For those Real Money readers who were unable to join, here is the call recap of my HOAX 1st Birthday call Friday morning. It was a robust and thought-provoking discussion and we covered many of the topics I feature in my columns.
I am making a portfolio manager's change after HOAX's 50% gain since inception 12/23/21 (vs. benchmark Ark Innovation Fund's (ARKK) 68% decline.)
Sell: Petrobras (PBR) . It crossed the $10.79 mark (our basis) this morning, and that was enough for me. I just returned from my usual trip to Brazil on Sunday, and I am worried about the macro there with the new Administration coming in January.
Buy: CorEnergy (CORR-A) . With HOAX's regular dividend flow - I reinvest the HOAX dividends bi-annually - and the proceeds from the sale of Petrobras, I bought CorEnergy Infrastructure Trust REIT's preferreds. CORR-A is trading at 42 cents on the dollar and yielding about 15%, and I don't think that valuation is warranted. I think CorEnergy will once again "earn" its dividend in 2023 after California regulatory issues are sorted. CORR's balance sheet is strong enough to withstand the profit erosion caused by the challenging 3Q22 results.
But the biggest issue, make no mistake, is that CORR's Crimson Oil Pipeline will never face new competition in California. That ship has sailed. The assets are more valuable than the value the market is awarding CorEnergy and its preferreds, to say the least.
So, HOAX has less equity exposure, and a going-forward yield of ~10% annually. Outside of PBR, I am not touching any of the stalwart HOAX names, I am riding Exxon (XOM) , Chevron (CVX) , Cheniere Energy (LNG) and the others until the supply/demand picture in hydrocarbons worsens. Don't hold your breath, thanks to ESG and Putin.
HOAX 2.0 Portfolio
Unlike its predecessor, HOAX 2.0 has not performed well on an absolute basis, with a 15% decline since inception on 4/5/22. But HOAX 2.0 has outperformed its benchmark, Nasdaq ETF (QQQ) , by more than 10 percentage points in that time period. This one needs some active management, and that's what I do.
Sell: Largo Resources (LGO) . The only HOAX 2.0 name that doesn't pay a dividend. Speculative names just don't work in this market, and Largo's Vanadium mine is located in Brazil, so also brings macro issues into play.
Buy: CORR-A. Hoax 2.0 becomes less equity exposed, but probably not any less risky. I will take resources over the Nasdaq casino, any day, including today.
This basket of 10 currently-floating-rate preferreds is yielding 8.74% today. Forget the longer-term bond markets, 3-month LIBOR (currently 4.72%) is not going anywhere but up, with the Fed scheduled to raise again at their next meeting in February. Ignore the short-term fluctuations and lead the WYLD life.
The Q&A, including a separate discussion I held on WhatsApp for those who were unable to access Google Meet.
My thoughts on LNG: LNG, the commodity, I think has an incredible supply-demand tailwind given the war in Ukraine. I am structurally long the commodity. The questioner was specifically asking about Cheniere and I amplified that I am not selling a share of LNG, which is a core HOAX component. Sometimes you have to ride your winners.
Tesla (TSLA) : Just avoid stocks in companies that produce high-priced consumer goods in this awful global economy. Until interest rates start coming down - not stop rising, but start falling - TSLA will be radioactive in my opinion. That's the fundamental truth I learned from my decade following autos on the sell-side. As far as all the noise - Elon, Twitter (TWTR) , etc. - some on the call had the feeling that Elon has become a net negative for TSLA valuation after so many years as a net, net, net positive. I couldn't agree more.
US Fed Funds terminal interest rate: CME FedWatch is showing that the market expects 50-75 basis points of additional Fed increases in the Fed Funds rate in 2023, with a peak "terminal" rate of about 4.75%-5.25% from the current level of 3.25%-4.50%. I am going to take the other side of that trade, a bit, and stand with my higher-for-longer stance on the Fed. I think inflation is not so easily slain. I would fade longer-duration assets like iShares 20+ Year Treasury Bond ETF (TLT) here (puts are available and liquidly traded) but the questioner was much more bullish on longer-duration assets. That's why we have markets. Healthy disagreements aid in price discovery, and I love the conversations.
So, it was a crazy morning, but HOAX has had a very sane year. With some minor tweaks, my clients and I hope to enjoy the same level of sanity in 2023.