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Bonhoeffer Fund 3Q20 Commentary – Case Study: MMA Capital (MMAC)

Bonhoeffer Fund 3Q20 Commentary – Case Study: MMA Capital (MMAC)

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MMA Capital

Bonhoeffer Fund commentary for the third quarter ended October 30, 2020, providing a case study on MMA Capital Holdings Inc (NASDAQ:MMAC).

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Q3 2020 hedge fund letters, conferences and more

Dear Partner,

The Bonhoeffer Fund returned 5.1% net of fees in the third quarter of 2020 compared to up 5.0% for the MSCI World ex-US, a broad-based index. Our year-to-date performance is down 15.2% net of fees, compared to the DFA International Small Cap Value Fund, which is down 15.9%. (As described in our last letter, the DFA International Small Cap Value Fund is a fund with the closest representative comparison to Bonhoeffer). As of September 30, 2020, our securities have an average earnings/free cash flow yield of 20.7% and an average EV/EBITDA of 4.0. The DFA International Small Cap Value Fund has an average earnings yield of 8.4%. The difference between the portfolio’s market valuation and my estimate of intrinsic value is still large (greater than 100%). I remain confident that the gap will close over time and continue to monitor each holding accordingly.

The US election has been a roller coaster over the past few months. Historically, for the most part, the party in charge has made changes at the edge of policy due to divided government. This looks like it is going to continue with the 2020 election result. It looks like Donald Trump has lost to Joe Biden, but his coattails were pretty short. The Republicans look to gain between seven to thirteen House seats, along with retaining the control of the Senate. The overall result, in my opinion, is better than one-party control and will result in either limited executive actions or compromise legislation and gradual versus quick change.

Bonhoeffer Fund Portfolio Overview

Bonhoeffer’s investments have not changed significantly in the last quarter. Our largest country exposures include: South Korea, Italy, South Africa, Hong Kong, United Kingdom, and Philippines. The largest industry exposures include: distribution, consumer products, telecom, and transaction processing.

Year-to-date successes have been in Korean special situations, and challenges have been in Hong Kong and South African securities. A key to the challenges has been sum-of-the-parts (SOTP) theses that have not approached fair value to date. SOTP theses are dependent upon growth and better governance to reduce the discount.

The growth in South Africa has been a challenge for our South African holdings due to the effects of COVID on the South African economy. Given the success of the COVID vaccines trials, I am optimistic about recovery in South Africa in 2021. This is an example of geographic arbitrage, described in the section below. Governance is improving in our South African holdings and, in my opinion, the current pricing more than reflects the governance situation in Hong Kong.

Since my last letter, we have added a position in an alternative asset management fund. This area is one of current interest due to low interest rates and the growth from alternative energy infrastructure build-outs around the country which will provide a nice tailwind. See the case study for details.

As discussed in the last letter, we will be reporting on holdings by special situation type (i.e., compound mispricings and public LBOs) and theme.

Compound Mispricings (61% of Portfolio; Quarterly Average Performance +18%)

These securities include the Korean preferred stocks, the nonvoting share of Buzzi, Telecom Italia, and Wilh. Wilhelmsen and some holding companies (HoldCos). The thesis for the closing of the voting, nonvoting, and holding company gap is better governance and liquidity, and corporate actions like spin-offs, sales, or holding company transactions and overall growth. Telecom Italia’s discount (in Italy) has disappeared over our holding period, but further unlocking of value is happening with a combination of its Italian telecom networks with Enel and the consolidation of the Brazilian telecom market the Telecom participates in via TIM.

Buzzi has a savings shares/ordinary share swap offer (33% discount) which is underwhelming. Unfortunately, the company can compel savings shareholders to accept this offer or a lower value based upon book value despite previous savings/ordinary offers from other Italian firms (like Exor) closer to a 5% to 10% discount. However, the long-term outlook for Buzzi is good and should be a beneficiary of any US infrastructure programs; thus continuing to hold this quality infrastructure firm makes sense. Buzzi’s management is focused on creating shareholder value in its primary markets (US/Mexico and Europe) with expanded investments in Brazil and should do well with increased infrastructure spending in the US.

The Korean preferred discounts in our portfolio are still large (20% to 37%). The trends of better governance and liquidity have reduced the discount in names like Samsung Electronics, and more preferred names trade at a premium to common shares. We sold out of a Korean HoldCo transaction in Taeyoung Engineering & Construction which provided a nice upside over the past three months.

Public LBOs (26% of Portfolio; Quarterly Average Performance -9%)

This includes our broadcast TV franchises, leasing and roll-on/roll-off (RORO) shipping, and our natural gas pipeline firms. One trend in these levered firms is the increasing spread between bond yields and the firms’ free cash flow yield. An example is Gray Television, whose FCF yield is 32% at September 30, 2020, from 19% at year-end, while its debt yield has increased to 4.5% from 3% with the bond/equity FCF spread increasing from 16% to 28%. What is unusual today is that the bond yields have returned to 4.5%, but the free cash flow yield has remained unchanged. Gray has taken advantage of this mispricing by buying back almost 5% of its shares during the first nine months of the year. Management has done the same, buying a large amount of stock in the low $20s.

Today there is a changing media landscape including an ocean of content looking for viewers. Gray provides a curated mix of local news and weather, as well as content over various over-the-air and cable channels. The number of channels will increase with the introduction of ATSC 3.0 which provides broadcast-quality television directly to mobile phones and devices. ATSC 3.0 channels will be provided to each local broadcast television license holder such as Gray.

Gray Television has been the beneficiary of the current election showdown in the Senate. Georgia is going to be a key state in this showdown and Gray is dominant in five of Georgia’s seven largest markets which should add a boost to Q4 earnings as election advertising has high incremental profit margins.

Our natural gas pipelines continue to have large debt/DCF yields. Growth prospects are good with natural gas prices rising (supporting producer profitability), the US and the world demand increasing with economies coming out of the COVID shut-downs, and the continued low oil prices reducing the drilling demand for oil, much of which has large amounts of almost-free associated natural gas.

Distribution Theme (33% of Portfolio; Quarterly Performance -2%)

This includes our holdings of car and branded capital equipment dealerships, online shopping, and capital equipment leasing firms. One of the main kay performance indicators (KPIs) for dealerships and shopping is velocity, as described below. We own some of the highest velocity dealerships in markets around the world. There have been challenges in some markets hit by COVID, like South Africa, however, there should be recovery once a vaccine is approved and distributed.

Telecom/Transaction Processing Theme (30% of Portfolio; Quarterly Performance +3%)

This includes our transaction processing and telecom firms. Despite continued expected performance, these firms have lagged in the rebound. The increasing use of transaction processing in our firms’ markets and the roll-out of 5G will provide growth opportunities. Given that most of these firms are holding companies and have multiple components of value (including real estate), the timeline for realization may be longer than for other firms.

Consumer Product Theme (18% of Portfolio; Quarterly Performance +8%)

This includes our holdings of food, consumer product, tire, and beverage firms. The defensive nature of these firms has led to better-than-average performance. We are in the process of accepting a take-out offer for a beverage firm we own that is being bought by another beverage firm we own.

Real Estate/Construction Theme (26% of Portfolio; Quarterly Performance +18%)

This includes our holdings of real estate, residential construction, and cement firms. One holding area is Hong Kong/China real estate which has been rocked by both the coronavirus and the actions of the Chinese Communist Party in Hong Kong. In my opinion, the pricing of our real estate holdings includes both a recession in Hong Kong and a communist takeover of Hong Kong. The current cement and construction holdings should do well as the world recovers from COVID shutdowns and governments start infrastructure programs.

Velocity

One important feature of firm cash flow growth is velocity. Velocity is how fast a firm is generating revenue from customers or a group of customers. Velocity can be measured by specific working capital item such as inventory turns for a retailer or distributor, a recurring revenue rate for a software or service provider, or increasing transactions for a marketplace or transaction processor. Velocity is a key driver of return on assets, as velocity times profit margin equals return on assets. Velocity is multiplicative to margins in creating return on equity versus linear changes associated with higher margins and leverage.

An illustration of velocity can be seen in auto dealerships. If a dealer can sell more automobiles (i.e., turn the inventory) faster than competitors in a market, then they can either offer lower prices resulting in even more unit sales or have the same sale price with higher units sold per year. The result, either way, is higher return on assets. Velocity also becomes a key metric in measuring how fast cars can be matched to customers resulting in a transaction. Stepping back from the transaction itself, metrics like net promoter score (NPS) can be used to measure intentions, but ultimately the close rate of intentions to transaction is the relevant key performance indicator. Inventory turns combine both intentions and actions into one KPI. The inventory turn rate is related to customer happiness, as happiness can provide evidence of the ultimate network effect amongst customers. Velocity can also be a measure of customer happiness. Increasing velocity, acceleration (increasing inventory turns, recurring revenue rates, or transaction velocity) can be a measure of increasing happiness and a signal of a network effect amongst customers. Sarah Tavel has a nice set of articles on Medium that describe happiness in marketplaces and how to measure and enhance it for both buyers and sellers in marketplaces.1 She mentions NPS as another metric used to gauge customer happiness, but its focus is intention, not actions. Actions, she posits, are measured by recurring revenues from existing customers. In the case of retailers/distributors, this translates into inventory turns.

Relative velocity to peers can be used to measure the moat or relative customer satisfaction on a consistent measurement basis. If we look at Cambria Automotive in the UK car dealer market, for example, its inventory turns were 5.8x in 2019, versus 6.0x in 2016. Cambria comps Vertu Motors and Lookers had turns of 4.3x to 4.8x over the 2016 to 2019 period. Cambria has a 1.1 to 1.5x inventory turn advantage over its comps. In addition, Cambria has margin advantage of 50 to 60 bps in margins over Vertu and Lookers. Cambia’s market position advantage is reflected in relative margins and inventory turns. This advantage provides Cambria with a moated advantage over Vertu and Lookers. One automobile dealer whose focus is on inventory turns as a KPI is China MeiDong (20x turns). This firm has one of the highest returns on equity (mid-20s to mid-30s) of car dealerships worldwide. If we look at our South African dealership, Combined Motor Holdings, it has about a 5x turn advantage over Motus and about an 80-bps-lower margin which creates a 6% to 10% advantage in return on equity.

We use velocity and long-term changes in velocity to assess the growth potential for our portfolio holdings. As an example, in our case study, MMAC reports the loan customer retention rate of 81% and a seven-month average remaining term. So, over a year, new loans are originated 1.4 times. The ability to generate new loans from existing customers reduces customer acquisition costs and increases the lifetime value of a customer. In the niche that MMAC occupies, the size of the market reduces the competition. MMAC’s competition is primarily small banks which, in most cases, have higher efficiency ratios and funds which have lower efficiency ratios but limited access to underwriting expertise.

Velocity also has scale advantages, as the amount of fixed operating costs (sales and marketing, facilities, and customer support) can be spread across more sales per year. This is similar to local economies of scale advantages that local distributors have. Higher velocity combined with fixed costs creates velocity-based economies of scale.

Geographic Arbitrage

Another tool that can be used in international portfolios is geographic arbitrage. This is a situation where an event and subsequent actions (like the COVID-19 epidemic and the associated lockdowns) begin in one geography and then spread around the world. COVID-19 struck China first, then spread to Europe, then to the US and to the emerging markets. We can look at automobile dealers to see how a COVID recovery may play out in Europe and emerging markets by taking a look at China and the US.

The high-inventory-turn firm China MeiDong (described above), located in mainland China, is an example of a firm that was directly affected by the COVID shutdowns in late 2019 and 2020 in China and the subsequent re-openings. Since the decline in the spring, China MeiDong’s share price has increased 140% above the pre-COVID levels. The high-inventory-turn auto retailers in the US are at pre-COVID levels, while the high-inventory-turn UK dealers are down by about 30%, down 35% in South Africa, and down 45% in Greece. If the recovery seen in China and the US spreads to the rest of the world, then we should see recovery in the lagging European and emerging markets firms’ stock prices.

Efficiency in Financial Services

As velocity is a measure of efficiency in distribution, costs measured by the efficiency ratio is a measure of efficiency for financial services companies. The efficiency ratio—noninterest expense divided by net interest income plus fees—measures the expenses investors pay to have access to an interest-generating asset. If the asset is levered, then the net interest margin (NIM)—asset return plus fee income less the borrowing cost—represents the return to the investor before costs. Good underwriting provides large net interest margin, as the asset returns are asset yields less expected losses.

MMAC’s solar loans have above-average NIMs and better-than-average underwriting, with no losses since 2015. MMAC’s relatively high efficiency ratio reduces the returns of these above-average NIMs. However, the net return to shareholders returns are better than most other spread-based businesses like banks and other BDCs and can further increase as the efficiency ratio is driven down.

Conclusion

As always, if you would like to discuss any of the philosophies or investments in deeper detail, then please do not hesitate to reach out. Until next quarter, thank you for your confidence in our work and have a safe and restful remainder of the fall and a blessed 2020 holiday season.

Warm Regards,

Keith D. Smith, CFA

CASE STUDY: MMA Capital (MMAC)

MMA Capital (MMAC) is an alternative asset fund. Historically, MMAC was an asset manager so the transition to an alternative asset fund has created an interesting investment opportunity. MMA Capital is managed by Hunt Investment Management, LLC (HIM), an experienced originator and asset manager in the renewable energy lending sector. Since 2015, HIM has originated over 190 loans for 760 renewable projects in 24 US states and territories. MMAC has investments in renewable energy (primarily solar projects) bridge financing and legacy investments in affordable housing debt and real estate debt and equity. MMA Capital is selling the legacy portfolio investments to fund new renewable energy bridge financing investments. The renewable energy bridge financing is provided to renewable power developers between the pre-construction and operations phases of renewable power projects. About 67% of the portfolio is for construction financing while 33% is for pre-construction financing for design and land purchases. In the operations phase of a renewable power project, lower long-term financing can be obtained due to the long-term power purchase agreements with creditworthy electric utilities. These loans facilitate the current disruption taking place in the energy generation business with solar displacing coal for power generation.

Currently 78% of the portfolio is in solar ventures while 22% is legacy (affordable housing debt and real estate debt and equity). The solar investments are via joint ventures with Fundamental Investors (an investment fund). MMA Capital has an approximately 50% interest in the renewable power loan pools. The solar loans have principal balances of $5 to $20 million, have coupon rates of 7% to 14%, and an average remaining maturity of seven months. The current portfolio has 60 loans with an average loan to value of 50%, an average interest rate of 9.5%, and the fund generates 1% to 3% origination fees. The loans are primarily first-lien loans on the projects. As of June 30, 2020, the funded balance is $758.8 million ($364.4 million MMAC share) with an unfunded balance of $427.5 million ($214.9 million MMAC share). The solar investments have $110 million of debt at the MMAC level and $364 million of equity. MMA Capital has an 81% recurring revenue rate from existing customers. The current pipeline is about $800 million out of $2 billion opportunities reviewed annually. Historically, solar ventures have originated $540 million of loans over the past year and $2.8 billion since inception. MMA Capital directly sources loans with no reliance on brokers. Loans have been underwritten to 10% to 15% annual returns. Actual returns have been 16.7% for all loans originated to date. The current trailing 12-month returns on the portfolio have been 11.8%. The current net interest margin in the solar portfolio is 4.9% (6.9% if fully invested in solar ventures) with an average financing rate for MMA Capital of 3.9%. This margin combination with an efficiency ratio of 41.6% results in a return on equity of 8.3% (11.1% if fully invested in solar ventures).

The solar asset management firm (formerly owned by MMAC) was sold to Hunt in 2018 for $57 million. Hunt had a $365 million asset value in 2018, so the price paid was 15.7% of assets under management (AUM). The proceeds were used by MMA Capital to invest in more solar loans. Hunt is paid a management fee (2.0% of equity and 20% above 7% increase in equity book value) and reimbursements of about 3.5% of equity or 1.9% of assets as of Q2 2020. Current operating expenses as a percentage of net interest income (efficiency ratio) is about 41.6%. If you include the pro-rata operating expenses of solar ventures of $2.4 million per year, then the adjusted efficiency ratio is 45.7%. The efficiency ratio will decline as the portfolio grows and the fixed non-management fee operating expenses stay constant. As a result of the asset management sale, some investors sold MMAC, as they wanted to invest in an asset management firm, not an alternative asset fund.

MMA Capital is the largest competitor in the market of banks and specialty finance funds. Many solar lenders will not provide lending before commercial operations, so MMAC is one of the few financing sources pre-operations. The market growth is based upon the increased amount of installed solar capacity over time. According to the Solar Energy Industries Association (SEIA) and Wood Mackenzie, over the next five years, the amount of installed solar capacity is expected to double (15% annual growth) which will create many more lending opportunities for MMA Capital as the solar energy infrastructure is built out across the US.

Since solar loans represent 78% of total assets and are the future of the business today, the history of the solar loans is shown below:

MMA Capital

Historically, MMA Capital has not had enough capital to meet the 50% loan share agreement it has with Fundamental Investors.

The legacy assets include: debt and equity in a mixed-use town center development in Spanish Fort, Alabama; a land development project in Winchester, Virginia; a tax-exempt affordable housing bond for a property in Atlanta, Georgia; and interests in South African housing (a REIT and a housing fund).

Renewable Lending Business

The renewable lending business competitors include financers of solar projects from development to operations. MMA Capital focuses on the pre-construction and construction phases of solar projects. The competitors include large banks and bonds for operational solar projects, and smaller banks and funds for development and construction loans.

Other comparable firms include private debt providers (BDCs) and real estate loan providers (construction bridge loans). See Appendix A.

Downside Protection

The downside protection is the asset value of MMA Capital. The value of MMAC is driven by the cash flow of MMAC’s assets (solar ventures and legacy assets) less interest payments for its debt. MMA Capital has debt of $245 million or 51% of equity book value. None of the 132 solar loans that have been repaid since inception (2015) have incurred a principal loss.

Financial leverage can be measured by the debt/enterprise ratio. MMA Capital debt/enterprise ratio is higher than the low cost comparable firms (see Appendix A), but MMA Capital’s portfolio has better credit metrics than the low cost comparable firms (see Benchmarking in Appendix A) and the stock, in my opinion, is undervalued.

COVID has been a test of the resilience of MMA Capital. The impact thus far has been (1) an impairment on the Spanish Fort, Alabama development, (2) no incremental losses in the solar loan portfolio, (3) the origination levels for the solar loan portfolio have been flat year-on-year, and (4) lower interest rates have increased the fair value of the solar portfolio.

Management and Incentives

MMA Capital is managed by HIM. The asset management agreement pays HIM 2% of equity per year (1.5% on assets) and an incentive fee of 20% above a 7% increase in book value per year. The current efficiency ratio is 41% of net interest income, typical for an alternative asset management fund. Once MMA Capital is fully invested in solar loans, the efficiency ratio will decline to 39.2%. HIM and MMAC management hold about 15% of MMAC’s equity.

Valuation

MMA Capital

MMA Capital is valued based upon the income its assets can generate capitalized by a normalized capitalization rate. MMA Capital is comprised of solar assets that are currently generating 10.8% and legacy assets that are generating a 2% return. The cost of the debt has to be subtracted from the income generated by the assets resulting in net interest income. Finally, the operating costs of management fees, salaries, and professional fees are subtracted from net interest income resulting in net investment income (NII). The efficiency ratio is 41.6% which is at the high end of the low-cost alternative asset funds. The current return on equity is 8.3%. One way to value MMA Capital is to estimate a normalized return on equity from comparable funds (see Appendix A). Given MMAC’s low loss ratio, the normalized return on equity should be on the low end of the comparable firm range of 6.8% to 11.9%. The resulting normalized return on equity is 8.0%. Therefore, using the normalized return on equity results in a price-to-book value of 1.03 (8.3%/8.0%). Applying this to MMA Capital’s equity of $224 million results in a low-end value of $231.8 million or $39.89 per share. If you add the deferred tax assets associated with the net operating loss carryforward of $57 million, then the resulting high-end value is $288.8 million or $49.70 per share.

Currently, MMA Capital’s plan is to further replace legacy assets with more solar loans. If the remaining legacy assets are replaced by solar loans, then the income from investments will increase from $41.4 million currently to $50.7 million (see table below).

MMA Capital

The cost of the debt has to be subtracted from the income generated by the assets resulting in net interest income of $41.0 million. Finally, the operating costs of management fees, salaries, and professional fees are subtracted from net interest income resulting in NII of $24.9 million. The efficiency ratio is 39.2% (assuming no salary savings) which is on the high end of the range compared to other alternative asset funds at the high end of the low-cost alternative asset funds. The expected return on equity is 11.1%.

Using the normalized return on equity of 8% (derived above) results in a price-to-book value of 1.39 (11.1%/8.0%). Applying this to MMA Capital’s equity of $224 million results in a low-end value of $311.62 million or $53.63 per share. If you add the deferred tax assets associated with the net operating loss carryforward of $57 million. then the resulting high-end value is $368.62 million or $63.45 per share.

Comparables/Benchmarking

In the table in Appendix A are the low-cost BDC and real estate loan funds firms engaged in the asset-backed lending. MMA Capital has a lower NII multiple of 5.9 (w full solar investment) than the comparables’ range of 8.4 to 15.1x and average of 10.7x.

MMA Capital has one of the lowest total loss/year ratios versus the comparables and 100% of the loans are first lien secured loans. While the expense ratio of 41.6%/39.2% is above average for the low-cost comparable firms, it has some downside as overhead is reduced.

Risks

The primary risks are:

  • lower than expected return on solar investments;
  • a dependence on functional renewable energy financing market; and
  • a lack of new investment opportunities (including solar if subsidies are reduced).

Potential Upside/Catalyst

The primary potential catalysts are:

  • higher return on solar investments as lending standards reduce competition; and
  • other high-return renewable investment opportunities.

Timeline/Investment Horizon

The short-term target is $45.00 per share, which is almost 80% above today’s stock price. If the replacement of legacy assets with solar assets thesis plays out over the next five years, then a value of $58.00 could be realized. This is an 18% IRR over the next five years.

The post Bonhoeffer Fund 3Q20 Commentary – Case Study: MMA Capital (MMAC) appeared first on ValueWalk.

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Net Zero, The Digital Panopticon, & The Future Of Food

Net Zero, The Digital Panopticon, & The Future Of Food

Authored by Colin Todhunter via Off-Guardian.org,

The food transition, the energy…

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Net Zero, The Digital Panopticon, & The Future Of Food

Authored by Colin Todhunter via Off-Guardian.org,

The food transition, the energy transition, net-zero ideology, programmable central bank digital currencies, the censorship of free speech and clampdowns on protest. What’s it all about? To understand these processes, we need to first locate what is essentially a social and economic reset within the context of a collapsing financial system.

Writer Ted Reece notes that the general rate of profit has trended downwards from an estimated 43% in the 1870s to 17% in the 2000s. By late 2019, many companies could not generate enough profit. Falling turnover, squeezed margins, limited cashflows and highly leveraged balance sheets were prevalent.

Professor Fabio Vighi of Cardiff University has described how closing down the global economy in early 2020 under the guise of fighting a supposedly new and novel pathogen allowed the US Federal Reserve to flood collapsing financial markets (COVID relief) with freshly printed money without causing hyperinflation. Lockdowns curtailed economic activity, thereby removing demand for the newly printed money (credit) in the physical economy and preventing ‘contagion’.

According to investigative journalist Michael Byrant, €1.5 trillion was needed to deal with the crisis in Europe alone. The financial collapse staring European central bankers in the face came to a head in 2019. The appearance of a ‘novel virus’ provided a convenient cover story.

The European Central Bank agreed to a €1.31 trillion bailout of banks followed by the EU agreeing to a €750 billion recovery fund for European states and corporations. This package of long-term, ultra-cheap credit to hundreds of banks was sold to the public as a necessary programme to cushion the impact of the pandemic on businesses and workers.

In response to a collapsing neoliberalism, we are now seeing the rollout of an authoritarian great reset — an agenda that intends to reshape the economy and change how we live.

SHIFT TO AUTHORITARIANISM

The new economy is to be dominated by a handful of tech giants, global conglomerates and e-commerce platforms, and new markets will also be created through the financialisation of nature, which is to be colonised, commodified and traded under the notion of protecting the environment.

In recent years, we have witnessed an overaccumulation of capital, and the creation of such markets will provide fresh investment opportunities (including dodgy carbon offsetting Ponzi schemes)  for the super-rich to park their wealth and prosper.

This great reset envisages a transformation of Western societies, resulting in permanent restrictions on fundamental liberties and mass surveillance. Being rolled out under the benign term of a ‘Fourth Industrial Revolution’, the World Economic Forum (WEF) says the public will eventually ‘rent’ everything they require (remember the WEF video ‘you will own nothing and be happy’?): stripping the right of ownership under the guise of a ‘green economy’ and underpinned by the rhetoric of ‘sustainable consumption’ and ‘climate emergency’.

Climate alarmism and the mantra of sustainability are about promoting money-making schemes. But they also serve another purpose: social control.

Neoliberalism has run its course, resulting in the impoverishment of large sections of the population. But to dampen dissent and lower expectations, the levels of personal freedom we have been used to will not be tolerated. This means that the wider population will be subjected to the discipline of an emerging surveillance state.

To push back against any dissent, ordinary people are being told that they must sacrifice personal liberty in order to protect public health, societal security (those terrible Russians, Islamic extremists or that Sunak-designated bogeyman George Galloway) or the climate. Unlike in the old normal of neoliberalism, an ideological shift is occurring whereby personal freedoms are increasingly depicted as being dangerous because they run counter to the collective good.

The real reason for this ideological shift is to ensure that the masses get used to lower living standards and accept them. Consider, for instance, the Bank of England’s chief economist Huw Pill saying that people should ‘accept’ being poorer. And then there is Rob Kapito of the world’s biggest asset management firm BlackRock, who says that a “very entitled” generation must deal with scarcity for the first time in their lives.

At the same time, to muddy the waters, the message is that lower living standards are the result of the conflict in Ukraine and supply shocks that both the war and ‘the virus’ have caused.

The net-zero carbon emissions agenda will help legitimise lower living standards (reducing your carbon footprint) while reinforcing the notion that our rights must be sacrificed for the greater good. You will own nothing, not because the rich and their neoliberal agenda made you poor but because you will be instructed to stop being irresponsible and must act to protect the planet.

NET-ZERO AGENDA

But what of this shift towards net-zero greenhouse gas emissions and the plan to slash our carbon footprints? Is it even feasible or necessary?

Gordon Hughes, a former World Bank economist and current professor of economics at the University of Edinburgh, says in a new report that current UK and European net-zero policies will likely lead to further economic ruin.

Apparently, the only viable way to raise the cash for sufficient new capital expenditure (on wind and solar infrastructure) would be a two decades-long reduction in private consumption of up to 10 per cent. Such a shock has never occurred in the last century outside war; even then, never for more than a decade.

But this agenda will also cause serious environmental degradation. So says Andrew Nikiforuk in the article The Rising Chorus of Renewable Energy Skeptics, which outlines how the green techno-dream is vastly destructive.

He lists the devastating environmental impacts of an even more mineral-intensive system based on renewables and warns:

“The whole process of replacing a declining system with a more complex mining-based enterprise is now supposed to take place with a fragile banking system, dysfunctional democracies, broken supply chains, critical mineral shortages and hostile geopolitics.”

All of this assumes that global warming is real and anthropogenic. Not everyone agrees. In the article Global warming and the confrontation between the West and the rest of the world, journalist Thierry Meyssan argues that net zero is based on political ideology rather than science. But to state such things has become heresy in the Western countries and shouted down with accusations of ‘climate science denial’.

Regardless of such concerns, the march towards net zero continues, and key to this is the United Nations Agenda 2030 for Sustainable Development Goals.

Today, almost every business or corporate report, website or brochure includes a multitude of references to ‘carbon footprints’, ‘sustainability’, ‘net zero’ or ‘climate neutrality’ and how a company or organisation intends to achieve its sustainability targets. Green profiling, green bonds and green investments go hand in hand with displaying ‘green’ credentials and ambitions wherever and whenever possible.

It seems anyone and everyone in business is planting their corporate flag on the summit of sustainability. Take Sainsbury’s, for instance. It is one of the ‘big six’ food retail supermarkets in the UK and has a vision for the future of food that it published in 2019.

Here’s a quote from it:

“Personalised Optimisation is a trend that could see people chipped and connected like never before. A significant step on from wearable tech used today, the advent of personal microchips and neural laces has the potential to see all of our genetic, health and situational data recorded, stored and analysed by algorithms which could work out exactly what we need to support us at a particular time in our life. Retailers, such as Sainsbury’s could play a critical role to support this, arranging delivery of the needed food within thirty minutes — perhaps by drone.”

Tracked, traced and chipped — for your own benefit. Corporations accessing all of our personal data, right down to our DNA. The report is littered with references to sustainability and the climate or environment, and it is difficult not to get the impression that it is written so as to leave the reader awestruck by the technological possibilities.

However, the promotion of a brave new world of technological innovation that has nothing to say about power — who determines policies that have led to massive inequalities, poverty, malnutrition, food insecurity and hunger and who is responsible for the degradation of the environment in the first place — is nothing new.

The essence of power is conveniently glossed over, not least because those behind the prevailing food regime are also shaping the techno-utopian fairytale where everyone lives happily ever after eating bugs and synthetic food while living in a digital panopticon.

FAKE GREEN

The type of ‘green’ agenda being pushed is a multi-trillion market opportunity for lining the pockets of rich investors and subsidy-sucking green infrastructure firms and also part of a strategy required to secure compliance required for the ‘new normal’.

It is, furthermore, a type of green that plans to cover much of the countryside with wind farms and solar panels with most farmers no longer farming. A recipe for food insecurity.

Those investing in the ‘green’ agenda care first and foremost about profit. The supremely influential BlackRock invests in the current food system that is responsible for polluted waterways, degraded soils, the displacement of smallholder farmers, a spiralling public health crisis, malnutrition and much more.

It also invests in healthcare — an industry that thrives on the illnesses and conditions created by eating the substandard food that the current system produces. Did Larry Fink, the top man at BlackRock, suddenly develop a conscience and become an environmentalist who cares about the planet and ordinary people? Of course not.

Any serious deliberations on the future of food would surely consider issues like food sovereignty, the role of agroecology and the strengthening of family farms — the backbone of current global food production.

The aforementioned article by Andrew Nikiforuk concludes that, if we are really serious about our impacts on the environment, we must scale back our needs and simplify society.

In terms of food, the solution rests on a low-input approach that strengthens rural communities and local markets and prioritises smallholder farms and small independent enterprises and retailers, localised democratic food systems and a concept of food sovereignty based on self-sufficiency, agroecological principles and regenerative agriculture.

It would involve facilitating the right to culturally appropriate food that is nutritionally dense due to diverse cropping patterns and free from toxic chemicals while ensuring local ownership and stewardship of common resources like land, water, soil and seeds.

That’s where genuine environmentalism and the future of food begins.

Tyler Durden Thu, 03/14/2024 - 02:00

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Government

Five Aerospace Investments to Buy as Wars Worsen Copy

Five aerospace investments to buy as wars worsen give investors a chance to acquire shares of companies focused on fortifying national defense. The five…

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Five aerospace investments to buy as wars worsen give investors a chance to acquire shares of companies focused on fortifying national defense.

The five aerospace investments to buy provide military products to help protect freedom amid Russia’s ongoing onslaught against Ukraine that began in February 2022, as well as supply arms in the Middle East used after Hamas militants attacked and murdered civilians in Israel on Oct. 7. Even though the S&P 500 recently reached all-time highs, these five aerospace investments have remained reasonably priced and rated as recommendations by seasoned analysts and a pension fund chairman.

State television broadcasts in Russia show the country’s soldiers advancing further into Ukrainian territory, but protests have occurred involving family members of those serving in perilous conditions in the invasion of their neighboring nation to be brought home. Even though hundreds of thousands of Russians also have fled to other countries to avoid compulsory military service, the aggressor’s President Vladimir Putin has vowed to continue to send additional soldiers into the fierce fighting.

While Russia’s land-grab of Crimea and other parts of Ukraine show no end in sight, Israel’s war with Hamas likely will last for at least additional months, according to the latest reports. United Nations’ leaders expressed alarm on Dec. 26 about intensifying Israeli attacks that killed more than 100 Palestinians over two days in part of the Gaza Strip, when 15 members of the Israel Defense Force (IDF) also lost their lives.

Five Aerospace Investments to Buy as Wars Worsen: General Dynamics

One of the five aerospace investments to buy as wars worsen is General Dynamics (NYSE: GD), a Reston, Virginia-based aerospace company with more than 100,000 employees in 70-plus countries. A key business unit of General Dynamics is Gulfstream Aerospace Corporation, a manufacturer of business aircraft. Other segments of General Dynamics focus on making military products such as Abrams tanks, Stryker fighting vehicles, ASCOD fighting vehicles like the Spanish PIZARRO and British AJAX, LAV-25 Light Armored Vehicles and Flyer-60 lightweight tactical vehicles.

For the U.S. Navy and other allied armed forces, General Dynamics builds Virginia-class attack submarines, Columbia-class ballistic missile submarines, Arleigh Burke-class guided missile destroyers, Expeditionary Sea Base ships, fleet logistics ships, commercial cargo ships, aircraft and naval gun systems, Hydra-70 rockets, military radios and command and control systems. In addition, the company provides radio and optical telescopes, secure mobile phones, PIRANHA and PANDUR wheeled armored vehicles and mobile bridge systems.

Chicago-based investment firm William Blair & Co. is among those recommending General Dynamics. The Chicago firm gave an “outperform” rating to General Dynamics in a Dec. 21 research note.

Gulfstream is seeking G700 FAA certification by the end of 2023, suggesting potentially positive news in the next 10 days, William Blair wrote in its recent research note. The investment firm projected that General Dynamics would trade upward upward upon the G700’s certification.

“General Dynamics’ 2023 aircraft delivery guidance of approximately 134 planes assumes that 19 G700s are delivered in the fourth quarter,” wrote William Blair’s aerospace and defense analyst Louie DiPalma. “Even if deliveries fall short of this target, we believe investors will take a glass-half-full approach upon receipt of the certification.”

Chart courtesy of www.stockcharts.com.

Five Aerospace Investments to Buy as Wars Worsen: GD Outlook

The G700 is a major focus area for investors because it is Gulfstream’s most significant aircraft introduction since the iconic G650 in 2012, DiPalma wrote. Gulfstream has the highest market share in the long-range jet segment of the private aircraft market, the highest profit margin of aircraft peers and the most premium business aviation brand, he added.

“The aircraft remains immensely popular today with corporations and high-net-worth individuals,” Di Palma wrote. “Elon Musk has reportedly placed an order for a G700 to go along with his existing G650. Qatar Airways announced at the Paris Air Show that 10 G700 aircraft will become part of its fleet.”

G700 deliveries and subsequent G800 deliveries are expected to be the cornerstone of Gulfstream’s growth and margin expansion for the next decade, DiPalma wrote. This should lead to a rebound in the stock price as the margins for the G700 and G800 are very attractive, he added.

Management’s guidance is for the aerospace operating margin to increase from about 13.2% in 2022 to roughly 14.0% in 2023 and 15.8% in 2024. Longer term, a high-teens profit margin appears within reach, DiPalma projected.

In other General Dynamics business segments, William Blair expects several yet-unannounced large contract awards for General Dynamics IT, to go along with C$1.7 billion, or US$1.29 billion, in General Dynamics Mission Systems contracts announced on Dec. 20 for the Canadian Army. General Dynamics shares are poised to have a strong 2024, William Blair wrote.

Five Aerospace Investments to Buy as Wars Worsen: VSE Corporation

Alexandria, Virginia-based VSE Corporation’s (NASDAQ: VSEC) price-to-earnings (P/E) valuation multiple of 22 received support when AAR Corp. (NYSE: AIR), a Wood Dale, Illinois, provider of aviation services, announced on Dec. 21 that it would acquire the product support business of Triumph Group (NYSE: TGI), a Berwyn, Pennsylvania, supplier of aerospace services, structures and systems. AAR’s purchase price of $725 million reflects confidence in a continued post-pandemic aerospace rebound.

VSE, a provider of aftermarket distribution and repair services for land, sea and air transportation assets used by government and commercial markets, is rated “outperform” by William Blair. The company’s core services include maintenance, repair and operations (MRO), parts distribution, supply chain management and logistics, engineering support, as well as consulting and training for global commercial, federal, military and defense customers.

“Robust consumer travel demand and aging aircraft fleets have driven elevated maintenance visits,” William Blair’s DiPalma wrote in a Dec. 21 research note. “The AAR–Triumph deal is valued at a premium 13-times 2024 EBITDA multiple, which was in line with the valuation multiple that Heico (NYSE: HEI) paid for Wencor over the summer.”

VSE currently trades at a discounted 9.5 times consensus 2024 earnings before interest, taxes, depreciation and amortization (EBITDA) estimates, as well as 11.6 times consensus 2023 EBITDA.

Five Aerospace Investments to Buy as Wars Worsen: VSE Undervalued?

“We expect that VSE shares will trend higher as investors process this deal,” DiPalma wrote. “VSE shares trade at 9.5 times consensus 2024 adjusted EBITDA, compared with peers and M&A comps in the 10-to-14-times range. We think that VSE’s multiple will expand as it closes the divestiture of its federal and defense business and makes strategic acquisitions. We see consistent 15% annual upside for shares as VSE continues to take share in the $110 billion aviation aftermarket industry.”

William Blair reaffirmed its “outperform” rating for VSE on Dec. 21. The main risk to VSE shares is lumpiness associated with its aviation services margins, Di Palma wrote. However, he raised 2024 estimates to further reflect commentary from VSE’s analysts’ day in November.

Chart courtesy of www.stockcharts.com.

Five Aerospace Investments to Buy as Wars Worsen: HEICO Corporation

HEICO Corporation (NYSEL: HEI), is a Hollywood, Florida-based technology-driven aerospace, industrial, defense and electronics company that also is ranked as an “outperform” investment by William Blair’s DiPalma. The aerospace aftermarket parts provider recently reported fourth-quarter financials above consensus analysts’ estimates, driven by 20% organic growth in HEICO’s flight support group.

HEICO’s management indicated that the performance of recently acquired Wencor is exceeding expectations. However, HEICO leaders offered color on 2024 organic growth and margin expectations that forecast reduced gains. Even though consensus estimates already assumed slowing growth, it is still not a positive for HEICO, DiPalma wrote.

William Blair forecasts 15% annual upside to HEICO’s shares, based on EBITDA growth. HEICO’s management cited a host of reasons for its quarterly outperformance, highlighted by the continued commercial air travel recovery. The company also referenced new product introductions and efficiency initiatives.

HEICO’s defense product sales increased by 26% sequentially, marking the third consecutive sequential increase in defense product revenue. The company’s leaders conveyed that defense in general is moving in the right direction to enhance financial performance.

Chart courtesy of www.stockcharts.com.

Five Dividend-paying Defense and Aerospace Investments to Purchase: XAR

A fourth way to obtain exposure to defense and aerospace investments is through SPDR S&P Aerospace and Defense ETF (XAR). That exchange-traded fund  tracks the S&P Aerospace & Defense Select Industry Index. The fund is overweight in industrials and underweight in technology and consumer cyclicals, said Bob Carlson, a pension fund chairman who heads the Retirement Watch investment newsletter.

Bob Carlson, who heads Retirement Watch, answers questions from Paul Dykewicz.

XAR has 34 securities, and 44.2% of the fund is in the 10 largest positions. The fund is up 25.82% in the last 12 months, 22.03% in the past three months and 7.92% for the last month. Its dividend yield recently measured 0.38%.

The largest positions in the fund recently were Axon Enterprise (NASDAQ: AXON), Boeing (NYSE: BA), L3Harris Technologies (NYSE: LHX), Spirit Aerosystems (NYSE: SPR) and Virgin Galactic (NYSE: SPCE).

Chart courtesy of www.stockcharts.com

Five Dividend-paying Defense and Aerospace Investments to Purchase: PPA

The second fund recommended by Carlson is Invesco Aerospace & Defense ETF (PPA), which tracks the SPADE Defense Index. It has the same underweighting and overweighting as XAR, he said.

PPA recently held 52 securities and 53.2% of the fund was in its 10 largest positions. With so many holdings, the fund offers much reduced risk compared to buying individual stocks. The largest positions in the fund recently were Boeing (NYSE: BA), RTX Corp. (NYSE: RTX), Lockheed Martin (NYSE: LMT), Northrop Grumman (NYSE: NOC) and General Electric (NYSE:GE).

The fund is up 19.07% for the past year, 50.34% in the last three months and 5.30% during the past month. The dividend yield recently touched 0.69%.

Chart courtesy of www.stockcharts.com

Other Fans of Aerospace

Two fans of aerospace stocks are Mark Skousen, PhD, and seasoned stock picker Jim Woods. The pair team up to head the Fast Money Alert advisory service They already are profitable in their recent recommendation of Lockheed Martin (NYSE: LMT) in Fast Money Alert.

Mark Skousen, a scion of Ben Franklin, meets with Paul Dykewicz.


Jim Woods, a former U.S. Army paratrooper, co-heads Fast Money Alert.

Bryan Perry, who heads the Cash Machine investment newsletter and the Micro-Cap Stock Trader advisory service, recommends satellite services provider Globalstar (NYSE American: GSAT), of Covington, Louisiana, that has jumped 50.00% since he advised buying it two months ago. Perry is averaging a dividend yield of 11.14% in his Cash Machine newsletter but is breaking out with the red-hot recommendation of Globalstar in his Micro-Cap Stock Trader advisory service.


Bryan Perry heads Cash Machine, averaging an 11.14% dividend yield.

Military Equipment Demand Soars amid Multiple Wars

The U.S. military faces an acute need to adopt innovation, to expedite implementation of technological gains, to tap into the talents of people in various industries and to step-up collaboration with private industry and international partners to enhance effectiveness, U.S. Joint Chiefs of Staff Gen. Charles Q. Brown Jr. told attendees on Nov 16 at a national security conference. Prime examples of the need are showed by multiple raging wars, including the Middle East and Ukraine. A cold war involves China and its increasingly strained relationships with Taiwan and other Asian nations.

The shocking Oct. 7 attack by Hamas on Israel touched off an ongoing war in the Middle East, coupled with Russia’s February 2022 invasion and continuing assault of neighboring Ukraine. Those brutal military conflicts show the fragility of peace when determined aggressors are willing to use any means necessary to achieve their goals. To fend off such attacks, rapid and effective response is required.

“The Department of Defense is doing more than ever before to deter, defend, and, if necessary, defeat aggression,” Gen. Brown said at the National Security Innovation Forum at the Johns Hopkins University Bloomberg Center in Washington, D.C.

One of Russia’s war ships, the 360-foot-long Novocherkassk, was damaged on Dec. 26 by a Ukrainian attack on the Black Sea port of Feodosia in Crimea. This video of an explosion at the port that reportedly shows a section of the ship hit by aircraft-guided missiles.


Chairman Joint Chiefs of Staff Gen. Charles Q. Brown, Jr.
Photo By: Benjamin Applebaum

National security threats can compel immediate action, Gen. Brown said he quickly learned since taking his post on Oct. 1.

 

“We may not have much warning when the next fight begins,” Gen. Brown said. “We need to be ready.”

 

In a pre-recorded speech at the national security conference, Michael R. Bloomberg, founder of Bloomberg LP, told the John Hopkins national security conference attendees about the critical need for collaboration between government and industry.

 

“Building enduring technological advances for the U.S. military will help our service members and allies defend freedom across the globe,” Bloomberg said.

 

The “horrific terrorist attacks” against Israel and civilians living there on Oct. 7 underscore the importance of that mission, Bloomberg added.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Attention Holiday Gift Buyers! Consider purchasing Paul’s inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is great gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many othersCall 202-677-4457 for special pricing on multiple-book purchases or autographed copies! Follow Paul on Twitter @PaulDykewicz. He is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper, after writing for the Baltimore Business Journal and Crain Communications.

The post Five Aerospace Investments to Buy as Wars Worsen Copy appeared first on Stock Investor.

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Health Officials: Man Dies From Bubonic Plague In New Mexico

Health Officials: Man Dies From Bubonic Plague In New Mexico

Authored by Jack Phillips via The Epoch Times (emphasis ours),

Officials in…

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Health Officials: Man Dies From Bubonic Plague In New Mexico

Authored by Jack Phillips via The Epoch Times (emphasis ours),

Officials in New Mexico confirmed that a resident died from the plague in the United States’ first fatal case in several years.

A bubonic plague smear, prepared from a lymph removed from an adenopathic lymph node, or bubo, of a plague patient, demonstrates the presence of the Yersinia pestis bacteria that causes the plague in this undated photo. (Centers for Disease Control and Prevention/Getty Images)

The New Mexico Department of Health, in a statement, said that a man in Lincoln County “succumbed to the plague.” The man, who was not identified, was hospitalized before his death, officials said.

They further noted that it is the first human case of plague in New Mexico since 2021 and also the first death since 2020, according to the statement. No other details were provided, including how the disease spread to the man.

The agency is now doing outreach in Lincoln County, while “an environmental assessment will also be conducted in the community to look for ongoing risk,” the statement continued.

This tragic incident serves as a clear reminder of the threat posed by this ancient disease and emphasizes the need for heightened community awareness and proactive measures to prevent its spread,” the agency said.

A bacterial disease that spreads via rodents, it is generally spread to people through the bites of infected fleas. The plague, known as the black death or the bubonic plague, can spread by contact with infected animals such as rodents, pets, or wildlife.

The New Mexico Health Department statement said that pets such as dogs and cats that roam and hunt can bring infected fleas back into homes and put residents at risk.

Officials warned people in the area to “avoid sick or dead rodents and rabbits, and their nests and burrows” and to “prevent pets from roaming and hunting.”

“Talk to your veterinarian about using an appropriate flea control product on your pets as not all products are safe for cats, dogs or your children” and “have sick pets examined promptly by a veterinarian,” it added.

“See your doctor about any unexplained illness involving a sudden and severe fever, the statement continued, adding that locals should clean areas around their home that could house rodents like wood piles, junk piles, old vehicles, and brush piles.

The plague, which is spread by the bacteria Yersinia pestis, famously caused the deaths of an estimated hundreds of millions of Europeans in the 14th and 15th centuries following the Mongol invasions. In that pandemic, the bacteria spread via fleas on black rats, which historians say was not known by the people at the time.

Other outbreaks of the plague, such as the Plague of Justinian in the 6th century, are also believed to have killed about one-fifth of the population of the Byzantine Empire, according to historical records and accounts. In 2013, researchers said the Justinian plague was also caused by the Yersinia pestis bacteria.

But in the United States, it is considered a rare disease and usually occurs only in several countries worldwide. Generally, according to the Mayo Clinic, the bacteria affects only a few people in U.S. rural areas in Western states.

Recent cases have occurred mainly in Africa, Asia, and Latin America. Countries with frequent plague cases include Madagascar, the Democratic Republic of Congo, and Peru, the clinic says. There were multiple cases of plague reported in Inner Mongolia, China, in recent years, too.

Symptoms

Symptoms of a bubonic plague infection include headache, chills, fever, and weakness. Health officials say it can usually cause a painful swelling of lymph nodes in the groin, armpit, or neck areas. The swelling usually occurs within about two to eight days.

The disease can generally be treated with antibiotics, but it is usually deadly when not treated, the Mayo Clinic website says.

“Plague is considered a potential bioweapon. The U.S. government has plans and treatments in place if the disease is used as a weapon,” the website also says.

According to data from the U.S. Centers for Disease Control and Prevention, the last time that plague deaths were reported in the United States was in 2020 when two people died.

Tyler Durden Wed, 03/13/2024 - 21:40

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