Category Archives: The Blue Ocean Management

The Blue Ocean Management Reviews Fragmented Information and Forecasts Short Term and Long Term Market Trends for Value Investors.

Journey forged Nvidia’s character: Dynamic Capability

According to Jensen Huang, a founder of Nvidia, it is important to find joy in work, learn to embrace a failure, and see the world like a child  (Huang, 2009).They sounds like a philosophy of start-up founders. Recent his interviews (Huang, 2023; CNBC, 2023) shared Nvidia’s journey and strategic choice of hard ones then that was not guaranteed or zero billion market then in his words. For example, Nvidia decided not to go after phone modem market that was huge then. Instead, Nvidia chose to work on creation of robotic computing that was not a market then. Jensen Huang put it, ” Go for zero billion market.” He meant to create a new market.

As he mentioned in his commencement speech (Huang, 2023), Nvidia’s journey forged its character. Now Nvidia is a front runner at every innovative area. Other companies need to play catchup. Nvidia deserves its well earned valuation and credits that they have built last three decades. Nvidia reminds of Dynamic Capability.

US Housing Markets Cooling Off

US National Home Price NSA Index has gone up 45% from January 2020 to June 2022.  Since Fed increased interest rates seven times 2022, the average 30-year fixed rate mortgage became 6-7%. Sales of existing homes have fallen (Timiraos, 2022, December 25).

Particularly, according to US Census Bureau data, US household percentage of the entire population has been steady and entire population over age 16 seems to grow very low or lower than before the Pandemic (see figure 5). This offers some background picture of house ownerships (FEDS notes, 2022, May 06). As single ownership increased during the Pandemic, this may be related to the behavioral change. For example, professionals working remotely may have purchased a residential place.

Recent Wall Street Journal said that some mortgage banker warned that the full effects of high interest rate have yet to be felt (Timiraos, 2022, December 25).

Satellite Service Providers for Airlines, Boats, Battleships

Since the war of Ukraine, US military leaders pay attention to cybersecurity and secure communications. For managing battlefield communications, this seems reasonable. In this moment, satellite-based communications has risen to fit the bill. For example, L3Harris Technologies Inc. bought a military-communications business from Viasat Inc. (Lombardo, 2022, October 2). Viasat sold the business of integrated network of military aircraft, surface vessels, ground vehicles and bases to secure voice and data communications in battlefields.

 Furthermore, this type of satellite service gains high interest from private planes, boats in ocean, and vehicles in desert area. Space X has had its Starlink satellites close to Earth when it launched its Falcon 9 rockets. Theis net work of satellites provided high-speed internet connections to global subscribers, around 400,000 (Maidenberg & FitzGerald, 2022, June 30). Airline clients showed their high interests including Delta Airlines Inc. and Hawaiian Airlines. Southwest Airlines Co. chose Viasat Inc. to use its in-flight Wi-Fi.

Despite all disagreements and dissents from Dish net, Amazon, and other satellite service providers, FCC approved more 7,500 Starlink Satellites to be launched (Maidenberg & FitzGerald, 2022, December 1). For now, Space X is successfully interweaving its business with air defense industry.

Attempting to Rein Inflation in US

Price of goods became high under Covid -19 Pandemic when people got cash support and purchased items online. That is a demand side picture of US inflation.  Chinese lockdown and US port bottleneck strains (Berger, 2022, January 28) brought supply chain disruption (Shih, 2022, July 22), which is a supply-side picture to price increase and inflation.

There has been increasing worries including Senator Elizabeth Warren and economist John Cochrane, saying Federal Reserve is not fully equipped with a right tool in this new type of inflation (Varadarajan, 2022, February 19). Mr. Cochrane pointed out that softening demand with high interest may have limit as compared to supply expansion. 

Senator Elizabeth Warren blamed Putin’s invasion to Ukraine for US inflation (Warren, 2022, July 24). She described as US could have been in a full economic recovery until Fed began to increase interest rate. Oil price has been a big contribution to inflation, which she highlighted. She warned that one medicine in kitchen cabinet does not cure all illnesses, meaning high interest is not a remedy in this type of inflation. She was looking at supply side of inflation.

As Wall Street Journal correspondent for Federal Reserve described in the newsletter (Sparshott, 2022, November 5), Jerome Powell emphasized price stability prior to soft landing or even recession in this juncture. Thus, Jerome Powell implied that there will be longer tightening with lower hikes, possible half percentage point. Fed has a tool to tame demand side of inflation.

If Putin ends war in Ukraine and China loosens its lockdown policies for Covid spread, will everything go back to normal? Maybe. Realistically, however, this may result in long inflation as there is no coordinated efforts to tame inflation, at least not materialized yet.

Provided with The Blue Ocean Asset Management Partners, LLC. Further information, please contact us

Driverless Technology

Driverless cars would be majority in US cities by 2025, according to John Zimmer, co-founder of Lyft said in 2016 (Michaels & Elliott, 2022, October 27). This week driverless technology is hotspot for different reasons.

On Wednesday, October 26, Mobileye offered its initial public offering price at $21 per share. However, Mobileye made a better than expected IPOs and landed at $28.97 on Wednesday. There was worrisome due to current US stock market’s cooling off. In addition, standing alone business model for driverless technology was viewed as unsustainable according to Daniel Morgan, a senior manager at Synovus Trust co. (Driebusch & Higgins, 2022, October 26). Also, other competitors are better funded, for example, Waymo by Alphabet Inc. and Zoox by Amazon.com.

On the other hand, US Justice Department and Securities regulators are investigating Tesla if it may have misled consumers and investors (Michaels & Elliott, 2022, October 27). Tesla’s Autopilot system is most popular and highest driving assisting system on the roads, whether it may overstate its functions. 

Driverless technology or autopilot technology is, fully or partially, applied for most new cars, as Intel’s CEO, Mr. Gelsinger, observes. We are just witnessing Mobileye going alone in public equity markets this week. US car industry is going driverless, which might be slower than the expectation. Still, it seems going that way.

Provided with The Blue Ocean Asset Management Partners, LLC. Further information, please contact us

Not a Good Time for Experimental Economic Policies

UK had 45 days of Liz Truss as a Prime Minister and Kwasi Kwarteng, chief of Treasury and a new experimental economy policy. That ended when Liz Truss resigned in Thursday, October 20 (Luhnow, Hannon & Dulaney, 2022, October 20). They announced UK growth plan by cutting taxes and subsidies at the same time. In addition, they said to cap energy prices to support families. All sounded great. Where will they get money? UK government will borrow more money. This shocked markets as global economies are worried about inflations. Then, markets tumbled, and UK currency dropped lowest points. 

This year might not be a right time to do experimental things in real economy, particularly related to UK pensions with 11 million Britons (Authers, 2022, October 21). The Truss economic plan was not well prepared for its funding, no clarity in that regards, and not well coordinated with economic activity participants, particularly UK central banks. 

Provided with The Blue Ocean Asset Management Partners, LLC. Further information, please contact us

NVDA at its Bottom

Due to cooling off in video game sector after Pandemic frenzy, NVidia has gone down by 57% in 2022. This is a harder fall considering that iShares Semiconductor ETF (SOXX) fell 42%. Nvidia had to close Russian market and taper off China market due to US sanctions against two countries.

Today, Thursday Oct 20, Piper Sandler reaffirms its Overweight rating at $200 as Barron’s reported (Kim, 2022, October 20). According to Harsh Kumar, the analyst of Piper Sandler, Nvidia will continue to make new models and generations of graphic cards as it did with Ada Lovelace that was developed from the architecture of RTX4090 card. This new model was launched in September and showed strong demand. So, Nvidia will start growing in 2023 and 2024.

Some anticipate that markets will fall another 10% when US Fed reserve reduce its balance sheet soon. For long term value investors, this might be a good time to pick up good companies like Nvidia at good price, around $125.59 or 10% lower.

Provided with The Blue Ocean Asset Management Partners, LLC. Further information, please contact us

No Access to Economy Data from China Bureau of Statistics

Chinese economy cannot be measured or analyzed as US does. In 2021, Chinese government statistics bureau retracted data more and more data from public access. In October 17, 2022, China National Bureau of Statistics canceled the release of quarterly gross domestic product data without any prior notice. Until now, there was no official explanation.

Even before this dramatic blunt move of Chinese government officials, there was prevailing estimation that Chinese economic activities must have been low due to Covid-zero policy and lock-downs (Xie, 2022, October 18).

The Wall Street Journal this morning, Wednesday October 18, sent out the real time economics newsletter where the journal got a peek inside China by asking SpaceKnow. The SpaceKnow monitors and analyzes global activities around warehouses, factories, shopping centers, refineries and other economic hubs. Particularly cement production in China seems lower than the average level in 2019 (SpaceKnow, 2022).

China’s GDP rose 3.9% in the third quarter from a year earlier, up from 0.4% in the second quarter and higher than the median estimate of 3.3% in a Bloomberg survey of economists (Bloomberg, October 23).~updated in Oct 25.

Provided with The Blue Ocean Asset Management Partners, LLC. Further information, please contact us.

Disney Gambles

In 2018, the US Supreme Court invalidated federal restrictions on wagers. Since then,  32 states and the District of Columbia have legalized wagering on sports. In 2021, sports-betting industry has grown to generate $ 4 billion in the US (Prang, 2019, May 14).

ESPN and Caesars Entertainment Corp decided to create sports-betting content including Daily Wager (Lombardo & Mullin, 2021, August 27). In addition, ESPN invested $250 million in DraftKings Inc. in 2015. DraftKings Inc. allows sports fans to play fantasy sports with real money at stake. In 2020, it went public.

ESPN, the sports-media giant and Walt Disney’s sports channel, has marketing partnerships with Caesars Entertainment Inc. and online gambling company DraftKings Inc.. By expanding these partnerships with the two major sports-betting companies, ESPN aims to get sports-betting license for around 3 billion in next 6-7 years (Lombardo & Mullin, 2021, August 27)

It is understandable that ESPN reaching out to keep young sports viewers, as most young adults do not spend time on TV or cables. Even its ex-CEO, Bob Iger did say that it is highly unlikely that Disney would be directly involved in gambling.  As Walt Disney kept its business image as family entertainment enterprise, direct gambling offering might not be wise. Thus, it make sense that Disney expands its partnerships with major players (O’Brien, 2021, Sept 23). 

Bob Iger had built multi-streaming channels with serious multiple intellectual property acquisitions of Marvel and Lucas characters. We will see this gamble working or not in next 10 years as this industry is still infantry and global economy is soft since Covid-19 Pandemic. However, any investor looks to diversify her or his portfolio with Disney at discount price recently, $172-175 per share. Disney has rooms to run as tourism has not recovered fully back to pre-Pandemic level while online subscription business model, streaming channels, and early stage of sports-betting content will support its revenue growth in the long run.

Lithium Battery on the Move

Lithium became a hot commodity since Tesla launched its electric vehicles using it (Horner, 2021, March 10). Tesla (TSLA) announced that it would build its own battery cells in 2022 and triple its lithium production  at its mega factory in Nevada desert (Higgins & Somerville, 2020, September 23).   

Lithium prices have been rising and will be on the rise due to high demand for electric vehicles that use lithium-ion batteries between 7% to 10% (Hoyle & Winning, 2021, April 19).  Though depending on battery chemistry and product diversification, lithium industry is ready for the bumpy ride by gearing up for margin squeezing competitions and global market volatility.

For example, Lithium Americas Corp, is a Canadian mining company who raised $400 million in 2021 January to fund a Nevada project to take lithium out of clay deposits. Albemarle spent more than $30 milion dollar to assess the area and invested $30 to $50 million to produce lithium in Nevada (Patterson & Ramkumar, 2021, March 9). Other two: Piedmont Lithium and Livent also moved fast to catch up with market demand and competitions.

On the other hand, Orocobre Ltd. Agreed to buy its rival Galaxy Resources Ltd in all stock deal to be one of the world’s biggest lithium producer. This new miner would be the fifth-largest global lithium miner valued at USD $3.06 billion (Hoyle & Winning, 2021, April 19).

As Biden Administration has placed its heart in renewable energy infrastructure including electric vehicles, all eyes have been on lithium and lithium battery technology for a while. In addition, it might be wise to figure out what is going to be a wonderful industry in the future.

Cite this as follows:

Rachel Kim (2021, May 2). Lithium Battery on the Move, The Blue Ocean Management.com, retrieved from: https://theblueoceanmanagement.com/2021/05/02/lithium-battery-on-the-move/

References:

Higgins, T. & Somerville, H. (2020, September 23). Tesla ‘Battery Day’ Spotlights Elon Musk Plan for $25,000 Electric Car, Wall Street Journal, retrieved from: https://www.wsj.com/articles/tesla-battery-day-elon-musk-shareholder-meeting-11600802500

Patterson, S. & Ramkumar, A. (2021, March 9). America’s Battery-Powered Car Hopes Ride on Lithium. One Producer Paves the Way, Wall Street Journal, retrieved from: https://www.wsj.com/articles/americas-battery-powered-car-hopes-ride-on-lithium-one-producer-paves-the-way-11615311932

Hoyle, R. & Winning, D. (2021, April 19). Lithium Miners Ink $3 Billion Merger as Demand for Electric Vehicles Booms,Wall Street Journal, retrieved from: https://www.wsj.com/articles/lithium-miners-ink-3-billion-merger-as-demand-for-electric-vehicles-booms-11618827032

Horner, W. (2021, March 10). Booming Electric-Vehicle Demand Supercharges Lithium Prices, Wall Street Journal, retrieved from: https://www.wsj.com/articles/booming-electric-vehicle-demand-supercharges-lithium-prices-11615391390