Samsung, Lithium and Yellow Lights

Reverend Jim: “What does a yellow light mean?”
Bobby: “Slow Down”
Reverend Jim “OK…Whaaaat dooooes aaaa yeeeeelllllooooowwww liiiiiight meeeean?”
Bobby: “SLOW DOWN!”
Reverend Jim “OK…Whaaaaaaaaaaaaaat Doooooooooooooooeeeeees aaaaaaa…”

Well, you get the idea. This was one of my favorite scenes from the old US sitcom, Taxi. I think we’ve all forgotten about the yellow light and the idea of slow down. This episode came to mind while reading about the Samsung Galaxy Note recall, soon followed by an article on Lithium prices. I think that phone batteries catching fire can easily be looked at as the state of society and the way recent market cycles seem to move, like everything else, in the blink of an eye.

The Samsung recall; burning batteries. The Motorola StarTAC flip phone (first flip phone!) was released in January 1996. Its successor, the Motorola RAZR, was not released until Q3 2004. Other than a slight weight reduction and the introduction of colors and other small style enhancements/options, the original StarTAC remained largely unchanged during its entire life cycle. This was also the first phone, I believe, that had a lithium ion battery available for extended life.

Here we are 20 years hence. And look at Lithium now…



A couple of things strike me about these charts; it seems production and prices both rallied rather smoothly until 2014. Look at prices last year! Best known as a “Parabolic” move. Production doesn’t keep up any longer…We’ve all got cellphones in our pockets. These have more processing power than an Apollo moon mission, and better screens than those awesome Sony Trinitron’s of the same period. In our pockets! And we all complain about battery life.

We can easily add to the demand equation when we start taking into account electric cars. Growth of electric cars, I think we can agree, stands to expand probably exponentially. Currently, the electric cars available are also using Lithium sourced batteries. And cars are only the beginning of the impending demand thanks to Elon Musk. His plans for home batteries to store solar generated power are the tip of yet another demand iceberg. Tesla is building batteries for Southern California Edison to store 80 megawatt hours of electricity, enough to power more than 2,500 households for a day. The question of how much faster we can extract lithium, and how much exists now come into play. I’m not sure what an uber-parabolic move looks like, but I’m guessing with no relief, we would find out from the lithium price chart sooner than later. In fact there is no shortage of articles, columns, and blogs talking of the next price spike.

This is where I think we’ve lost all sense of Yellow Lights. We move as fast as we can from zero to one hundred, but don’t take stock (pun intended) of the long term implications. From Samsung possibly moving too fast to jam in as much power, and support for that power, into a small fully sealed, barely cooled pocket computer, to California’s ambitious plan to install 1.3 gigawatts of storage by 2020, we don’t slow down to figure out the downside…and every upside has a downside. Pocket fires, airplane battery fires…there are no fire issues in California, right?

Now to the markets, and the many directions this simple Lithium discussion takes us. Short term (is there really anything else? – Read first post…) we can examine Lithium mining, lithium supplies and supply chain, battery manufacturers (Panasonic supplies Tesla). We can look at utilities, which of course comprise one of the largest sectors of fixed income securities in the US. We’ll call that the medium term. As to the long term, what’s next? When the StarTAC came out, Lithium ion batteries were the newest rage. Lithium was cheap, too. So what’s the next power storage discovery?

There are alternatives already, they’re just not “there” yet. But in this zero to 100 world of ours, I promise no matter how long you think the next generation of storage will take, it will be here sooner…and that will be our new definition of “long term,” and that parabolic chart, well we all know about what goes up and that equal and opposite reaction thing.

In the meantime, there are plenty of ways to bet for and against the current and future technologies; commodities, private equity startups, fixed income, traditional equities. Choose your arena, but whichever one it is, don’t blink, there are no yellow lights.

Friday Wrap’s

In a previous role, I hosted a ‘Wrap’ session. These brief 15 minute roundtables allowed us to take a current event and discuss the implications across the entire investment industry. Sometimes they were esoteric or seemingly mundane, one discussion started around an impending snowstorm and the chances of working from home, yet we found market impact.  Sometimes they were top of the news, such as when Brexit was supposed to immediately and dramatically influence our lives…not so much. No matter the initial topic, there always seemed to be a way to show impact across many, if not all parts of the securities industry. Much of this industry is treated as separate silos, yet it is important to understand what other people are thinking as they make their decisions about trading and investing.

Having spent almost 14 years in commodity futures trading pits, knowing when someone might be bluffing was a large part of the advantage of having a membership. Take poker for instance, where reading the face of your ‘opponent’ is more important than the cards you yourself hold, or so I’m told…Unfortunately, with trading all being conducted by electronic means these days, reading your opponent has become much more difficult. Additionally, the availability of information in milliseconds, though not always accurate, has also put a new spin on the game. It’s often tougher to figure out your own opinion much less trying to guess someone else’s.

It’s truly a reality show out there. Major and minor events often have equal immediate impact as well as being forgotten quickly, as we move on to the next ‘episode.’ The Kardashian society we live in today demands a short attention span. Dwell too long on one topic and you’ll miss something; everyone else has already moved on to the next shiny thing. The anticipation leading up to Scottish secession was palatable. Yet, within the blink of an eye, we were on to Brexit. As a bonus, the Democrats and Republicans provide non-stop soundbites to mull over, in something maybe more akin to a reality show than the campaigns of our next president and the runner up. Retirement fund meet pop culture.

Okay…So far, I’ve covered playing poker, pop culture, and a bit of world politics, but nothing about investing, or trading (Jesse Livermore pointed out the difference between the two) as we all seem to now do since it provides much more immediate gratification. But that’s what this blog is actually about. The 10% correction is no longer looked at as a healthy break, but rather a mini-series beginning as the end of the world and ending with a ‘whew’ moment, looking for someone else to blame of course; then we’ll vote them off the island.

The securities industry itself has often suffered from a habit of making silos. A fixed income manager was not much use to an equities guy. The commodity traders, well they were a small group, so what influence could they really have. The technical analysts, the guys with those weird charts, well that was all voodoo anyway. Now everyone wants to know what everyone else thinks; no, everyone needs to know what others think. No successful foreign exchange trader is ignorant of commodity prices. No fixed income trader is quietly plying his trade in a cozy office on another floor. They are all glued to CNBC, Fox Business or Bloomberg TV awaiting Janet Yellen’s next words. At times, it feels like they’ve all become my 14 year old daughter gathering with her friends for the season finale of Pretty Little Liars.

This, finally, brings me to the essence of creating this blog. How does it all tie together? Is the growth of the first flower in space as important as the Greece bailout (any of the bailouts…)? Well, not nearly as many people are talking about the Greek bailouts as earth shattering events at this point. Short term, intermediate or long term, I’m no longer constantly reading and hearing about the profound impact the bailouts will  have on my life and portfolio. Of course, I’m not hearing much about that Zinnia in space either, but in the long term that probably has a larger impact on our society.

Think about it for a moment. Beyond giving your wife anniversary roses while colonizing Mars, this development has long range implications for the drug industry, the cosmetics industry, the food industry, etc. Is there one on that list that you did not make the connection to? While not an immediate life changing discovery, if I’m following one of those industries, young, patient, looking forward to finding an edge that will help me stand out, I’m looking for offbeat stories like this. Why? The number of pharma companies, cosmetic companies and food companies that utilize flowers is a large universe. Clothing companies? Sure, add them to the mix. All of these industries will be affected by flowers in space. This will then extend, of course, to commodities; cotton prices will be affected if clothing materials can be grown in space…

Admittedly, this will not happen tomorrow. And, sadly, most investors, save for the few Warren Buffett’s among us, will not see past today’s account balance, this month’s statement, or at most, the last quarter or two. So we miss the story. Or worse, ignore it completely as unimportant. Should it be ignored? Well ponder this: 2-3 years ago, few believed Elon Musk could change the auto industry, the battery industry, the entire power supply industry. From coal producers to those that maintain the grids, his influence is being analyzed and felt globally, and in a much shorter period than most would have predicted.

It’s this ‘big picture’ (macro I believe is the current vogue term) that most have lost sight of. Is the 10% a healthy correction? Certainly doesn’t feel that way at the moment it’s happening. Has my money manager kept up over the last 5 years? Doubtful; because if he hasn’t kept up with the last 3 months he may be looking for a new job and you a new advisor. Goes against all that is preached, yet this is our reality. Why? Because perception is reality; and perception rarely sees more than a week ahead these days.

All this, and I didn’t even touch on the election. I hope you’ll come back to read about my perspectives on that, as well as the hidden treasures in the news. It’s not about my opinion, it’s about how you arrive at yours. THAT’S A WRAP.