A Look At 'Gloomy Goldman's' 20 'Safety' Stocks

A recent Marketwatch article, titled “Gloomy Goldman offers 20 ‘safety’ stocks with valuations below the previous 2 bear markets,” listed 20 “safety stocks” that Goldman Sachs (GS) chief U.S. equity strategist David Kostin proposed for a potential downturn. According to Kostin, the companies are not only large and have strong balance sheets, they are also cheap:

'…[their] price/earnings multiple after a 20% haircut to expected 2023 earnings is below the forward p/e at the bottom of either or both of the March 2009 and March 2020 bear markets.

“Importantly, given the different real interest rate environments, the highlighted stocks are more attractively valued today on a yield gap basis relative to the rest of the index than they were in either 2009 or 2020,” said Kostin and the team.'

A stock that is cheaper than in 2009 and/or 2020 does sound cheap! In that context, I looked at the list...(Read More)

2016 CLO Issuance Was Much Higher Than Expected

I recently read a May 2016 Wall Street Journal article about the recovery of CLO issuance after the early 2016 market decline.

CLOs, or collateralized loan obligations, are bundles of “loans from junk-rated companies” that are “[repackaged]…into securities that pay varying levels of interest based on which get paid off first if the underlying loans go bad.”

Because CLOs are a way to invest in financially stressed companies, their performance is highly dependent on the economy. When the economy is doing well, CLOs can offer high rates of return. When the economy does badly, the companies that take out the loans that go into CLOs are often the first to run into trouble, inflicting potentially high losses on CLO investors. Because of that, CLOs are popular when people think the economy is doing well and very unpopular when people think the economy is doing poorly.

A 2012 report from the National Association of Insurance Commissioners shows this. CLO issuance peaked before the Great Recession and almost disappeared during the Recession:

Source: U.S. Insurance Industry CDO/CLO Update

What intrigued me about the WSJ article was the prediction near its end:

Few analysts expect CLO issuance to reach much higher than $50 billion this year…

Whenever I read a prediction like this in a past news article, I wonder if it came true. Thus, I looked up the total CLO issuance in 2016.

As it turned out, it was $72.3 billion. This was, of course, much higher than the $50 billion number “[few] analysts [expected] CLO issuance to reach” in 2016 according to the WSJ article.

I think the fact this prediction didn’t come true illustrates a valuable point. Economic and financial predictions are often wrong. This is true even when the predictions are about something only 7 months away. This doesn’t mean such predictions should be totally ignored. However, it is something to keep in mind when making investing decisions.

As a postscript, the prediction in 2019 was for “US CLO issuance…to fall in 2020.”

Given the current economic situation caused by COVID-19, this prediction seems likely to come true, if for reasons no one expected back in November. That said, it will be interesting to see exactly how things turn out.

Disclaimer: The content here is not meant as investment advice. Do not rely on it in making an investment decision. Do your own research. The content here reflects only the author's opinions. Those opinions might be wrong. This content is meant solely for the entertainment of the reader and its author.

Whatever Happened to RecMed?

Back in May 2016, various news outlets ran stories about 14-year old entrepreneur Taylor Rosenthal. Rosenthal turned down a $30 million offer from “a major healthcare company” to buy his startup RecMed, a company that planned to make vending machines for first-aid equipment. Various news outlets, including CNBC, CNN Money, and Fox Business, wrote about this buyout offer and how Rosenthal also already had an order from Six Flags for 100 of the machines.

I ran into one of these articles earlier today, and I wondered how the story turned out. Googling “RecMed” provided surprisingly little information, including not even a company website. This made me suspect that things had not gone quite as expected.

As it turned out, Taylor Rosenthal was just one of many people to be taken in by Kyle Sandler, a scam artist who targeted Rosenthal’s hometown of Opelika, Alabama, a suburb of Auburn. According to an Associated Press investigation, Sandler started a business incubator called the Round House and encouraged various locals to invest, before spending much of the $1.9 million in investment funds on himself. It helped that while Sandler was in Opelika, he made friends with John McAfee, the founder of the namesake security firm, who had also moved to Opelika at the same time. This friendship made Sandler seem more credible. (If you’re wondering about the seemingly implausible coincidence of Sandler and McAfee just happening to run into each other in a small town in Alabama, apparently Opelika was Alabama’s “first ‘gig city’ with a high-speed fiber-optic network” and “provided an incentive of free internet service worth about $50,000.”)

In any case, Sandler convinced Taylor Rosenthal and Rosenthal’s family to let him be their advisor on the RecMed idea. He then invented the offer from Six Flags and created a fake letter from Johnson and Johnson with the supposed $30 million buyout. He sent out fake press releases with this information, which inspired those articles above.

I found this story interesting because it’s common for news outlets to run unusual stories to draw attention, and I’ve always wondered how those stories turn out. (I’m apparently not the only one, given that I recently ran into a Cracked article titled “5 Viral Stories That Had Insane Twists After We All Moved On.”) I think the story of Taylor Rosenthal and RecMed is a particularly dramatic example of how there’s often more to these stories than you get to see in the news, and thus your first impressions of them might not always be correct.

Bloomberg View Introduces RSS Feeds For Contributors

As you might already know, a few months ago, I created an RSS feed for Matt Levine, one of my favorite financial bloggers, since at the time Bloomberg View didn't offer RSS feeds for its bloggers.

Well, Bloomberg View has introduced a new site format for contributors, which includes an RSS feed that can be accessed via the RSS symbol next to the contributor's name. Unfortunately, their format change has also made their site incompatible with my custom feed. I could probably edit it so that it would still work with the changes, but there's no real reason for me to do so, since their feed works just as well as mine.

Thus, to access Matt's posts via an RSS reader, just use this feed:

http://www.bloombergview.com/rss/contributors/matt-levine.rss

RSS Feeds for Geoff Gannon and Matt Levine

Two of my favorite financial writers are Geoff Gannon and Matt Levine. I learned much of what I know about investing by reading Geoff's posts on Gurufocus, while Matt's posts on the financial world on Dealbreaker and Bloomberg View are always amusing and insightful.

The one problem with both of these writers is that there isn't an RSS feed available for much of their work. Though Geoff blogs extensively at Gannon and Hoang on Investing, his Gurufocus work isn't available there, and since it lacks an RSS feed, it can't be accessed by a blog reader like Feedly. Similarly, there are no RSS feeds available for Bloomberg View columnists.

Thus, I created my own feeds for both Geoff's posts on Gurufocus and Matt's on Bloomberg View.