Longhorn Investment Team Weekly Insight: Mother’s Day Edition (5/12/19)

Happy Mother’s Day to all of the mothers out there and welcome back to the Weekly Insight! Sorry for the hiatus; finals really got to our writing staff. We’ll be back to business as usual all summer. Let’s dive into the news so you can give your mom the gifts of market analysis and bad jokes!

Trade War Beef

Since last March, Trump declared war on unfair trade practices by unleashing waves of tariffs on key intermediate goods like aluminum and steel. Because tariffs are effectively a tax on imports, analysts estimate a direct additional cost of $66 Billion on US imports.

When retaliatory tariffs from other nations are factored in, they estimate an additional cost on US exports worth over $130 Billion (that’s not the increase in cost, but the total value of exports affected).

Markets got (metaphorically) pooped on at the end of the week when Trump raised rates from 10% to 25% for tariffs on Chinese goods. Of course, this delayed talks and will likely lead to retaliation from Xi Jinping.

How did we get here?

The administration cited unfair prices as a justification for global tariffs on metals, which are required to build military stuff like tanks and battleships. But when it comes to China, the business-beef is a lot juicier. American policymakers have accused Chinese companies of corporate espionage for years. From cyberattacks such as Operation Aurora and GhostNet to IP theft by the Chinese government, businesses and the Committee on Foreign Investment in the United States (CFIUS) have grown weary of allowing Chinese investment in the US and vice versa.

A look at CFIUS’ discretion over the past few years illustrates these fears. CFIUS used to block international transactions and investments in industries clearly relevant to national security like aerospace and defense. For instance, Chinese companies acquiring Lockheed Martin would be a no-no because then the Chinese government could access the same missile technology as the US military.

Now, the fear of malicious technology transfer extends to everything from 5G to consumer data, as CFIUS even forced the Chinese firm, Kunlun Technologies, to divest in Grindr last month. Meanwhile, Chinese phone giant, Huawei has been shutout from the US telecom industry.

In fact, the WSJ pointed out that investment flows between the two countries have unraveled more than trade. China invested $29 Billion in US firms in 2017. They only invested $5 Billion last year (although this decline was also affected by China’s 2018 slowdown). For more context, here’s a chart from the WSJ.

Declining investments matter, especially in the tech space.

You know how PS4 and Xbox have exclusive networks with their own games and separate players and it just sucks because you want to play COD with your friends? That can happen at an international scale when Chinese and American businesses fail to integrate their technologies through M&A or join ventures that everyone is scared to initiate. Not only does this mean fragmented networks, but it will undermine efficiency in emerging technologies like AI and the internet of things (it always comes back to the IOT).

How are companies reacting?

Either raising prices, moving production (although not necessarily to the US), or praying to the soybean gods.

Iran Beef

Some Context:

In 2015, Obama went in big on the JCPOA, which stands for The Iran Nuclear Deal somehow.

Last May, Trump pulled out of the deal, claiming that it enriched bad guys in the middle east (the bad guys = Iran). Since then, the US has reinstated heavy sanctions on the country.

Last month, the US announced that other countries who bought oil from Iran would also face sanctions (with some exceptions). This cut into Iran’s exports further and pushed up Brent prices.

Now, Iran faces a recession, currency devaluation, and slashed oil exports. They’re pissed about it too. Iranian President, Hassan Rouhani just partially withdrew from JCPOA by refusing to sell its excess uranium, threatened to shut off the Strait of Hormuz (it’s important!), and made robust military threats against US troops in the region. US military presence is continuing to increase near Iran.

What this means:

Lots of articles are pointing to a looming military conflict, but that’s old news.

Higher tensions in this flashpoint increase oil prices. In 2012, estimates found that if Iran actually acquired nuclear weapons, oil prices would double. Even preliminary signs of conflict or a total breakdown of JCPOA could have a similar effect.

Vegan Beef

Listed on May 2nd, Beyond Meat is the hottest meat stock that doesn’t produce meat. That’s right, synthetic vegetable proteins are the next big thing for those vegans who still want to enjoy a nice burger every now and then.

Why textured vegetable protein matters: it can give people tasty proteins without having to go through cows – nature’s worst nightmare. Methane emissions from cow farts are actually said to contribute more to climate change than car emissions.

Beyond Meat soared 225% in their first week, and since have fallen with the broader markets.

Short sellers’ rationale: Beyond Meat is very overvalued by any fundamental metric (currently over 8x sales), and larger food companies could easily enter the market for TVP.

Fun Fact:

122 million phone calls are made to moms in America on Mother’s Day. That’s sweeter than fake teriyaki!

Longhorn Investment Team Autonomous Vehicle Snapshot (and more!) (4/28/19)

Howdy! We got a little carried away with ourselves when we discussed some key updates in the connected car and electric vehicle spaces. Today, we’re wrapping up with a look at autonomous vehicles. What is an autonomous vehicle (AV)? Well… there’s levels to them.

The 6 Levels of Autonomous Driving

Level 0, Dumb Cars: These cars have no autonomous features, meaning you actually have to drive the car completely by yourself. 😦

Level 1, Driver Assistance: Only some features are automated – and only to a small degree. For instance, your car will brake extra for you when it recognizes you’re about to run over Oprah. If only Drake and Josh lived in today’s time.

Level 2, Partial Automation: This level is already standard amongst most manufacturers, it assists the driver with tasks like steering and accelerating, but the driver still has to pay attention to the road and is responsible for all safety-critical driving functions.

Level 3, Conditional Automation: At this point, the car is now completely aware of its surrounding environment. The driver doesn’t have to pay attention at speeds under 35 mph.

Wired explains level 3 better than we ever could:

“If you’re on the highway and stuck in slow traffic, activate the system and feel free to look at your phone or even read a book. Just don’t fall asleep, get drunk, or cut off your hands.”

Audi’s new A8 is the first commercially available vehicle to hit level 3 – but it isn’t available in the US because of concerns that state laws could create regulatory burdens. This has heightened pressure on lawmakers to be more proactive in creating framework for governing AVs.

Level 4, High Automation: The car no-longer needs a human to get where it’s going, but only on certain road types (highway mergers and other complicated tasks get tricky). Ford claims to be investing in level 4, citing they don’t think level 3 vehicles offer enough value to consumers. Meanwhile, Waymo has already arrived at level 4 tech, but they still lack the car manufacturing component (the self-driving tech is more expensive than the car itself).

Level 5, Complete Automation: You just plug in your destination and your new whip does the rest! Ka-Chow!

So, who are the major players in the AV space?

First, we’ll look at traditional auto makers. Ford, GM, Audi, Nissan, Tesla and others are either already releasing various levels of AV or throwing billions at the tech. GM’s self-driving unit has already received billion-dollar investments from Honda and Softbank. It also leads the industry in fewest fender-benders.

Just before their depressing earnings report, Elon Musk promised to put one million self-driving cars on the streets next year. Nobody believes him. Read more about Tesla’s Q1 and Musk’s tom-foolery here.

Then there’s the tech giants. While Apple has been very wishy-washy on their path to AV, it recently showed interest in acquiring LIGMA LiDAR technology, which is basically a light sensor that allows cars to see their environment. Waymo, an autonomous vehicle maker owned by Alphabet, is widely considered the leader in the AV space.

Other tech companies are simply developing hardware and software to facilitate AV functions. For instance, NVIDIA recently developed a chip to enable level 5 AV, and Blackberry’s QNX platform is designed to prevent self-driving cars from being hacked. Intel also joined the race with their acquisition of sensor company, Mobileye.

Wait a minute, there’s another industry targeting the AV space: ride-sharing services. That’s right, Lyft and Uber are aggressively working on their own fleet of AVs because it’s cheaper to give people rides when you don’t have to pay drivers. Ride-sharing firms have the same vision as Waymo: driverless cars will make widespread vehicle ownership obsolete. People will just hitch rides with robots to get where they’re going!

What will the Future of Driving Look Like?

While some industry leaders view future vehicles as completely driverless, others think that a human element will always be necessary given the countless “edge scenarios” such as complicated lane mergers or anything associated with Austin traffic. However, machine learning could plausibly enable vehicles to learn from all of the different edge cases over time.

What the AV market will actually look like is still very speculative, so we won’t make any bets on who is going to lead the industry. What we can tell you; however, is that certain metrics for AV effectiveness already exist. One is known as a “disengagement rate,” which measures how often per mile the person in a driverless car must disengage autopilot and take the wheel. So far, Waymo leads in this respect (although data is self-reported and could be distorted by confounding variables).

Some scholars believe that AVs will either incur slow adoption rates or have a negative impact on society for a laundry list of reasons:

  • “Self-driving taxis will just be slower Ubers.”
  • “Self-driving cars will encourage suburbanization and urban sprawl, which is bad for the environment.”
  • “Self-driving cars will get hacked, and the threat of cyberattacks at least slows adoption.”
  • “We can’t prove AVs are safe because their code continuously changes due to machine learning algorithms.”

We didn’t put those in quotes because we don’t take those concerns seriously. They’re just things that other people said.

Generic Stock Update:

It’s been a while since we’ve discussed anything other than cars or kush, which is a bad habit. Here’s that wholesome market news you’ve been waiting for.

The S&P 500 is up 17% this year. Indexes propelled to record highs this week thanks to GDP data and outstanding Q1 earnings from tech companies and other industry leaders.

Some big winners: Microsoft, Twitter, Facebook, SAP, Amazon, Lockheed Martin

Some big losers: Tesla, Intel, UPS, AT&T

GDP Data boosted stocks on Friday, as the US economy grew 3.2% yoy compared to an expected 2.5%. GDP increases were driven by higher military spending and private sector investments in inventory. Some economists see this inventory investment as a short-term boost to GDP with consequences down the road. If companies are building up their inventories now, they’ll spend less on building up inventories later, which could slow GDP growth in Q2.

At the very least, we can take a sigh of relief because people were getting pretty nervous about an impeding recession. Now investors are much more confident in the stock market relative to last Thursday. Inflation data from February and March will be released this Monday, which should refresh people’s takes on future interest rate raises that always seem to drag down bull runs.

Other News:

Disney announced their new streaming service, Disney+ at $6.99 per month. Their stock popped as a result. We were going to expound on this event but a) this was two weeks ago and b) Ben Thompson from Stratechery already wrote a great piece about the strategic implications of this service. Check it out here.

More good news for Bob Iger: Avengers Endgame grossed a record breaking $1 Billion in its box-office debut.

Boeing keeps getting exposed. Investigators found over the weekend that Boeing did not inform major airliners or the FAA that their 737 MAX planes (the model that crashed) had a deactivated safety feature. The safety feature would let pilots know if the auto-pilot sensors malfunctioned (which is what happened in the crash). Nobody knows why Boeing deactivated the feature. In their Q1 earnings, Boeing posted a $1 billion loss to represent business disruptions from the groundings. For context, that’s 1/13 of their 2018 cash flow.

LIT Speaker Series Recap: Alex Gabbi (4/17/19)

Last night, we kicked off our first LIT Speaker Series. Through this recurring series, we are excited to host distinguished speakers from many different areas of the business world. Our events are open to all UT students looking to gain wisdom about finance, marketing, entrepreneurship, and life in general. Our first LIT speaker, Alex Gabbi, gave us just that.

“I was told I could speak about whatever I wanted, so I’m just going to talk about what I think is interesting.”

Gabbi joked as he pulled up his presentation. He would keep this lighthearted attitude for the whole lecture.

Gabbi is a Lecturer in the Marketing department here at UT whose extensive management career spans from the level of start-up to Fortune 200. He is also a professional public speaker and a world traveler who stays curious about topics and places that are foreign to him. All of this makes him a riveting orator, so all eyes in the room stayed trained on him for the entirety of his fifty minute lecture entitled “15 Life Lessons in 50.”

Gabbi began with a simple slide entitled “Passion > What ____ Tells You To Do.” He looked around the room at undergraduates concerned with finding internships, interviewing for positions, building resumes, and planning for a career. As we look to the future, he encouraged us to remember that “only you know what you love,” and to prioritize our passion accordingly.

He illustrated his message with an anecdote from his own life. He told us that his dad wanted him to become an investment banker. At this, many IB hopefuls in the audience sat up a little straighter. Gabbi recalled being on a plane, headed to begin a banking career, when he realized that he was doing it because his dad thought it was the right thing for him to do, not because of his own desires. He landed, called his dad, and announced that he was going to be an entrepreneur.

“And it took him 10 years to forgive me.”

Gabbi chuckled. Standing before us with a successful career in entrepreneurship, Gabbi held no regrets about his decision. He emphasized that if you’re not passionate about something, people will see that. On the other hand, if you follow your passions, you will find success.

For the remainder of the lecture, Gabbi enumerated 14 other things he’s learned about how to get the most out of life. He spoke to an interdisciplinary room of business, communications, and engineering majors, but was able to connect to everyone in attendance as he related his life lessons to common goals: landing job opportunities, effectively working with different types of people, inciting change, and improving oneself.

To be a master of building relationships in the workplace, Gabbi emphasized becoming “a student of human nature.” Gabbi has spent a lot of time researching personality types, human motivators, and non-verbal linguistics. He encouraged us to do the same if we want to succeed in the workplace, because the best way to influence people is to first be able to understand them.

Gabbi explained that there are four main social styles: driver (likes to get the point), amiable (likes to build rapport), analytical (likes to lay out all facts and figures), and expressive (a “hugger”). He encouraged us to peg people as the different styles and adjust our behavior accordingly. People like people that are similar to them. If you communicate with people according to how they wish to communicate with others, you will communicate more successfully.

Another equally important facet to successful communication is understanding non-verbal cues. From reading up on FBI interrogation tactics, Gabbi has learned that people tell the truth from the bottom up: “the window to the soul is their feet.” If someone’s feet are pointed away from you, they are unconsciously signalling that they are ready to leave the conversation. People can easily fake a smile (which curves outward rather than upward), but the feet don’t lie. Knowing cues like this will help you analyze your business dealings and improve upon them.

Just like his advice to learn psychology to improve one’s corporate career, many of his lessons shared a baseline message to diversify one’s knowledge to improve oneself. A world traveler, Gabbi lit up as he told us that gaining exposure to different cultures, religions, and experiences is “the key to everything.” He challenged us to see the world from a different set of eyes and see what those eyes teach us.

“Be curious!” Gabbi enthused. Ask questions. Take an interest in something new and philosophize about it. Then grow by finding someone to challenge your beliefs. The people with a drive to learn are the people with a zest for life. The people willing to “push [themselves] to a discomfort zone” are the people with the ideas, with the creativity, with the ability to make a lasting change on the world.

After he engaged the audience in Q&A – which featured internship advice, book recommendations, and artificial intelligence – students formed a line wrapping around the side of the room to speak to him personally. We thank Alex Gabbi for such a captivating lecture and look forward to the many promising presentations to come in our Series.

Longhorn Investment Team Weekly Insight: Game of Thrones Edition (4/14/2019)

Welcome back ladies and gentlemen. We know it was windy yesterday, but this content is sure to blow you away haha. It took us hours to think of these GoT puns so be sure to tell all your friends about us. In this episode, we’re beginning with the latest gossip on transportation because we love transportation and so should you.

Game of Cars

The automobile industry is on the brink of game-changing innovations: electric vehicles (EVs), autonomous vehicles (AVs), and connected cars (CCs?).

The question remains: who will win and lose in the war to control these new and exciting markets? Let’s take a look at the major battlegrounds.

Connected Cars: The average 5-year-old car uses over 100 million lines of code with the processing power of over 20 PCs – and that was mostly dedicated to improved GPS and safety functions. Now, the money is being spent on internet connectivity, specifically to enhance the in-car experience beyond DVD players.

House Big Tech vs House OEMs: Software and Telecom companies like Alphabet and Apple have plenty of reasons to join the car dashboard revolution. Because people in the car are a literal captive audience, whoever owns the software in your car has plenty of monetization opportunities (ie advertisements that correspond to your driving route, integrations with other apps, and in-car payments for gas and other stuff).

As Apple and Google try to maximize their stakes in the dashboard, some Original Equipment Manufacturers – in this case, automobile producers like Ford – are aggressively developing in-house software to preserve their share of the new market (and the consumer data that comes with it). In other words, who is going to run the app-store in your car, Toyota or Apple? Nobody wants to be the dump pipe.

Key Trends: The main “drivers” (lol) of the connected car include new features and with them, new monetization avenues mentioned above. Roughly 90% of vehicles on the road should be connected to the internet by 2020. However, these innovations don’t come without barriers to adoption – namely privacy concerns on the tech side and design concerns on the automotive manufacturer end. A McKinsey survey found that 35% of consumers would never buy a car with internet connectivity because of concerns over data privacy and hacking. Additionally, many OEM’s aren’t good at making dashboards with a good user interface and struggle to integrate outside technologies. Ever been in a car with a dashboard that looks like airplane controls?

Ford is recalling about 13,500 2015 Lincoln MKCs after moving cars stopped suddenly when drivers confused the push-to-start button with other dials.


And no, that was not a Boeing joke, but we just can’t have this stuff going on!

Electric Vehicles:

Too many Houses to count. Here are some companies investing heavily in electric vehicles:

Ford Motor Co. recently announced an $11 Billion restructuring effort and shifted upper level management with EV, AV, and dashboard software ambitions. That’s a bold strategy, Cotton; we’ll see how it pays off for ‘em.

General Motors announced layoffs and increased EV investments earlier this year.

Tesla is shifting away from EVs to focus on innovative gasoline powered vehicles. Just kidding, but Tesla does face new competition in China and potentially in other regions from Geely, a Chinese auto company that owns a 50% stake in Smart (the Smart Car people). Geely’s new “Geometry A” model will cost about $31,000, already making them a low-cost competitor with similar features to Tesla’s Model 3.

China’s Red Wedding: Due to subsidy cuts and stagnating demand for new vehicles, experts forecast difficult times for the 500 plus Chinese EV startups, which have raised over $18 billion in capital in 8 years. While larger players like NIO should whether the storm, smaller startups betting on breakthrough technologies face serious shutdown risks. Importantly, the US is introducing legislation to raise EV credits while China is phasing them out.

Key Trends: Most people don’t know enough about EVs to buy them. According to an Engine International survey, 75% of consumers don’t know where to find charging stations, and a majority aren’t aware of 30-minute charging times or the $7,500 available in tax credits for EV purchasers. To be fair, I have reason to believe the survey results could be biased to a degree, but it’s no secret that EV’s aren’t far off from becoming mainstream among consumers and auto-makers alike.

Autonomous Vehicles: We just realized this is running long, so we’ll pull a George R. Martin and leave everyone in suspense. Stay tuned for our follow up on key trends in the AV space plus insight on Disney’s big announcement and the future of your digital life from privacy to memes.

Fun Facts:

Tiger Woods won The Masters, but you already knew that. Smash that like button.

We didn’t include any GoT spoilers because this AI algorithm can do it for you. Students at technical University of Munich have assessed the survival chances of every major character using web data, only time will tell if it actually works… dun dun duna dun dun duna dun dun duna dun!

Longhorn Investment Team Weekly Insight: Final Four Edition (4/6/19)

What’s up gang! We know March Madness is coming to an end, and we had each of our members create an algorithm to predict the correct outcome of the NCAA tournament. It didn’t work. Anyway, lets dive into the news.

Trade War is Down to the Wire

Trade cannot play its full role in driving growth when we see such high levels of uncertainty.

Roberto Azevêdo, WTO Director General

In the World Trade Organization’s press release last week:

  • Global GDP growth expected to slow from 2.9% in 2018 to 2.6% in 2019 and 2020
  • Estimate of 2018 trade growth is lowered to 3.0% from early September estimate of 3.9% (WTO’s lowest forecast in 3 years)

““The U.S. has a point when it comes to IP theft concerns” – China

Larry Kurdlow, White House Economic Advisor

A possible concession from China in the realm of IP theft – a key point of contention in the current trade dispute – was all investors needed to hear. The S&P posted its second straight week of gains.

Is this information really actionable? Not really, while its good for the two countries to have an open dialogue, many questions such as the Huawei investigations remain unanswered. Moreover, actions speak louder than words, and Kurdlow’s statement came the day after a Chinese official was charged for trying to bring a thumb-drive loaded with malware onto Trump’s Mar-a-Logo resort.

March Job Report Comes in Clutch

The US added 196,000 jobs in March. Wages increased 3.2% year-over-year.

People expected 170,000 new jobs and 3.4% yoy wage growth.

Compare the March data to February (only 33,000 new jobs) and things are looking up as investors can still cling to employment data as a sign of a healthy US economy despite lower consumer confidence, retail data, and that yield curve situation…

Oh yeah, the yield curve! Remember how if long-term bonds have higher yields than short term bonds, investors pee themselves? Well that ominous cloud has subsided to a degree, as the yield curve returned to a relatively flat, but positive slope.

The Middle Market Has More Bandwagoners Than Duke Did

“Investment bankers across Wall Street are tripping over themselves, and sometimes each other, to win business advising smaller companies on deals – assignments they would’ve scoffed at two years ago” – The Wall

What do investment banks do?

A lot of stuff, but it’s common for them to facilitate mergers and acquisitions, or the buying and selling of businesses. For the purpose of simplicity, let’s assume all investment banks are primarily focused on M&A to make money (usually through a % fee based on the size of the transaction).

Big banks are shifting from fewer big marlin deals to lots of small tuna deals.

Yes, M&A in the fisheries market is booming. Just kidding, that was really an analogy. Let me explain. After 2008, there was a big recession so lots of companies consolidated, causing a boom in big time deals. Follow the recession with a decade of low interest rates and then a tax cut, and you see another wave of big time deals (CVS+Aetna, Disney+Fox, Amazon+Wholefoods).

What changed?

  • M&A activity for transactions over $2 billion has slowed down recently as tax cut savings have worn off.
  • Banks are turning to the middle market (companies that make between around $10 million to $500 million a year in revenue) for more and more business. M&A are extremely common among middle market companies, which presents the perfect opportunity for big banks that already lend to these businesses to cross-sell their M&A advice to middle market clients.

Why is that?

  • Middle market companies are frequently purchased by private equity shops. Private equity firms are companies that just buy other companies and flip them; it’s not complicated or anything. Right?
  • Middle market companies are commonly family-owned. Sometimes founders can’t get their kids to act as successors to the business, and acquiring talented employees is generally difficult as a family-owned business. This creates situations where owners are more likely to just sell their business.
  • Smaller companies are way more likely to create truly disruptive innovations. Big companies are bad at innovating, but they have the money to just buy the innovators when they’re small.

Anyway, big mergers are like the marlins and middle market deals are the tuna…

…and its tuna season, baby!

Why it matters for banks: Big investment banks like Goldman Sachs and JP Morgan are moving into a space crowded with regional banks that already specialize in the middle market. With middle market companies accounting for roughly a quarter of total revenue generated in the US, it’s no wonder banks are turning more and more to mid-size clients.

Why it matters for the middle market: A TD Bank survey found that 68% of middle market banks expect to undergo M&A in the next 2 years. The National Center for The Middle Market furthers 60% of middle market businesses are relying on inorganic growth as part of their strategy.

Because M&A can make or break a company, it’s crucial that they receive top notch advice from getting the right price on the deal to ensuring that the companies integrate properly to create synergies.

Other News:

Upcoming IPOs we forgot to mention last week: SpaceX, WeWork, Palantir, and iHeartMedia. iHeartMedia just announced their IPO which they are using to exit the bankruptcy they filed for last year. iHeartMedia’s bread and butter is podcasts. They claim to have 275 million US listeners per month on their platform. For context, Spotify claims to have 207 million global monthly users.

Lyft stock shorts were the most expensive bearish bet in the US stock market on Wednesday. In other words, investors clearly think it’s overvalued, driving up the price of put options contracts. It gets juicy – Lyft just accused one of their underwriters, Morgan Stanley, of marketing investment vehicles to short their shares. This could be a violation of lock-up agreements, contracts that prevent early investors from selling shares immediately after the IPO.

Verizon introduced 5G networks in parts of Chicago and Minneapolis, making them the world’s first commercial 5G provider. 5G will enable download speeds 10x faster than LTE. South Korea will be unveiling their 5G networks shortly, and you may have it in the top right of your screen as early as 2020.

Longhorn Investment Team Weekly Insight: Roundup Edition (3/31/19)

3 minute read

Welcome back to Longhorn Investment Team’s Weekly Insight, a place for you to catch up on key market news and trends. Nursing yourself back to health after Roundup? Well when your friends start trading party stories, it’ll be the perfect time to impress everyone with your “intellectual horsepower.” Keep reading to discover some finance-related party tricks.

Lyft goes Public

Overvalued? Maybe.

“We have a history of net losses, and we may not be able to achieve or maintain profitability in the future” – Lyft investor prospectus

Despite gaining market share over the past few years (up to 39% from 22% in 2016), Lyft reported a net loss of $911 million last year because investors keep subsidizing their “grow first, profit later” strategy. High investor demand despite no current earnings may sound reminiscent of the dot com bubble. At the time of its IPO, Lyft received a $24 billion valuation (props to JPM for advising). Let us know if you think this valuation is baloney or not.

The Big Picture: Lyft marks the debut of the widely anticipated tech IPO class of 2019. While most of the hottest tech companies were content as “unicorns” (unicorn = private startup worth over a billion dollars) for years, the wait for common investors is finally over. Other IPOs on deck include Slack, Pinterest, Airbnb, Postmates, and Uber. We’ll be giving more analysis on the new wave of IPOs over the next few weeks.

An Update on Space Warfare

On Wednesday, India PM Narendra Modi announced the country’s first successful test of their anti-satellite (ASAT) missile test. In other words, they blew one of their own satellites up with a ground-based rocket. What does this mean?

  1. Space is getting hot. India is just the latest country to jump in the global space race, which is currently dominated by China, Russia, and the US. Satellites are the name of the game in space warfare, as successfully jamming or destroying another country’s key satellites can send their military back to the stone age, which can be pretty scary. Space Force jokes aside, V.S. Vereshchetin, Director of the International Institute for Space Law wrote in 2010, “[U]p to now outer space has remained free from weapons as such. The situation would radically change should the plans for space-based weapons go ahead and trigger a new spiral in the arms race both in outer space and on earth […] which is not formally and specifically prohibited by any treaty in force.”
  2. Space is getting dirty. Ignoring the warfare aspect, ASAT weapons themselves – even their tests – create massive amounts of space debris. India’s test created 250 pieces alone, and China’s notorious 2007 ASAT test single-handedly increased the likelihood of a satellite collision by 37%. The takeaway: keep space clean so our satellites don’t crash and create more space debris. Also stop shooting satellites with rockets.

Blackberry (BB) Shares Soar on Q4 Earnings Beat

Not saying we called it, but four of our members pitched a long position on Blackberry two weeks ago. Check it out below to get a glimpse of their new business model.

Other News:

The US government is trying to force the sale of gay dating app, Grindr, from a Chinese corporation, Kunlun Tech Co., based on concerns that Chinese officials can use app data to blackmail US officials or contractors. There is no public evidence of privacy abuses or extortion actually occurring.

Krispy Kreme, Keurig, Dr. Pepper, and Panera Bread used to be run by Nazi’s who used forced POW slave labor during World War Two. That’s a bad look for the Reimann family, the owners of JAB holdings who recently pledged to donate $11 million to an undisclosed charity following their exposure.

LIT Weekly Insight:Spring Break Edition

3 minute read

Welcome to Longhorn Investment Team’s Weekly Insight, a place for you to catch up key market news and trends. For this edition, we’ll dive into some of the business news that everyone missed out on during their spring break mission trips.

S&P 500: 2800.71 (-.77%)
DOW: 25502.32 (-1.34%)
NASDAQ: 7642.67 (-.60%)

market performance from 3/18 to 3/22


The market’s spring break rager came to a crash on Friday when the bond market showed some uncanny signs of recession (oh no!). That’s right, the 3month/10y year US Treasury yield curve went flat early Friday. Every time this has happened in modern history, a recession followed within the next two years.

So, what’s a yield curve?

A yield curve shows the difference in bond yields as time increases. Typically, a longer-term (10 year) bond has a higher yield than a short-term (3 month) bond. Why? Because bonds become more prone to fluctuations in interest rates the longer they are held, so higher yields compensate for that risk.

However, long term bonds yields have been pushed lower due to higher demand from investors, which pushed up the price of these long-term bonds.

Because bond yields and prices move inversely, the difference between short-term bonds and long-term bonds essentially vanished.

Why is this bad?

Well, why are more investors wanting to buy long-term bonds all of a sudden? People are losing faith in the global economy and assets tied to economic growth (ie. stocks) and shifting their money to safer investments: long-term treasury bonds.

Not all hope is lost. Some believe that the low bond yields are simply tied to the FED’s decision to keep interest rates low for the foreseeable future, which could indicate slow and steady growth over the next few years.

Our conclusion: things don’t look good.

One could argue that the FED is accounting for weaker economic growth by keeping rates low, but the federal budget certainty does not, as it assumes 3.1% GDP growth. An unproductive spending boom is typical cause of recessions in the inflationary boom-bust cycle, and we seem to have a recipe for just that.

Google’s Virtual Game Console

Meet Stadia, Google’s cloud-based gaming service that will stream games directly onto your laptop, phone, or TV. While Nvidia, Sony, Microsoft, and even Amazon are pushing similar products, Google is trying to differentiate Stadia in three key ways:

  1. Leveraging existing products and technologies: Google has both the back-end servers to facilitate cloud-based services and the user-facing platforms to deliver content. The vision is for you to be able to see a game clip on YouTube, click the “Play Now” button, and be stomping noobs in a matter of seconds.
  2. Teraflops on teraflops: AMD is providing a custom GPU (graphics processing unit) with 10.7 teraflops of power (teraflop = floating operations per second). That’s roughly twice the processing power of a PS4 or Xbox One.
  3. Catering to developers: Google is investing in features such as machine-learning tech that allows developers to apply their easily apply their own graphics styles. Google is also creating its own studio for exclusive Stadia content.

Why is Google doing this? The video game market is valued at $180 Billion.

Other News:

Netflix is rolling out a $3.25 per month, mobile-only streaming plan for customers in India. It’s no surprise that companies are targeting India’s less mature smartphone market, and it’s not uncommon for these firms to compete on price here. However, mobile Netflix plans can only grow as fast as the handset market, which faces its own challenges. A lack of affordability, education, and gender equality are all impediments to further smartphone diffusion in India.

Fun Fact:

Six Flags (SIX) charts look like the Texas Giant.