Friday Haymaker
In The Ring - December 15th, 2023
Thanks for the feedback!
With the posting of our first “Chart Book” Haymaker on Monday, we asked for feedback about the new content format and for your thoughts on the value we try to deliver every week. What we received in return were well-considered, detailed, and even enthusiastic responses from many of you (much appreciated, by the way).
What we also received was confirmation that the chart book format is one we should and will definitely use for our Monday content moving forward. What we’ll likely do is provide two to three charts/content for all subscribers and reserve the next seven to eight for those on one of our two payment tiers. At least one of those in the paid section will include “Trading Alert” information to help guide our do-it-yourself investor-readers.
One thing we absolutely value as content creators is the feedback you, our subscribers, share in response to our work. Knowing that we’ll have 10 chart slots to fill every week from now on, let us know in the comments section from time to time if there are any sectors, asset classes, or particular stocks for which you’d like us to publish a chart and pertinent commentary. The Haymaker community is all the stronger with greater dialogue.
Today’s piece is a Friday Haymaker, which means the Champions, Contenders, and DFTC lists take center stage (and we’ve got some good stuff for you this week). Be on the lookout for the post which will take the form of our first official Haymaker: Chart Book Edition!
Thanks again, have a great weekend, and be sure to share this piece with any finance-minded friends and colleagues.
David “The Haymaker” Hay
Getting Physical
“(On) only 5 occasions (over the) past 90 years (has the) Fed cut rates when core CPI (now 4.0%) higher than (the) unemployment rate (3.7%).” -BofA’s Michael Hartnett
“‘It may still be a bit naive and premature to believe that […] we get through this rate cycle without any major accidents from someone other than us (in this case, Goldman Sachs’ stalwart Peter Oppenheimer).” -David Rosenberg
Thanks to my great friend Grant Williams, I’ve gotten to know one of America’s most successful money managers. Several years ago, this individual gave me an outstanding stock idea, one I purchased in my personal long/short portfolio. The company in question was Puerto Rico-based Banco Popular (BPOP). Less than two years after he outlined the bull case for BPOP it had nearly tripled.
Unfortunately, because it was headquartered in Puerto Rico, I felt it was too risky for client portfolios. Obviously, that was a mistake. In fact, he correctly believed that its PR location was actually a positive due to increasing U.S. government assistance, an influx of wealthy mainlanders seeking favorable tax treatment, and the emasculation of most of BPOP’s competition. He was spot-on with those points, as well.
After listening to a recent podcast Grant did with this individual (who has asked to me to leave his name out of this Haymaker) I emailed him asking for more information on the bullish ideas he shared during that chat. Being the gentleman he is, he readily agreed and we had an hour-long call on Monday reviewing those investment opportunities. It was a fire hose of great information and data, with me frantically typing away to memorialize his thoughts. As I was doing so, it dawned on me that many of you would like to read some of what he had to say.
The first area we discussed was auto insurance. He believes companies like Allstate are in a long-term recovery cycle after a severe profits plunge. The industry-wide problems occurred after the initial windfall the sector enjoyed during Covid. That was when accident rates fell at an unprecedented clip due to the lockdowns. This caused them to cut premiums. However, once normal driving levels resumed, accident incidents soared. Making matters worse, the cost of replacement vehicles went ballistic. It was a nasty double-whammy but, as we’ve all experienced, auto insurance premiums have exploded. In some cases, they are exceeding the monthly cost of car loans.
Catastrophe losses also were high post-Covid due to a greater frequency of natural disasters, but this hurricane season was unusually benign. With losses falling off and premiums much higher, there does appear to be a new earnings up-cycle underway for the property/casualty underwriters. As recently as September, Allstate was bouncing around near $100. Since then, it’s up about 40%. Accordingly, while the bull case is strong it also looks to be well-recognized, as he admitted. Should there be a meaningful correction, this might be a place to commit some capital for those who like this story.
On a current action basis, he is a fan of two related companies. One is A-Mark Precious Metals, a gold minter (note the “t”, i.e., it’s not a miner!), broker, and retailer. They own JM Bullion, apparently America’s largest bullion broker. Previously, A-Mark had only been a wholesaler, selling gold to retail outlets. But now it has a significant direct-to-consumer business and has moved a considerable amount of its transactions online.