Author: Nicholas Say

  • Retail Apocalypse? Not for Billionaire Rick Caruso

    Retail Apocalypse? Not for Billionaire Rick Caruso

    The retail situation in the US looks nasty. Failing anchor stores like Sears and Toys R Us are symptoms of what could be the biggest contraction in US brick-and-mortar retail ever. However, one California developer seems to have figured out how to thrive in a retail economy that’s getting worse all the time. Rick Caruso developed The Grove in Los Angles, which is the second most profitable mall in the USA.

    The Grove generates $2,200 USD/square foot, which is second only to Miami’s Bal Harbour Shops. To be sure, The Grove isn’t a normal mall. It has 25 concierges on staff for the sole purpose of making dinner reservations for guests, and according to a recent piece in Forbes, if a child drops their ice cream cone, it will be replaced by a security guard.

    Rick Caruso Puts on an Incredible Show

    It should come as no surprise that catering to the 1%’s shopping whims would be just about the only way to stay ahead in US retail. According to Rick Caruso via Forbes:

    “If you provide something that is unique and relevant, in a setting that people find captivating, you will do well,” and further, “Retail has gotten sideways because it became the commodity. It is not about being high tech; it is about understanding what your customer wants.”

    Rick Caruso’s attention to detail and choice of demographics helped him land the 179th position on the Forbes 400. The Grove isn’t his only successful venture, and over the last three decades he has built up a number of properties along the same lines.

    A big part of what makes his properties unique, aside from the high-end shops and clientele, is his dedication to creating interesting spaces.

    Rick Caruso The Grove Concierge
    The Grove Caruso Concierge / thegrovela.com

    Another one of his projects, the Commons at Calabasas, used a professional set designer from Hollywood in the design process. The Grove features a trolley that was designed by a Disney Imagineer, as well as numerous other aesthetic features that distinguish it from the kind of mall that is being shuttered somewhere in fly-over country.

    His Malls are the Exception

    Rick Caruso’s blinding success as a retail-focused real-estate developer comes at a time when the overall retail picture in the US is grim. Despite the frenzy of mall closings over the last few years, the US still has more retail space per capita than any other nation. At 23.5 square feet per person, the US has more than double the per capita retail space of Australia, and more than eight times that of China.

    The massive overhang of retail space led Cowen and Company to speculate in a report that the US retail apocalypse is just getting started. Not only are consumers turning to online shopping for most of their needs, but the specific demographics who once supported mid-range malls have also fallen on hard times.

    The report from Cowen and Company stated that their data:

    “Suggests that the sector remains in the early innings of reduction in unproductive physical retail.”

    But there could be a silver lining for developers like Rick Caruso.

    The same report speculated that:

    “Our take is mall performance bifurcation will accelerate as retailers continue to invest in top malls in the top metro areas at the expense of lower performing malls in secondary and tertiary markets.”

    Top malls are exactly what Mr. Caruso has a pile of in his billion-dollar real-estate portfolio, which probably puts him in an enviable position going forward.

  • Gang Violence Behind Hamptons’ Billionaire Safe Room Spending Spree

    Gang Violence Behind Hamptons’ Billionaire Safe Room Spending Spree

    It looks like the haves (as opposed to the have-nots) found a new accessory for their multi-million dollar vacation homes. The Hamptons has been a destination for the well-to-do for generations. Today, the harsh reality of international gangs, such as the MS-13, is prompting Hamptons homeowners to add luxury safe rooms to their enormous mansions.

    MS-13 is a terribly violent gang that has its roots in the Central American nation of El Salvador. In case you have joined most of the world in tuning out President Trump whenever possible, he believes that MS-13 is one of the biggest criminal threats that the US faces at the moment. The gang also seems to be active in many major US cities.

    Last year, MS-13 was tied in with a quadruple homicide in Central Islip, which is just an hour away from the Hamptons by car. Hamptons residents probably figure that if MS-13 members can make it from El Salvador to Central Islip, driving for one more hour isn’t going to stop them from causing mayhem in one of the most expensive destinations in the USA.

    The Hamptons Needs Cheap Labor Too!

    Most people who own a $15 million USD+ mansion in the Hamptons don’t maintain their own polo fields. It’s no secret that the vast majority of landscaping work in the USA is done by people who come from south of the border.

    Some people in the Hamptons may fear that their garden staff is actually an MS-13 recon unit, who keep their machetes sharp for a nighttime assault on a billionaire and their family.

    Fears of a Tarantinoesque (think Kill Bill meets Reservoir Dogs in the Hamptons) horror show ‘En Vivo’ are probably behind the trend in super-lux Hamptons panic rooms.

    According to The New York Post (NYP), John Catsimatidis, who owns Gristedes Foods and Red Apple Group is sleeping with a Walther PPK/S underneath his pillow. He owns a house in East Quogue, and apparently, his wife Margo, “…prefers a shotgun.”

    Small arms are probably only going to enrage a crack MS-13 hit squad, so many others in the Hamptons are spending hundreds of thousands of dollars on panic rooms that are stocked with high-end booze, and military-grade munitions. What could possibly go wrong?

    Sort of a Status Symbol

    There’s nothing like having your billionaire friends over and sharing a glass of wildly expensive scotch in a brand new panic room. Decades of wildly unfair (‘free trade’) trade policy may have created a vacuum for impoverished Central Americans in the USA. And now people like Chris Cosban, a Long Island-based construction consultant that has installed numerous safe rooms in the Hamptons, are making sure that billionaires are able to sleep soundly (as they enjoy the fruits of globalism).

    Mr. Cosban told the NYP that:

    “The big thing [with rich homeowners] in the Hamptons is that if somebody has it, they [all] want it,” and added that, “They like to brag about it.”

    The head of Sage Intelligence Group was also willing to expand on how his clients use their luxury safe rooms. Herman Weisberg told the NYP that many have safe rooms are designed to accommodate a home theater or act as a weapons vault. Some even use them as wine cellars, which would certainly make riding out an MS-13 raid a lot easier.

    Featured image from Shutterstock.

  • Bail on Apple Shares While You Can

    Bail on Apple Shares While You Can

    Anything with a half eaten Apple printed on it seems expensive, especially the company itself. The iPhone XS starts at around $1,000 USD and goes up from there. Most people think of computers when they think of Apple. Yet from a business perspective, the company has been a smartphone powerhouse.

    At least that has been the case until this year.

    Here’s the problem: smartphones are carrying the company’s profits. There is a tremendous amount of competition in the smartphone market. Earlier this year Huawei overtook Apple as the world’s second-largest seller of smartphones, but the stock market just keeps bidding Apple shares higher (apart from the stock selloffs yesterday that saw all major tech companies take a sudden downward turn and Apple (AAPL) down almost 3.5%).

    Long Way Down

    Apple is valued at more than $1 trillion USD. Their trailing price to earnings ratio has climbed to around 20 over the last few months. A price to earnings ratio of 20 isn’t abnormally high, but it isn’t exactly at value levels either.

    Other massive technology companies, like Amazon (whose price to earnings ratio is north of 140), are trading at stupefying levels. Apple’s valuation isn’t nearly as high, but they are highly vulnerable to a substantial drop in earnings. They rely on the Western world to support a business model that may not be able to adapt to the next phase of global growth.

    Taken together, these two factors make Apple unattractive as a stock.

    Big technology players around the world are highly leveraged to continued consumer growth and a stable financial system. Apple’s presence in the Chinese market has been suffering. Right now Chinese tech heavyweights are expanding into their own nation and other growing markets across Asia.

    Apple has depended on Chinese consumers for more than a decade, now they seem to be coming up short. This isn’t great for a business that is highly leveraged to global consumer spending and is able to maintain their valuations because of an accommodative central bank policy.

    Wall St. Loves Apple (Which Isn’t Great)

    Another reason to avoid Apple shares relates to their relentless rise in value over the last decade. Major investors have made a lot of money on AAPL. The overall economic picture has been looking less stable all year, so sticking with a stock that has lots of profit locked up may be difficult for some investors.

    Tech mega caps like Google have risen to earnings multiples around 50, which seems optimistic with Syria heating up again, and an uncertain interest rate situation in the USA. If there is any sort of problem in the global markets, tech heavyweights might be first on the chopping block.

    The recent uncertainty in government debt been hard on global markets, imagine what would happen if there was an even larger negative surprise!

    Expensive Money is Bad for Growth, and Consumer Spending

    Interest rates are still at ultra-low levels around the world. Last week a decent jobs print in the US sent the 10-year yield to levels that haven’t been seen for years. There has also been a string of hawkish statements coming out of the US FED, which could mean a tighter monetary policy in the world’s largest economy.

    Apple relies on a consumer that has easy access to high levels of disposable income. In a world where their competition is expanding rapidly, Apple’s business model looks increasingly questionable. Despite the recent higher-than-expected jobs print in the US, the vast majority of US consumers have less money to buy toys than they did a few years ago.

    Apple Isn’t a Compelling Story Anymore

    A short glance at a weekly chart for AAPL will show that the MACD indicator is at elevated levels, and the RSI is approaching overbought territory. This chart isn’t a slam-dunk short, but it should give anyone who is holding AAPL second thoughts. AAPL shares have been on a winning streak for more than a decade, and there are sure to be some fat profits waiting to be locked-in.

    AAPL chart
             AAPL chart

    It is possible that APPL shares will continue to increase in price for a short time, but when the next round of selling comes to the markets, it would be wise to either be out of your position or at the very least sell some calls to offset your potential mark-to-market losses.

    Over a longer-term, Apple may be in for a rough ride.

    Apple’s core computing business hasn’t generated enough profit to justify their valuation in a long time. As a smartphone manufacturer, they aren’t in a great position. The company sells an expensive product that has a hard time competing outside of the US.

    Apple was able to expand in China for many years, but today companies like Huawei and Xiaomi are displacing Apple. The last 20 years have been amazing for Apple, but nothing lasts forever.

    Featured image from Shutterstock.

  • Canopy Rivers’ Volatility Highlights Risk in Pot Stocks

    Canopy Rivers’ Volatility Highlights Risk in Pot Stocks

    Canopy Growth is one of the largest cannabis-focused companies that can be bought on a stock exchange. Pot stocks are hot with investors, but there’s every reason to be careful in a sector that’s still illegal in most countries. Canopy Growth spun off Canopy Rivers last month, but it’s been a bumpy ride.

    Canopy Rivers is focused on cannabis Venture Capital (VC) investment, and their market cap initially jumped to nearly C$2 billion. The stock’s value has halved over the last couple of weeks, which should help investors realize how risky the cannabis sector can be.

    Canopy Rivers
    Canopy Rivers stock is up and down

    There’s no shortage of cannabis companies more than happy to sell their THC-encrusted dreams. But making money selling legal dope is much harder. Despite the fact that many US states have legalized weed, the federal government is still not on board. This leaves companies like Canopy Growth and Tilray in a sticky spot when it comes to expanding into the USA.

    Ok, How Do You Make Money Again?

    Most drug dealers talk an amazing game. Their stuff is the best you’ve ever had, and after a few tokes, you’ll be talking to unicorns. Well, the legal cannabis space seems to be shaping up to be a lot more of the same. Tilray is currently trading at around $125 USD/share, which values the company at more than $12 billion USD.

    For $12 billion USD investors will get a company that lost $.17 per share last quarter and has to contend with federal regulations in the US that are firmly opposed to their business model. The hopes that a publicly traded pot company will somehow take advantage of relaxed cannabis laws at a state level seem like a pipe dream.

    US-based cannabis companies can’t even use the banking system, as they’re operating in violation of federal drug laws.

    Canada is a more promising destination for cannabis development. Tilray has substantial Canadian operations, though that may not make as much money as investors hope.

    The sale of medicinal cannabis in Canada is strictly regulated. It is unlikely that Canadian sales will match a state like California or Colorado, where cannabis is basically legal.

    Too Early for Green Shoots

    When Tilray went public, they were expecting to get around $15USD/share for their equity. The fact that a company that loses money in a field that was totally illegal a decade ago saw their shares rise to nearly $300USD (or a market cap of more than $20 billion USD), is a warning sign for the entire cannabis sector.

    If cannabis becomes legal at a federal level in the US, the market will be enormous. But that hasn’t happened yet, and these high flying pot stocks won’t make much of a profit.

    There’s nothing wrong with buying a little bit of best-in-breed issues like Canopy Growth, Tilray or Aurora Cannabis–as long as you understand they may drop to the ground before the legal cannabis industry takes off.

    Canopy Rivers’ swoon over the last few weeks is a vivid demonstration of the volatility that pot investors assume in their portfolio, and there may be a lot more to come.

    Featured image from Shutterstock.

  • Is Elon Musk Losing Control of His High-Tech Empire?

    Is Elon Musk Losing Control of His High-Tech Empire?

    Everyone seemed to love Tesla. For years Wall St. couldn’t get enough of a company that still hasn’t made a profit. Super smart billionaire playboy Elon Musk has been one of the most interesting people in business for a long time generating headlines on a daily basis. Over the last few months, however, things seem to have taken a wild turn for Mr. Musk and the companies he’s built.

    There has always been criticism hurled toward Elon Musk. As the chairman and CEO of an independent electric car company, some amount of naysaying from the public should probably be expected. Many doubted Musk’s vision for the future of transportation. However, when it came to money, there always seemed to be another investor waiting in the wings.

    Elon Musk presided over Tesla’s (NASDAQ: TSLA) run from under $20 USD a share to nearly $400 USD last year. At its peak, Tesla was valued at more than $60 billion USD. Not too shabby for a company that has burned money since day one. Elon Musk may have felt like he was untouchable, but that’s probably changing.

    Smokin’ Dope With Rogan

    Pretty much everybody knows that Joe Rogan likes to get high. He also drinks whiskey with Alex Jones. Getting high and wasted with goofballs seems to have been a successful business model for Joe Rogan. But Elon Musk may have strayed into dangerous territory when he decided to smoke contraband on camera.

    To be clear, cannabis is legal to smoke in California, where Joe Rogan creates the magic that is his podcast. At the federal level, though, cannabis is still extremely illegal in the USA, which puts Elon Musk into something of a bind. Not only is Musk the chairman and CEO of a multi-billion dollar company, but he also holds a security clearance from the US Air Force for his role in Space X.

    Who Says Pot Doesn’t Give You a Hangover?

    Let’s hope that the buds that Joe Rogan passed Elon Musk were top quality because he’s paying dearly for that big hit of reefer. In the wake of his smoke session, TSLA shares dropped by more than 10%. Tesla also lost their Chief Accounting Officer (CAO), and Chief People Officer (CPO).

    Ex-Tesla CAO David Morton had been at Tesla for less than a month before he took off in early September. CNBC reported that David Morton felt like Tesla just didn’t listen to him. He had worked at Seagate Technology for two decades prior to his interlude at Tesla, which makes the departure look all the more dramatic.

    Longtime Tesla bull and Nomura analyst Romit Shah downgraded TSLA to “Neutral” after Mr. Musk got high. He went on saying:

    “Mr. Musk’s behavior is well documented and likely contributed to the onslaught of executive departures in recent months.”

    While there seem to be only two high-level staff departures that are directly related to Elon Musk’s lighting up, there have been at least 13 others that have left since the beginning of 2018. Many of them don’t list another position in their LinkedIn, which could mean just about anything.

    Nine Words for $40 million USD Seems Like a Bad Deal!

    The consequences from Elon Musk’s move to smoke dope are hard to put in monetary terms, but his decision to tweet that Tesla was going private for $420 USD a share is some of the most expensive writing in recent memory.

    The Securities and Exchange Commission (SEC) recently came to an agreement with Mr. Musk over the illegal tweet. In the end, it cost him $20 million USD, and the position of chairman at Tesla. The company had to pony up another $20 million USD, which puts the cost of that tweet at $40 million USD.

    As more details about the apparently non-existent offer to take Tesla private have emerged, Elon Musk’s oversights look much worse. In fact, he’s freely admitted that the figure of $420 USD was inspired by the number’s significance in the drug culture and that there is no written evidence of any plan to take Tesla private.

    The Air Force Isn’t Amused

    The US armed forces are pretty clear about their policy on drug use. Beefed-up podcasters in California can get away with dancing around federal drug law. CEO’s of space exploration companies that hold a federal security clearance are in a totally different league.

    Elon Musk may not have understood the kind of position he had before he decided to make illegal tweets, and get high on camera. Now that the US Air Force is investigating his actions, he may be waking up to the fact that his role as a leading innovator and industrialist means living with a lot less freedom than freewheeling podcasters.

    For the moment Elon Musk is still the CEO of Tesla, and there has been no formal action taken against him by the US Air Force. One hopes that he has learned a lot over the last few months. If he had any questions about where his limits are, now he has a much better idea of which lines even he should avoid crossing.

    Featured image from Shutterstock.