CASH 912796QR3
July 17, 2018 - 11:15pm EST by
bowd57
2018 2019
Price: 1.00 EPS 0 0
Shares Out. (in M): 1 P/E 50 0
Market Cap (in $M): 1 P/FCF 50 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0 0

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  • Not a value investment
  • Dont pretend to know me or my opps universe
  • Compounder
  • PFIC?
  • Discount to Liquidation Value
  • SHUT UP AND TAKE MY MONEY
  • It's Bowd Let It Slide
  • Sum Of The Parts (SOTP)
  • Why not just buy Xpel
  • Sanity Check
  • Not The Onion
  • HODL ON
  • perpetual value trap
  • cash rich
  • GTFO of VIC
  • GTFO with this garbage
  • If this isn't the top I dont know what is
  • Is that a real CUSIP?
  • High valuation short
  • Amazon of...
  • C.R.E.A.M.
  • Wu-Tang Financial
  • Cash Rulez Everything Around Me
  • Better than MDXG
  • Potential Acquisition Target
  • Complex Accounting
  • Underfollowed
  • Lack of Coverage
  • Asset Light Business Model
  • Short BTC essentially
  • 2 and 20
  • favorite poster
 

Description

 

 

Hi, guys --

 

This is easily the most liquid, highest quality and biggest idea I've ever submitted -- can't wait for the low ratings & mocking tags to start rolling in! As usual, though, this isn't suitable for all accounts; many of us can't hold significant amounts of cash/near-cash for psychological, institutional or compensational reasons. If you're in that position, well, sucks to be you and feel free to skip the rest of the write-up, which honestly isn't that interesting to begin with.

 

Note I'm not recommending that anyone go to cash, just that it's a great time to think about increasing your allocation if that's consistent with your mandate.

 

 

 

 

1: Cash As A Fixed Income Investment

 

I'm going to take a lot of short-cuts here because I'm writing this at home and the analytics are at work. I think cash/near-cash is far and away the best domestic fixed income investment out there and that the only reason to put money anywhere else is because you're forced to, have special insights into a particular issue, or have precise macro views.

 

Here's a recent yield curve from treasury.gov:

 

1 mo

3 mo

6 mo

1 yr

2 yr

3 yr

1.87

1.98

2.16

2.37

2.59

2.66

5 yr

7 yr

10 yr

20 yr

30 yr

 

2.73

2.8

2.83

2.87

2.94

 

 

 

 

Here are the durations, courtesy of the WSJ:

 

 

 

1 mo

3 mo

6 mo

1 yr

2 yr

3 yr

0.073

0.244

0.491

0.926

1.903

2.864

5 yr

7 yr

10 yr

30 yr

 

 

4.619

6.291

8.484

19.447

 

 

 

 

 

Duration means, if rates move up/down by 1%, bond prices will go down/up by X%. The curve is flat as a pancake; you're picking up only 60bps for extending from from 1yr to 30yrs. Because rates are so low, the duration curve is quite steep. And because rates are so low, the payoff function for duration is asymetrical; roughly speaking, looking at the 10yr, you lose 8.5% if rates trend toward long term averages, and make 8.5% if we return to the lows of absolute screaming chaos and madness. The only reason to extend beyond 2 yrs is because you have to (mandate, liability matching, spread business, whatever) or because you're really bearish and the only way to express that view is by going long duration.

 

I don't see taking on credit risk as being rewarding, either. High yield spreads have been lower during the run up to the financial crisis in the mid 2000s and the telecom boom of the late 90s. HYG, the benchmark ETF for high yield, has a 5.13% coupon. That's not great.

 

I'm going to elide discussion of investment grade credit, you can just interpolate between treasuries and high yield.

 

 

2: Cash As A Portfolio Allocation

 

I'll be extra brief here. What's great about cash from an MPT/efficient frontier point of view is that you get some return with zero volatility. You don't have to believe in that stuff, I don't much myself. But cash is an asset class. How much of it should you hold? The answer is unlikely to be zero. Maybe it's negative and you're margined. Maybe it's positive and you have to face the discipline drain of seeing 3% (or whatever %) of your AUM idle and begging to be put work. But it's probably not zero. In this environment, I think it's greater than zero.

 

Although not part of the theory, it's also nice to have a zero vol asset that you can rebalance out of.

 

 

3: Cash In Times Of Extreme Uncertainy

 

The continuation of the currently quite rosy macro backdrop is as uncertain as it's been in my experience, and I go back a ways. Just to establish some street cred as a soulless bankster sociopath, I regarded the market reaction to the airplane attacks in 2001 as a buying opportunity. The anthrax was worrying for a few days until it became clear that the biological warfare campaign wasn't being conducted on any great scale. This all about the (risk-adjusted) Benjamins, not ideology.

 

Donald Trump has been great for US stock prices but I don't see what he's going to do for an encore. Cutting corporate tax rates is just ... obviously good. The rest of the policy agenda, well, speaking as a soulless bankster sociopath, could we let that drop? Trade wars and ethnic nationalism might well be best for the nation in the long term, but I'm unclear as to how those policies increase earnings or multiples in the short term while being very worried about unintended consquences decreasing earnings and policy uncertainty decreasing multiples while we're waiting for the long term benefits.

 

There's going to be another Presidential election in two years. Absent, or even with, a convincing victory, the legitimacy of the outcome will be questioned.

 

I have no idea what's going to happen next; not to US stocks, rates, VIX, oil, EM stocks, Mongolian real estate, fracking sand, etc., so I'm going to raise cash until I can figure out what the hell is going on, while taking some degree of comfort from the high price of certainty being the lowest it's been for some time.

 

 

4: Implementation

 

The details really don't matter much. The guy who runs the cash desk at work is sourcing 3-10 day high grade commercial paper at 2%. I'd do that if I could. Given the current term structure, I wouldn't go out further than 1 year. The difference between that and shorter maturities depends on exactly how you think rates will evolve, which is beyond the scope of this note.

There are a variety of ETFs that invest in short term debt. I'm not going to recommend one, because everytime I look at them I fall in love with the one with the highest yield -- yow! 2.4%! -- which isn't the point.

 

Full disclosure wise, I'm 5.5% in cash. That's likely to go up as some winners qualify for long-term capital gains.

 

 

 

Yours,

 

Bowd

 

 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

None, but you might thank me for this some day.

    sort by    

    Description

     

     

    Hi, guys --

     

    This is easily the most liquid, highest quality and biggest idea I've ever submitted -- can't wait for the low ratings & mocking tags to start rolling in! As usual, though, this isn't suitable for all accounts; many of us can't hold significant amounts of cash/near-cash for psychological, institutional or compensational reasons. If you're in that position, well, sucks to be you and feel free to skip the rest of the write-up, which honestly isn't that interesting to begin with.

     

    Note I'm not recommending that anyone go to cash, just that it's a great time to think about increasing your allocation if that's consistent with your mandate.

     

     

     

     

    1: Cash As A Fixed Income Investment

     

    I'm going to take a lot of short-cuts here because I'm writing this at home and the analytics are at work. I think cash/near-cash is far and away the best domestic fixed income investment out there and that the only reason to put money anywhere else is because you're forced to, have special insights into a particular issue, or have precise macro views.

     

    Here's a recent yield curve from treasury.gov:

     

    1 mo

    3 mo

    6 mo

    1 yr

    2 yr

    3 yr

    1.87

    1.98

    2.16

    2.37

    2.59

    2.66

    5 yr

    7 yr

    10 yr

    20 yr

    30 yr

     

    2.73

    2.8

    2.83

    2.87

    2.94

     

     

     

     

    Here are the durations, courtesy of the WSJ:

     

     

     

    1 mo

    3 mo

    6 mo

    1 yr

    2 yr

    3 yr

    0.073

    0.244

    0.491

    0.926

    1.903

    2.864

    5 yr

    7 yr

    10 yr

    30 yr

     

     

    4.619

    6.291

    8.484

    19.447

     

     

     

     

     

    Duration means, if rates move up/down by 1%, bond prices will go down/up by X%. The curve is flat as a pancake; you're picking up only 60bps for extending from from 1yr to 30yrs. Because rates are so low, the duration curve is quite steep. And because rates are so low, the payoff function for duration is asymetrical; roughly speaking, looking at the 10yr, you lose 8.5% if rates trend toward long term averages, and make 8.5% if we return to the lows of absolute screaming chaos and madness. The only reason to extend beyond 2 yrs is because you have to (mandate, liability matching, spread business, whatever) or because you're really bearish and the only way to express that view is by going long duration.

     

    I don't see taking on credit risk as being rewarding, either. High yield spreads have been lower during the run up to the financial crisis in the mid 2000s and the telecom boom of the late 90s. HYG, the benchmark ETF for high yield, has a 5.13% coupon. That's not great.

     

    I'm going to elide discussion of investment grade credit, you can just interpolate between treasuries and high yield.

     

     

    2: Cash As A Portfolio Allocation

     

    I'll be extra brief here. What's great about cash from an MPT/efficient frontier point of view is that you get some return with zero volatility. You don't have to believe in that stuff, I don't much myself. But cash is an asset class. How much of it should you hold? The answer is unlikely to be zero. Maybe it's negative and you're margined. Maybe it's positive and you have to face the discipline drain of seeing 3% (or whatever %) of your AUM idle and begging to be put work. But it's probably not zero. In this environment, I think it's greater than zero.

     

    Although not part of the theory, it's also nice to have a zero vol asset that you can rebalance out of.

     

     

    3: Cash In Times Of Extreme Uncertainy

     

    The continuation of the currently quite rosy macro backdrop is as uncertain as it's been in my experience, and I go back a ways. Just to establish some street cred as a soulless bankster sociopath, I regarded the market reaction to the airplane attacks in 2001 as a buying opportunity. The anthrax was worrying for a few days until it became clear that the biological warfare campaign wasn't being conducted on any great scale. This all about the (risk-adjusted) Benjamins, not ideology.

     

    Donald Trump has been great for US stock prices but I don't see what he's going to do for an encore. Cutting corporate tax rates is just ... obviously good. The rest of the policy agenda, well, speaking as a soulless bankster sociopath, could we let that drop? Trade wars and ethnic nationalism might well be best for the nation in the long term, but I'm unclear as to how those policies increase earnings or multiples in the short term while being very worried about unintended consquences decreasing earnings and policy uncertainty decreasing multiples while we're waiting for the long term benefits.

     

    There's going to be another Presidential election in two years. Absent, or even with, a convincing victory, the legitimacy of the outcome will be questioned.

     

    I have no idea what's going to happen next; not to US stocks, rates, VIX, oil, EM stocks, Mongolian real estate, fracking sand, etc., so I'm going to raise cash until I can figure out what the hell is going on, while taking some degree of comfort from the high price of certainty being the lowest it's been for some time.

     

     

    4: Implementation

     

    The details really don't matter much. The guy who runs the cash desk at work is sourcing 3-10 day high grade commercial paper at 2%. I'd do that if I could. Given the current term structure, I wouldn't go out further than 1 year. The difference between that and shorter maturities depends on exactly how you think rates will evolve, which is beyond the scope of this note.

    There are a variety of ETFs that invest in short term debt. I'm not going to recommend one, because everytime I look at them I fall in love with the one with the highest yield -- yow! 2.4%! -- which isn't the point.

     

    Full disclosure wise, I'm 5.5% in cash. That's likely to go up as some winners qualify for long-term capital gains.

     

     

     

    Yours,

     

    Bowd

     

     

     

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    None, but you might thank me for this some day.

    Messages


    SubjectRe: Re: specific idea?
    Entry07/20/2018 10:51 AM
    MemberSpocksBrainX

    p.s.  alternatives for those of us who never forgot the Schwab YieldPlus fund...

    Schwab YieldPlus. The theory behind ultrashort bond funds is astonishingly simple: Given the short durations of their holdings—six months is the average maturity—the funds should not lose much value even in tough times. Schwab, however, managed to pull off the seemingly impossible when YieldPlus lost an astounding 35.4 percent in 2008. The average ultrashort fund, meanwhile, lost just 7.9 percent that year. Unlike many of its peers, YieldPlus had heavy exposure to risky mortgage-backed securities that imploded during the downturn. "Schwab YieldPlus is one of the all-time great fund debacles," says Kinnel. "It was an ultrashort bond fund that they were pushing as an alternative to a money market fund. ... People expected that if it was going to lose any money, it was going to lose half of 1 percent or something."

    https://money.usnews.com/money/blogs/fund-observer/2009/12/30/the-decades-10-worst-fund-disasters

    --

    so I'd be interested in what criteria you'd use to judge these things....thx 


    SubjectRe: Re: specific idea?
    Entry07/20/2018 11:02 AM
    Memberjcoviedo

    Why not just buy 2 year Treasuries. They are infinitely liquid, simple to buy with low commissions and no fees, have almost no duration and yield 2.6%. 


    Subjectibonds
    Entry07/20/2018 09:24 PM
    Membersurf1680

    Ibonds from U.S. Govt have some cash-like characteristics relevant to this thread - in fact you can initially think of them as a 1-year CD (or slightly less than 1 year). 

    Right now you can buy an ibond that will pay you ~2.6% (annual rate) for the next 6 months.  After 6 months you don't know what the rate will be but it will be ~ cpi + core fixed rate (.3%?).  If you cash it at end of year you give up the last 3 months interest (again, that rate is unknown at this time).   So, initially think of it as buying a 1 year tax deferred CD yielding at least 1%, probably closer to 2.3%.  If you buy it today, it starts the interest clock at the beginning of July so your return is actually a little better.  You get the added bonus of inflation protection (if you think CPI captures inflation, hah hah hah). 

    After 1 year, it's like holding cash.  You can cash them at any time (giving up prior 3 months interest).  You pay no taxes until you cash them.   You pay no state and local taxes.  They keep accruing interest so you get some compounding.  If you cash them for education you pay no taxes (move yourself into the correct tax bracket before you do this).

    There are some negatives:  $10k per person, per year limit.  The U.S. Gov't website (treasury direct) isn't particularly fun to navigate.

    Still, it pays to monitor this weird little gov't investment.  I bought some ibonds back at the turn of the century that are accruing interest tax free at 5.8%... at times they've gone above 8%!    

     

     

     

     

     

     

     

     


    SubjectRe: Re: interesting thoughts
    Entry07/21/2018 12:38 AM
    Memberpcm983

    Thanks for the reply. How you think about currency exposure? Does it make sense to be all usd or should you also be exposed to other fx. Also, if you have some time it would be very helpful to see a DCF valuation or a "cheap to comps" analysis, or if you're up to it maybe even an "it's cheap to consensus earnings estimates and MY numbers are well above street" analysis.


    SubjectTax free interest
    Entry07/21/2018 07:03 AM
    Memberpunchcardtrader

    For those residing in jurisdictions without capital gain tax, I'd recommend treasury futures (w embedded interest at sale + bonus in transaction tax jurisdictions : futures are not property by themselves & hence typically not FTT'd). Another bonus: great liquidity.


    SubjectRe: Re: Re: Re: specific idea?
    Entry08/29/2018 01:37 PM
    MemberSpocksBrainX

    not sure anybody cares (I do)....but the ETFs from these folks are often commission-free, so...

    https://www.barrons.com/articles/sponsored/our-highest-conviction-fixed-income-trade-over-the-next-2-years-1522855598?tesla=y

     

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