☕ Club Cafe

My interview with Kyle Bass on the Chinese tech companies and their aggressive accounting has now been published on YouTube. Kyle Bass is well known for having a negative stance on China and the tech stocks are no exception, but it's worth watching.





The Money Maze podcast is relatively new and Will Campion, a former colleague is one of the co-founders. They have had an excellent roster of guests, in spite of their novelty. I enjoyed this episode with Peter Harrison, CEO of Schroders. Full disclosure: Peter is an old friend and former client and Schroders continue to be one of my clients in my institutional business.

The reason to listen to this podcast is that Peter gives his views on the future of fund management and if you are going to invest in equities, you need to understand the disposition of one of the largest market constituents. Passive vs active is obviously the key debate here, but Harrison made this astonishing prediction:

He continued that ESG will cease to exist as it will be a given for every fund manager and will simply be a part of the process. I agree with the direction but his timescale is shorter than I expect.

This was new to me and an astonishing statistic - I think I read that Schroders now owns a controlling stake in Nutmeg, a modern fund manager targeted at the Millennial generation with passive investing based on your computerised preferences. Harrison foresees a future in which you dial in your UN 19 goals preference and the system allocates your assets to a very different mix. Clearly, 60:40 is a thing of the past but he envisages investment in real assets, with blockchain employed and a division of private equity vehicles for the private investor.

A short and enjoyable podcast.

To get my book off to a good start, the Kindle will be just 1.99 for one day on November 24. Please make a note in the diary to buy the book at this daft value investor price and please leave me a review. I am super excited about it as you can see from this video where I open the box with my author copies.  Thanks!

In November, 2020, we published a blog about the performance of President Trump’s two Scottish golf resorts. The companies had been consistently unprofitable and we showed that they were underperforming peers on most financial parameters. Companies House extended filing deadlines for UK corporates because of Covid, but Trump’s Scottish companies have now filed their 2019 performance – it shows little change.

The Aberdeenshire resort showed a creditable 18% increase in revenues, but gross margins fell and pretax profits actually declined, in spite of lower depreciation and a fall in interest paid to Trump – his debt due rose, again.

At Turnberry, there was a smaller, 6% increase in revenue, and gross margins were stable (+0.1%) , while losses at the underlying EBIT and at the pretax level were reduced, the main contributor being a lower depreciation charge – this looks odd, as the company has continued to invest and assets have increased. Assets at cost have increased from £81.8m to £84.5m, yet the depreciation charge has fallen from £4.4m to 3.8m. The explanation is either more fully depreciated assets (although average asset age is quite young) or that the depreciation charge has been tweaked with a change in life assumption on some assets.

Debt owed to Trump increased by over £1m at Aberdeenshire, but oddly at Turnberry, the debt was lower at this year-end in spite of the £2.3m loss and ongoing investments. It’s not clear how this has arisen from the accounts, the logical explanation being some write off but the company takes advantage of an exemption which allows it not to disclose transactions with wholly owned companies in the group.

                                  2018       2019       % Chg
Sales                                      
Aberdeen               2.8          3.3          18%
Turnberry            18.5        19.7        6%
                                21.3        22.9        8%

Gross Margins                                  
Aberdeen               7.8%      6.8%      -1.0%
Turnberry            37.6%    37.7%    0.1%

Tangible Assets                                 
Aberdeen             31.9        32.1        0.2
Turnberry            64.2        63.1        -1.1
                                96.1        95.2        -0.9

The impact of Covid is mentioned in the directors’ reports of both companies – The resort in Aberdeen was noted to have closed for 16 weeks from March to July while Turnberry was also closed for 3 weeks in November and December. The directors note that the impact of Covid-19 on the results is highly uncertain – presumably, they are concerned about 2021 as the accounts were both signed off on 21 December 2020, so the results for last year would surely have been known.

Publication of the 2020 results will likely be delayed by Covid and companies will again be allowed some latitude in reporting deadlines, but they will not make for pleasant reading. Now that Trump is scheduled to leave office, interest will again focus more on his business interests, and it’s highly likely that we shall hear more of the problems encountered in the Scottish operations. I the performance here is mirrored elsewhere in his enterprises’ operations, this is likely to be an ongoing story. 

There is nothing here that alters the story we previously published – the losses continue and they will have increased sharply in 2020. If Trump can continue to finance these businesses, they can continue to lose money indefinitely, but we shall likely learn more about the true state of Trump’s finances in the coming months. 

Came across this list of potential shorts (apparently from JPM) randomly on social media. I have not studied it, but am going to take a look. Obviously the Zooms and Pelotons will be in there but there are others like Logitech, peripheral manufacturer (including popular webcam) where it looks to be more of a valuation concern. Worth a look.

My friend Steen Jakobsen, Saxo Bank strategist, rather than forecasting the S&P at end of the following year, instead publishes his outrageous predictions for the coming year. Much more interesting and usually quite amusing. I have no idea what his accuracy rate is, but like Byron Wien, this is an exercise in thought provocation more than prediction, and hence is probably a lot more valuable.

This year he talks about China's new digital currency, silver's day in the sun, and the impact of universal basic income. This is holiday reading for me, but if you cannot wait, it's in the library under Markets and Outlook/2021 outlook, or attached here.



Steen's Mad Predictions for 2021.pdf 18.7 MB