Author: s4k

Snap Inc.

Snapchat lets users create pictures and send to friends. These pictures only last a limited time. I decided to take a look through their 145 page 10-K to see what is going on with this company.
At a share price of $17.26 it has a market cap of 20 billion dollars.
They have never posted a profit. Ever.

EBITDA:

FCF gets worse and worse.

Than we get to the interesting part.
From the 10-K:
“Research and development expenses for the year ended December 31, 2017 increased $1.4 billion compared to the same period in 2016. The increase was due to a $1.1 billion increase in stock-based compensation expense primarily due to the recognition of expense related to RSUs with a performance condition satisfied on the effectiveness of the registration statement for our IPO in March 2017. The increase was also driven by an increase in research and development headcount of approximately 84%. The investment in personnel supported our efforts to continue growing our user base and building and improving products for our
users and advertisers”
From the 10-K:
“General and administrative expenses for the year ended December 31, 2017 increased $1.4 billion compared to the same period in 2016. The increase was primarily due an increase in stock-based compensation expense of $1.2 billion, composed of an award granted to our CEO with an expense of $636.6 million and the remainder primarily related to the recognition of expense related to RSUs with a performance condition satisfied on the effectiveness of the registration statement for our IPO in March 2017. The increase for the year ended December 31, 2017 was also driven by increased personnel costs from an increase in general and administrative headcount of approximately 24%. Additionally, there was an increase in professional fees related to increased acquisition activity, legal, and general growth.”

Management at snapchat believe they have done such a fabulous job for their shareholders they decided to reward themselves.

The conclusion of this post is from the 10-K itself:
“We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.
We began commercial operations in 2011 and for all of our history we have experienced net losses and negative cash flows from operations. As of December 31, 2017, we had an accumulated deficit of $4.7 billion and for the year ended December 31, 2017, we experienced a net loss of $3.4 billion. We expect our operating expenses to increase in the future as we expand our operations. If our revenue does not grow at a greater rate than our expenses, we will not be able to achieve and maintain profitability. We may incur significant losses in the future for many reasons, including without limitation the other risks and uncertainties described in this report. Additionally, we may encounter unforeseen expenses, operating delays, or other unknown factors that may result in losses in future periods. If our expenses exceed our revenue, our business may be seriously harmed and we may never achieve or maintain profitability.”

Would you buy this company for 20 billion dollars?

School Shootings- A Trip Through Time

Below are the number of deaths due to school shootings since the 1800’s.

Number of school shooting incidents in the USA:

We see the amount of elementary and secondary school enrollment is about the same.

In other words, the added number of school shootings and deaths is not due to the increase in the amount of children.
It is interesting to see the jump in the 1990’s.
We live in a complex world. Trying to explain the increase is not going to be a simple answer. Culture definitely plays an important part in explaining it.
What I do know is this: A bunch of people in D.C. writing words on a piece of paper is not going to solve this issue or any other issue.
The public’s faith and belief in government legitimacy is astounding. If words on a piece of paper could make the world a better place we would all be living in a utopia right now.
Government’s are not going to protect your children. The public school system will not protect your children from school shootings to bullying. Parents still have full faith in the school system though. They send their children to the intellectual meat grinder to get an inferior education.

The 50 Cent Rally

Natural Gas Update.
I think we will get a 50 cent move up. That’s $5,000 profit per contract. Unpredictable weather will help.

The only issue is the cost to roll forward from month to month.


I own some April-18 and some April-19. For April-18, it needs to get to the price target in one month. The market already priced in warmer than usually weather for the rest of the winter. Any cold weather will cause the price to sky rocket.

The Bond Bubble

The 10 year yields for selected countries is depicted below.
The western world bond market is the biggest disaster waiting to happen. The debt structure of some of these countries is mind boggling. Some countries roll over almost half their debt each year. This is analogous to the adjustable mortgage rates that homeowners took out in the early 2000’s. When interest rates went up a few hundred basis points they could no longer afford their mortgage payments.
Far more dangerous is the OTC derivative market. Interest rate contracts have a notional value of 500 trillion dollars. To put this number in perspective, the world GDP is 80 trillion dollars. What will happen when interest rates begin to rise and governments default? How much money is put aside to cover these OTC derivatives? I suspect the answer is close to zero.
Micheal Lewis wrote a book called, “The Big Short: Inside the Doomsday Machine“. They made a movie from the book. Micheal Lewis is an excellent writer. He correctly details how the OTC derivative market played an important role in the 2008 meltdown.
Basically, banks hold an enormous amount of OTC derivatives. 99% of them are fraudulent. That is, if they were ever called upon to perform their duty the banks would go bust. For years, the lie was the following:
“Housing prices don’t go down.”
When housing prices did go down and homeowners defaulted, the OTC derivative imploded.
The new lie is this:
“Governments don’t default.”
They will default though, in one form or another. Average Joe still thinks US government bonds are the safest investment.
The probability of the OTC derivative being this large over the next 30 years is unlikely. How it ends is anyone guess. The range is from World War III to cascading defaults.

Steven Seagal Jumps into the Frenzy

Bitcoiin (B2G), the second generation, is going to launch in little over a month. None other than Steven Seagal is involved. The action star and Zen Master has dived into the cryptocurrency world. They actually have a ‘whitepaper’ on Bitcoiin, which is nothing more than a power point presentation that details almost nothing.
During the ICO, investors can purchase the new cryptocurrency for $5. Developers wrote in their whitepaper that they expect its value to reach $388 by December of this year. They provide no justification for this price target. They don’t need too. Amateur investors love being fed fantasies about getting rich quick. So far they raised almost 27 million dollars.
From their website we read the following:
“…Bitcoiin 2Gen is addressing issues with relation to speed of transactions, security, mining and costs of transactions.”
This was always a major problem with cryptocurrencies in my view. They do not solve any problem. I can transfer dollars around the world at the speed of light for next to nothing.

Haruhiko Kuroda Gets Another Term

Haruhiko Kuroda, the man determined to destroy the Japanese Yen, got appointed to a second term on Friday. Below are central bank balance sheets over the past few years.

The Federal Reserve has not expanded its balance sheet since late 2014. The BOJ is still very active with bond purchases across all durations. The 10 year Japanese bonds are yielding 6 basis points (Basically zero). The BOJ is also buying Japanese stocks. No other major central bank has done this in the post-crisis period. We are currently holding a long position in the Japanese yen, which looks set to rally over the coming weeks. We also have a long position in Japanese stocks, which looks set to fall over the coming weeks. After a few weeks I expect the downtrend in the Japanese yen to continue, which should be constructive for Japanese stocks.
To understand just how crazy the BOJ is watch the video below.

The video is four years old. Since than, things have only gotten crazier.

Yield Curve Reverting

The yield curve has been trending upward.

Long term interest rates are climbing a lot faster than the short term interest rates. This will make it more profitable for banks to lend money. Money supply growth has been downward slopping since the summer.
If these conditions continue, the money supply growth will begin to tick up again. This will further support stock prices. Investors should slowly accumulate stocks in the performance tab.

The Russians are Coming

Since the FBI dropped the ball on investigating a psycho who killed 17 people, one would think they would have delayed the release of the Russian collusion indictment. How much time and resources were wasted on this Russian case that could have been spent trying to prevent the high school shooting tragedy?
After reading the indictment I came to the following conclusion:
The crack pot team at the FBI spent over 5 million dollars investigating paid trolls.
From the indictment we read the following:
“…on or about May 29, 2016, Defendants and their co-conspirators, through an organization-controlled social media account, arranged for a real US. person to stand in front of the White House in the District of Columbia under false pretenses to hold a sign that read “Happy 55th Birthday Dear Boss.”
This is what the FBI gives you for a multi million dollar investigation.
Far more disturbing, is the idea that it is illegal to be a paid troll or a foreigner that organizes political movements. Where does this end? Should we arrest the dreamers? How many newspapers are owned by foreigners? What about foreigners who own stock in media outlets? Couldn’t these people be said to affecting elections by using information warfare?
You would be hard pressed to find a country existing now that wasn’t influenced by US government meddling.

Conclusion
The left thinks this proves they were correct all along. The right thinks this proves Trump is innocent. I think this proves we should abolish the FBI.