild Irish Rose, a hit with the skid row denizens. To their credit it has been a success story although it has peaked. But here’s the thing: they have been selling off many of their brands and guess who is the big buyer? GALLO!!!

Recently, TB learned that Constellation (STZ not STD) is in talks to purchase Gallo! Now think about that for a minute: they sold many of their brands to the Gallo’s and now are buying them back. Smart?

Despite the success of STZ stock, in 2017 they made an investment in Canopy, a Canadian cannabis company, and the largest in the sector. Subsequently, all the hype turned into a huge glut of marijuana in the market and STZ had invested $190 million in the company for a 9.9% stake! Then they added an additional $4 billion a year ago. They are now trying to buy Canopy outright and produce cannibus infused drinks and now are considering medical marijuana…er cannabis! You see, even though marijuana is legal in most states in the U.S. it is not legal at the federal level. The exception would be medical cannibus.

Will buying Gallo be a success or a loser? Will buying Canopy be just a way to cover their mistake in investing in the company in the first place? Time will tell…always does!

Here are a few of the wines TB has been sampling while being a shut-in”

Epicuro 2015 Nero d’Avola available exclusively at Trader Joe’s for the princely price of $4.99 and to TB the best value under $10 and it doesn’t taste like it is in that price range.

San Felice, Chianti Classico, 2016, one of TB’s favorite small towns in Tuscany and a beautiful one to the southeast of Sienna.

Domaine Romy, Veilles Vignes, Les Pierres Dorëess 2017, fine single-vineyard Gamay from sourhtern Burgundy.

Turch Syrah, 2006! From Santa Barbara County.Passo Robles. I forgot about this wine and opened it thinking it was way over the hill…it was still fantastic! Can’t find the winery anymore, just Torch?

(c)traderbillonwine.com

Vol. 6 No. 2 The Morning after the Night Before

Market Update (wine follows)

TB hopes that this will not become like so many New Years resolutions and fade after a week or so as it is a good exercise for him and hope you find it useful too. As promised, today will combine economy/market news with wine industry news and thoughts of the author. Here goes:

Yesterday, the markets had a strong rally, up about 6%, and based on the overnight markets which are up 2% now, but down from 4%+ earlier, we should have a continuation today. But what is of utmost importance/concern is that it closes up again today. Why? Because Monday’s strength only took us back to a week ago, before last Tuesday’s (3/31) gap down and collapse.

Since the selloff began, the VIX (options volatility index) surged from the low to mid-20’s (to simplify meaning 4:1 calls than puts) to the mid 80’s – a total reversal! Last Friday was options expiration and a triple witching (stock market index futures, stock market index options, and stock options), thus producing enormous volatility. Overall, the market did quite well  in the first test of an expiry at end of a quarter! Note that the 31st was last Tuesday and a bad day for stocks but better than it could have been.

Sri Kumar, of his eponymous global strategies group, in Santa Monica, CA. was on Bloomberg this morning and I always listen to him. He does not see the rally as sustainable, and the risk is now that people believe a bottom is in, which Kumar feels is too early. Contrast this to the great financial crisis of 2008-09, when the market bottomed on implementation of the bailouts that were only accomplished under the Obama Administration, whereas under Bush 43, who wasn’t proactive enough to push a GOP Congress to act. Thus beginning on March 9, 2009 a rally ensued, continued relentlessly until February 2, 2020! Heed! (note: in case you think TB is a guru, he missed most of the rally and went to mostly cash when Trump was elected. Note on the night of the election the overseas markets tanked along with U.S. futures but after selling off early in Wednesday’s session, resumed the rally…ugh!

Bush 43 also left running the government to the Cheney/Rumsfeld duo that Bush 41 loathed and tried to warn his son about to no avail. The duo convinced Congress into invading Iraq in what was supposed to be an ‘in and out’ operation and that convinced the Democrats who had voted against (and were proven wrong), to vote for it…to his credit Bernie nixed it. The result was the destruction of the first balanced budget in over a decade under Clinton (like him or not), and the beginning of the monstrous deficits we are running today…along with THREE tax cuts that gave most of the benefit to the wealthiest Americans thus widening the wealth gap. Note too, that we were promised they would only go into Afghanistan to get Bin Laden. These lies along with the one Colin Powell was forced to give to the UN that Iraq had weapons of mass destruction (WMD), have put us in the longest and most costly wars in our nations history. Think what that could have done for the economy, especially with the infrastructure spending that economists were calling for, and no, Trump’s ‘Wall” does not constitute infrastructure spending!

But I digress…TB is a fiscal conservative, former Republican but can’t call himself a Democrat however that is how he will vote unless and until both parties come to their senses…along with 70% of American voters who are split evenly and both sides are wrong (IMHO). Extremism is not sexy…or useful. On a personal note, we are in the process of selling our beautiful  condo home of nine years on Lake Minnetonka. We listed it just before the crisis and rather than be under the stress of living there with prospective buyers coming on short notice, moved to a beautiful luxury apartment in nearby Edina, MN. This puts us closer to our kids and grandkids! Would have been nice if we had decided on this earlier, but ya never know, do you?

Wine

As promised yesterday, TB’s thoughts on the state of the wine industry which was already having issues prior to the virus, and is having mixed impacts since. Here goes:

  • First, the tariffs imposed on Euro countries who make parts for the Airbus (go figure on the relationship to wine), have impacts that are muted so far but have far-reaching implications:
    • the tariffs imposed were on all wines from some countries but limited from others such as Italy where only red wine with alcohol above 14.5% are subject…huh? Meanwhile, all French wines are with the U.S. being the top importer along with China,
    • one might think this would be a boon to U.S. winemakers, and you would be wrong. First, we are working off supplies of affected wines, and importers are reducing their markup on imports to offset the impact of the tariffs, thus no benefit to American producers…at least so far,
    • any benefit to luxury American winemakers is muted as demand hasn’t shifted (at least not yet), and worse, the Trump tariffs on China have increased the ones by the Chinese, thus drastically reducing the demand from China and TB is now being told that this has shifted foreign sales to South Korea which is not as strong a market, however.
  • Please note that tariffs are never a good idea: first, it isn’t the producer who pays it (except eventually in demand), but the CONSUMER..i.e. Americans! It causes enormous dislocations and now that we have the virus, shipping is being curtailed as dock space is limited and finding healthy crews is an increasing problem. No good will come from this.
    • speaking of crews, the actions of the Acting Secretary of the Navy, Thomas Modly, are inexcusable! First, he is a graduate of both Georgetown University (bet the Jesuits aren’t proud), second he is a former naval officer (helicopter pilot), and while criticizing Captain Brett Crozier, not just publicly but before the crew that respected him for his going out on a limb for them and the safety of the ship. Modly should be FIRED, just like his predecessor , who was fired for his handling of the Navy SEAL courts martial, and more importantly going against Trump, so Modly acted preemptively…and STUPIDLY. This from TB, a former Navy man.
  • There has been a ‘run’ on wine and hard liquor at stores due to fears of quarantine. This means that at least for one go round, retailers will have to restock. On a recent Sunday morning, a local wine shop TB buys from opened up and the first sale was $900 worth of assorted wines. The good news here is being offset by the slack in buying wine from restaurants who need to move that inventory due to the high carrying costs (note that they pay more than a retailer for wine)
    • some have asked states to allow them to sell cocktails and wine in bottles, but not hard liquor, to go. One innovative method is to take advantage of the law which allows purchased bottle leftovers to be taken home – perhaps take a little out of the bottle and recork it to go on demand? Hmmm. TB likes that idea and it should be allowed for the duration of the epidemic,
    • meanwhile wineries are concentrating on improving cashflow and reducing inventory in anticipation of the bottling and release of the new vintage by reducing price, offering free or $1 shipping, and even selling library wines, and donating all or part of the profit to efforts to eradicate the virus…very commendable…and wise!
  • TB is not sure where the big liquior retailers led by Total Wines & More, end up out of this. Both wineries and retailers are experimenting with virtual wine tastings…huh? How can you do this virtually There are two methods:
    • first, a somm or wine rep, or a wine lover can announce a virtual tasting where she describes the wines to be tasted, discusses them, and then goes through a tasting of them either blind or not. TB thinks there is little interest in this,
    • one idea that is gaining traction is to create a list of wines to be tasted virtually, either by a winery (their label) or a retailer who prepares a list of the wines to be tasted and allows time for those interested to pick up the wines and participate. One problem: let’s say there are six wines: what do you do with the leftovers?
      • you can drink all six bottles over the next couple of days ,or
      • you can drink them all and awake with an enormous hangover, or
      • pour them down the drain, especially if you don’t like them (not for TB!)

You decide, in the end YOU are the only one that matters, as always!

Best to all of you, and thanks for reading…if you are still with me.

TB

©traderbillonwine.com, 2020