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THINK economic and financial analysis
30th July: Taiwan's economy depends on the production of semiconductor chips. Chip shortages mean that cheaper electronics are sold out and Taiwanese factories have replenished their inventories with more expensive chips. And when it comes to chips, what matters is the size of the wafer, which is essential in the manufacture of integrated circuits.
Direct sales of 12-inch foundry wafers dominated all electronics [in the second quarter]. This is due to the lack of 8-inch wafers. The bigger the wafer, the more expensive it is. And the 8-inch wafer is almost out of stock. This has led users all over the world to keep developing their electronic products.
This has resulted in a higher export value of semiconductors and, therefore, a better GDP contribution from the Taiwanese manufacturing sector, despite having faced difficulties from Covid, water scarcity and power outages.
Opportunities in personal credit
July 28th: Taking illiquidity risk – the willingness to hold income investments to maturity – remains one of the best ways to achieve incremental returns in the market today. Private loans include direct loans to businesses and individuals as part of private transactions. In contrast to publicly traded bonds, direct loans cannot usually be repaid early, although the terms are usually within five years. Direct loan programs are among the most common personal loan strategies, although other loan strategies include litigation funding, license financing, and life insurance settlements. As with their high-yield counterparts, personal credit spreads have narrowed recently, although private return spreads remain compelling. The diversity of personal loans offers investors returns from a variety of sources that do not flow with loan terms. For example, owners pay music licenses every time a song in the portfolio is played. While songs like White Christmas are seasonal, they are unlikely to be played any less in a recession.
Insatiable demand for copper
Before the herd newsletter
Ahead of the herd
July 27th: Oddly enough, copper is often overlooked when it comes to the metals required in the transition to clean energy and electrification. There is no switch from fossil fuels to green energy without copper, which is no substitute for its use in electric vehicles, wind and solar energy, and 5G.
The widespread use of copper in construction lines and pipes, as well as in electrical transmission lines, makes it a key metal for the renewal of civil infrastructure.
The ongoing trend towards electric vehicles is a huge driver of copper. In electric vehicles, copper is an important component that is used in electric motors, batteries, inverters and wiring, as well as in charging stations.
The latest use of copper is in renewable energy, especially in photovoltaic cells used for solar power and wind turbines. The base metal is also an important part of the global 5G roll-out. Although 5G is wireless, deploying it requires a lot more fiber and copper cables to connect devices.
The big question is, will there be enough copper worldwide for future electrification needs? And remember, in addition to electrification, copper is still needed for all standard applications, including copper cables in construction and telecommunications, copper tubing and copper, which is used in the core components of planes, trains, cars, trucks and boats.
The short answer is no, not without a massive acceleration in copper production worldwide.
Yes it is a market bubble
Half year letter for 2021
July 23: Despite the relative underperformance of growth over the year to date, growth stocks were still up in absolute terms, stretching valuations further, and signs of speculative mania only increased over the course of the first half of 2021. It's true that some of the foamy names have lost some of their froth over this period (
[ticker: TSLA] for example, the price peaked at over $ 900 per share in early January and ended at around $ 680 in June, a loss of a quarter of its value).
Still SPAC [special-purpose acquisition company] The issue is breaking records, as is the equity issue in general, an indication that companies are seizing the opportunity to sell more of their stocks at nosebleed ratings to an over-eager audience. Single-stock call options, known internally at GMO as lottery tickets, have the highest volumes in history, with the only comparable period being at the height of the tech bubble in the late 1990s. The list of scary anecdotes is long and growing – bitcoin, meme stocks, NFTs, bidding wars in art auction houses for literal “nothing” and so on.
Beyond those nervous laughing anecdotes, there is a litany of more traditional valuation metrics, all of which indicate grossly overpriced markets, especially in the emerging markets and the US. Taken together, really expensive markets and evidence of manic behavior make a bubble.
Underrated infrastructure game
The Lancz letter
22nd of July: Over the years we have discovered opportunities that were all cut in and just needed a catalyst for investors to realize the true potential of a company. That catalyst would come in the form of mergers and acquisitions (Alexion was recently promoted by
[AZN]), Leadership change (core position Microsoft [MSFT] demonstrated this by replacing Ballmer) or generated internally through new governance or processes to protect shareholder capital to maximize both growth and profitability.
We don't know the way
(TPC), but many of the paths lead to significant price gains compared to the currently depressed valuations. TPC is trading at around 40% of book value and only has 6.13 times last year’s profit. TPC has a lot of leeway. LanczGlobal looks for opportunities with upside potential three to four times greater than downside, and the fundamentals qualify this stock with such a favorable risk / reward ratio. The company has had problems with the profitable completion and demands of the project on previous projects. This will continue for the next year or more, which should correspond to the first activities on 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 the legislation to recover. Investors should invest in the recent weakness below $ 13 per share for a potential 50-100% gain over the next 12 to 18 months. Our buy limit is $ 15 per share, with a target price range of $ 20-26.
– Alan Lancz
The week in 60 seconds
30th July: According to Bloomberg data, SPACs accounted for 9% of share issue announcements (in dollars) in 2018, 6% in 2019, 41% in 2020 and 68% in 2021 YTD.
—Christoph P. Harvey and team
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