I’ve just updated my Keeping Score page for November. A strange month from a sector point of view, with the S&P down (a tad) for the first time since April. Arguably, more damage from Washington, but continuing recognition that a weak currency has some domestic market beneficiaries.

This is the Wikipedia account of the prosecution of William Calley after the 1968 massacre in My Lai, during the war in Vietnam:

“Due to Article 4 of the Fourth Geneva Convention excluding allied civilians from the status of protected persons in an international armed conflict, Calley and his fellow soldiers could not be legally tried as war criminals. Calley was instead charged on September 5, 1969, with six specifications of premeditated murder under Article 118 of the Uniform Code of Military Justice (UCMJ) for the deaths of 109 South Vietnamese civilians near the village of Son My, at a hamlet called My Lai. On November 12, 1969, investigative reporters Seymour Hersh and Wayne Greenhaw broke the story and revealed that Calley had been charged with murdering 109 South Vietnamese people.”

According to Wikipedia, Calley’s trial started on November 17, 1970. It was the military prosecution’s contention that Calley, “in defiance of the rules of engagement, ordered his men to deliberately murder unarmed Vietnamese civilians, even though his men were not under enemy fire at all.” He was convicted in a military court and sentenced to life in prison. Extensive appeals followed over 3+ years, resulting in Calley being incarcerated for a period and ultimately paroled.

I wonder how this bears on the current news reports of the Navy killing two men clinging to the wreckage of a boat it had destroyed off the coast of Trinidad on the assumption the boat contained illegal drugs destined for the US.

A brief note on recent trading, or at least what I’ve noticed.

There were two stocks, Symbotic (SYM) and Kohls (KSS) that were each up by about +60% over the past week, both apparently triggered by positive earnings reports. I’m not saying they shouldn’t have been up, but that’s an awful lot in a short period.

I know a little about SYM, whose shares I own, thanks to my son Brendan. The company makes robot-run warehouses. What caught my eye was that a while ago Walmart, the long-reigning king of logistics, stopped its internal robot warehouse efforts and essentially outsourced this effort to SYM. I didn’t think there was that much new in the earnings conference call. The only difference I saw between this and prior calls, which I’d read but not listened to, is that the company gave a more organized and complete outline of what it does–along with the observation that it expected earnings growth to accelerate in the second half of 2026. Same facts, better communication.

Not, I think, enough for +60%. My guess is that the stock had, for whatever reason, been heavily shorted–and this conference call made it clear that the company has good products and that profit momentum is building. Nothing really new, but better expression of facts.

KSS? I don’t know. What I’ve read suggests that new management has injected life into a long-time blah brand. I’ll admit to not having been in a Kohl’s store in a loong while. Here again, though, my guess is short-covering. How so? I’ve just finished a jargon-filled (never a good sign, in my view) conference call transcript. It seems that, although KSS targets less affluent customers, sales are flattish, inventories are under better control, the company is making good progress in financial deleveraging and, with its Sephora partnership, is more efficient in its use of floor space and online. Plucking a number out of the air, KSS is, I think, trading at 12x forward earnings. And the thesis that the company may crash and burn in the coming year is probably off the table.

If my description is correct, this is very aggressive behavior for what I think is an unusually uncertain time.

I’ve been curious about non-publicly-traded investments for a very long time. My interest stems primarily from starting out with the oil and gas tax shelters sold by small- medium-sized oil and gas companies that were around when I became a securities analyst, specializing in natural resources, in 1978. But I was also aware that Yale, where I had been a grad student for six (!) years, was beginning to shift to private equity as a way of maximizing its endowment funds.

The owner of Value Line, where I got my start, was deluged with prospectuses for oil and gas partnerships, so I became deeply acquainted with the format very quickly as he plopped prospectus after prospectus on my desk to evaluate. During this period, I also covered companies that prominently featured such partnerships, acting as the “master partner” who actually ran the operations and collected a hefty fee for doing so.

What I learned:

–a driller operating for himself would only start a well if he expected at least $3 in revenue for every dollar spent on finding oil or gas and getting it to market. With acreage drilled for limited partnerships, however, the rule of thumb was $2 in revenue. Put a different way, the partnership acreage was, in effect, reject acreage, undrillable without the limited partnerships footing most of the bill.

–very thick prospectuses spelled out who got what share of the oil and gas sales revenue generated by the partnership efforts. To my way of looking at them, after drilling costs and revenue distribution to entities higher up the food chain, the there was almost no way limited partners would ever make money. One day, I was chatting on the phone with an officer of one of my coverage companies and danced this thought by him. His response was that I was correct–that the biggest (only?) value in the partnerships was that the limited partner could mention at cocktail parties that he/she was involved in the oil and gas drilling business.

What triggered my mind to pull this experience out of deep storage?

I was reading about private equity involvement in a US chain of jewelry stores specializing in diamonds that just declared bankruptcy. I thought, “Who would invest in a retail outlet for diamonds? A half-century ago, maybe, …but now?”

The issues I see:

–in the old days the wholesale price of diamonds was controlled by the De Beers cartel. But starting just as I was entering the stock market, large diamond discoveries outside the De Beers orbit were being made. Those owners declined to participate in the De Beers cartel, creating secular downward pressure on the diamond price

–at the same time, synthetic diamonds, initially ugly and used in oil and gas drill bits, were being perfected. For decades since, they have been very cheap and hard to distinguish from the mined variety. And it also appears that tastes have changed to the point that younger consumers favor synthetic. The result of all this is that diamonds have long since become a commodity business

–it also appears that tastes have changed to the point that younger consumers favor synthetic, creating further price pressure

–there’s the question of conflict diamonds, as well.

Of course, I’m not on the inside and have no access to the actual investment rationale in this case. Still, it seems to me to be a case of swimming upstream against a very strong current.

The virtue (if that’s the right word–would “characteristic” be better?) of private equity, and of private credit as well, is that the holder doesn’t have to mark the position to market every day, as is the case with publicly traded stocks and bonds…another plus, avoiding the bad optics of an at least temporarily underfunded pension plan. Arguably, too, the relative illiquidity of these investments is simply the no-free-lunch price to be paid for the possibility/expectations of extra-high returns.

My guess is that we’ll ultimately find that the same set of political factors affecting the overall domestic economy and the currency are also at work in the private arena. That is, the combination of $US costs and foreign currency revenues is an unusually strong winner, and that the opposite is a worse-than-expected loser.

The biggest issue I see for the private arena is that it may be difficult to change structural elements like this quickly and at low cost. In addition, it’s possible/likely the dollar will take another beating if Trump is successful in recreating the pre-Volcker Federal Reserve that was so destructive in the 1970s.

…a couple of things

stock performance

The S&P 500 is ahead by +12.9% year to date through yesterday, a result that puts us deep in the bottom quartile of world stock markets. This compares, for instance, with an advance in $US by EAFE (=Europe, Australia and the Far East), the most commonly used benchmark for developed country markets outside the US, of +23.2%.

If we parse things a little finer, the US market ex IT (IT being a global sector not really reflective of how the US as a place is doing) has made a ytd gain of +8.7%. The IT sector, in contrast, is up by +21.7%–still lagging the non-US market performance, but not by much.

The euro has gained about +11% vs. the $US this year, meaning that a euro-based investor would have a small loss in the home currency from holding domestically-focused US stocks. A Mexican peso-based investor is considerably worse off than that.

Walmart (WMT) and Nvidia (NVDA)

Both (I own shares of each) reported quarterly results between yesterday’s close and today’s open. Both reported strong results.

–WMT. What I took away from the conference call is that economic conditions haven’t been as damaging to WMT as the company had feared. I interpret this as meaning that, among other things, the number of customers trading down from WMT to the dollar stores has been smaller than the number trading down to WMT from Target and/or supermarkets.

My guess–although it’s probably not crucial that I’m right–is this is more WMT’s skill in handling a weak economy than that the economy has shown more life than initially feared. Fees from membership in Walmart+ or Sam’s Club have been strong, as have convenience fees paid for faster home delivery service. Apparently, surprisingly so. More generally, WMT’s effort to build an online service to rival Amazon’s seems to be gaining steam. Unclear whether this is bringing in new, more affluent customers to WMT, although my guess–and one reason for my holding the stock–is that it is. All in all, a flatlining economy is, so far, surprisingly good for the company.

–NVDA. Basically, business is booming …but there’s nothing really new.

As I’m writing this, WMT is up by about 6% on its earnings news, and although NVDA was strong in the aftermarket yesterday, the stock is down by about 1% now. The difference I see the stock market making between the two is that WMT is a beneficiary of the economic damage created by a dysfunctional central government, while NVDA is arguably a victim by Washington’s barring sales to China.