"If a capitalist had been present at Kitty Hawk back in the early 1900s, he should have shot Orville Wright." So said Warren Buffet in 2003. My how things change...Great investors are never dogmatic. As you may recall from our post three months ago(Nov 11, 2016), we have been unabashed bulls on the airline sector for a very long time. In a nutshell, we think capacity discipline and the rationalization of the US airline industry are driving significant efficiencies (not to mention the indirect benefit that they receive from all of the oil and gas that the US is pumping). This is likely to lead to real value creation In fact, we think it already is. Just last week, Delta announced that they were

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Over the past week, financial markets revisited the “Trump Trade” as a portfolio consisting out of 3 variables. The first variable is the dollar. The green buck resumed strength because of a more favorable stance by President Trump in trade discussions with Japan and China. Japanese Prime Minister Abe praised Trump for his business qualities with a trade deal potentially away from the Trans-Pacific Partnership (“TPP”). The conference call with Chinese President Xi Jinping resulted in a policy shift by Trump when he formally confirmed to uphold the “China One Policy.” The diplomatic nature of these discussions with Japan and China critically refrained from “currency manipulation” and was rather translated as a “level playing field” on currency valuation. The dollar index re-priced to moderately above 100,

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The Federal Reserve’s FOMC Statement may have had the look of a stalemate but the language was crafted such that there are two important implications. The first is both sides of the dual mandate (inflation & unemployment) are in the Fed’s view now at target. The outlook for inflation was changed from “expected” to “will rise to 2 percent.” The Federal Reserve has high conviction inflation will be at target by removing from the Statement “transitory effects of declines in energy and import prices dissipate.” The other part of the mandate, the unemployment rate, was described as “stayed near its recent low” rather than declining. The assessment of the mandate coming into balance, suggests the Fed is getting ready for the next phase of

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As Donald Trump was sworn in as the 45th President of the United States, there were two notable points in his inaugural speech. The first point is President Trump took a firm stance against the political establishment. His message was conveyed such there will be a power transfer from government back to the private sector. By ending state control, “carnage” as President Trump described it, would end effectively. That may imply government intervention in private markets is now something of the past. One may argue President Trump took to heart the ideologies of the late economist Paul Samuelson. He argued maximizing welfare for the public results in an economy operating at optimal efficiency. The speech focus on “buy American, hire American” is adage to Samuelson by

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We expect that 2017 is setting up to be a year of heightened activity in Advanced technology, leading to a robust IPO market in 2017. A decade of repressive regulations, costs and other aftershocks of the dual crises(2000-02 & 08/09) have created a pressure valve set to burst. The mountain of regulations have kept fast growing private companies private longer and the money followed. Venture Capital, and in particular, late stage capital(growth funds) have allowed the companies plentiful access to massive funding without the public markets. Advances in innovation have been accelerating at an exponential rate, costs to develop have dropped by orders of magnitude and available pool of talent has dramatically increased. After a long run of activity, the confluence of mobility,

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Credit risk premiums recently narrowed to their tightest levels since late 2007. There are a few risks emerging at the horizon that may alter valuation of corporate bonds. These risks can be put into three categories: 1) macro risks, 2) cross border holdings and 3) non-repatriated earnings and corporate tax reform. In the Minutes of the Federal Reserve released this week, there was a discussion how to respond when the economy with an already tight labor market could face additional fiscal stimulus. Many FOMC members saw a quicker tightening as the appropriate response. This tightening would be through 2 to 3 rate hikes in 2017, possibly followed by a reduction of the size of the Fed's balance sheet. These tightening measures may come at a time

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We are big fans of using all tools available to derive insights for our investment views. In particular, alternative datasets are increasingly valuable, available and differentiated. The advent of Artificial Intelligence on the Investment court has changed how things are done quite a bit. The various A.I. techniques are finding their way into the top trading and research desks of investment managers and advisors. From Natural Language Processing(NLP), to Machine Vision, Deep Learning and others, we are processing mass quantities of complex data via algorithms to better understand (and hopefully predict) our world. In light of our view of the immense value of these alternative data sets and the high growth companies that are creating this market, We thought that we would share an

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The Entrepreneurial Lifecycle: As the New Year turns. I wanted to touch base on the lifecycle that we all go through and how to optimize the benefits of working with an Advisory firm like Intellectus Partners. There is a difference between investment management and Wealth Management. There is an even bigger difference in advising Entrepreneurs and execs in high growth companies and non-entrepreneurs regarding their finances. Most often clients come to Intellectus Partners at or near an exit and expect the firm to just step in and work it’s “magic”. We can certainly help and add value at that point but wealth management for those in an entrepreneurial world ideally should line up temporally with their business lifecycle. When someone comes to us near their

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The leading behavioral investment mistake By Thomas Oberlechner, Chief Science Officer, TheHintBox!,Inc, a related company Biography: Thomas Oberlechner, Ph.D. Dr. Oberlechner is Chief Scientist at TheHintBox!,Inc, a related company to Intellectus Partners. He is also founder and partner of FinPsy LLC, a San Francisco based behavioral consultancy. He helps decision-makers in finance and investment integrate state-of-the art behavioral expertise into their decisions, products, and organizations. Dr. Oberlechner is a leading expert on behavioral and psychological aspects of financial decisionmaking. While previously Chief Science Officer at iMatchative, he developed decision support systems for investors and hedge fund managers that add novel behavioral dimensions to the financial hedge fund data traditionally available. These systems provide investors and fund managers with deep insight into behavioral preferences,

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The slope of the yield curve informs about the future state of the economy. Post the great recession, the yield curve hasn’t tracked always the “normal” cycle shown in Figure 1. There are two reasons why this is the case and what it means for core fixed income investing. Figure 1: U.S. Treasury and Japanese Yield Curve Compared Source: Bloomberg, monthly data. T-= years before the cycle peak of economic growth, T+ = years post peak and into recession. The first reason is to compare the slope of the U.S. yield curve to Japan. The Japanese curve followed the normal cycle but deviated when deflation took hold (T+2 to T+4, Figure 1). Notably, the U.S. yield curve (orange line) follows the

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One possible effect stemming from the Brexit and U.S. elections outcome could have significant consequences: central banks relinquish their independence. There are academic proposals that call for central banks to maintain “operational independence” but give up political independence. There has been rhetoric during and post campaigns that argue for a change of central bank influence, different board and Chairman appointments and even a call to return to the gold standard. Politically motivated changes of a central bank have been associated with periods of high inflation. However, removal of central bank independence could also play out differently, for example by way of market forces. There are three ways how that may happen: 1.Loss of control over long maturity interest rates 2.Loss of control over

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What are the possible outcomes from the expected and stated tax policies of the new Trump administration? Pragmatism v. Idealogy: What are the likely economic impacts? Two years without gridlock? Given that the deck is now stacked for conservatives in that they control the White House, House of representatives and the Senate ...and likely soon the Supreme Court, expect a whirlwind first two years. Here are some of our thoughts with assists from a few of our sell side coverage friends at some of the big banks. The simple logic as to what has changed: In the past Obama regime, we've had sub par growth but the FED was still raising rates. The consensus was that there was indeed some room for Chair Yellen to raise

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Since the U.S. elections, the dollar has surged by 5 percent while emerging market currencies fell by double. When the value of the dollar spikes, global GDP on average has contracted by 2 percentage points in the past, and eventually dip into recession territory (see Figure 1). Currently, markets are in the “first inning” of a periods of rising rates, surging dollar and contracting global GDP. This combination could have two profound effects: dollar shortage and Fed balance sheet contraction. Figure 1: Dollar and Global GDP Source: Bloomberg, quarterly data, 1980-2016 Since the middle of 1990s, global debt denominated in dollars has expanded by an average of $1.5 trillion a year, to a cumulative of $50 trillion today according the Bank of International Settlements.

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As Q3 Earnings season winds down, we provide a quick update on how the various sectors fared on Sales and EPS results. 91% of S&P 500 companies have already reported, so at this point we have a pretty good indication of how things are going to settle out. Overall, the quarter was pretty impressive with 55% of companies beating Sales estimates and 76% of companies beating Earnings estimates. The standouts on both Sales and Earnings were Technology and Financials, with 91% of Tech companies beating Earnings estimates and 84% of Financials beating Earnings estimates. The laggards were Telecom Services and Materials on both Sales and Earnings. See below a table which ranks the sectors from best to worst on both Sales (left) and Earnings

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As has been his unique habit, Warren Buffet's Berkshire Hathaway has taken an aggressive stake in an industry. Berkshire has filed their Q3 2016 13F filing today and among them was a particularly outstanding item. He has acquired large stakes in an airline, no make that "ALL" four major airline companies, or, the entire industry. Warren Buffet has acquired stakes ranging from $300mm to $1bb in value in each of the legacy carriers, American Air, Delta and United Continental. He also took a stake in Southwest. As we have been stating for quite awhile, the relatively rapid consolidation in the Airline industry, (Continental, Virgin are the latest two) has created a dynamic similar to what the railroad industry went through a decade ago. The consolidation of

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