All posts by James Cannon

James Cannon

About James Cannon

James Cannon is an experienced hedge fund analyst. He has served on the advisory boards for various different Fortune 500 companies as well as serving as an adjunct professor of finance. James Cannon has written for a variety of Financial Magazines both on and off line. Contact James at james[at]businessdistrict.com

Cal 3 Has the Votes to Appear on November’s Ballot

Map of the Cal3 (or Three Californias) proposal by Tim Draper (2017). Map courtesy of Wikipedia.

The initiative to divide the state of California into three separate states, Cal 3, received over 450,000 valid signatures, more than enough to appear on this November’s ballot in search of approval from California voters.

Yes, you read that correctly. The voters in California will decide whether they want California to add two new entities within its borders, to be known as Northern California and Southern California. Just plain California will be the area that includes all the coastal counties from Los Angeles to Monterrey.

The money behind the initiative comes from Silicon Valley investor Tim Draper. He was an early backer of Tesla and Skype and believes three Californias are better than one.

It is unclear if this initiative is an amendment to California’s constitution or a revision. If its considered a “small change” than it will not need approval from the state legislature before it heads to Congress for approval. However, if it is indeed a revision, which is a big change, then it will need to be enacted first by the California state legislature before heading to Washington, D.C.

Draper has tried twice before to split up his home state but failed. This time around he has dedicated $1.2 million of his own funds to push for Citizens for Cal 3. He probably spent an additional million dollars to get the signatures he needed to see the initiative on the ballot.

Polls seem to show that Cal 3 wont pass, with only 17% of Californians saying they would vote for the initiative in November. Since the poll only asked 900 voters, it could be be misleading.

The proposal would give the three new states 6 senators together in place of the two they have now. The number of congressmen would be determined by the population of each newly created state. Even if the proposal were to pass, the initiative will still have many obstacles in its way before it could be implemented. Cal 3 is most likely a bad case of “California Dreaming” for some of the residents of the Golden State.

Good News for Hedge Fund Managers

The hedge fund industry has taken some hits in the last couple of years.  One way this was experienced was through the significant depletion of profits of hedge fund managers’ in 2016.  But today, hedge funds are generally faring much better; hedge fund managers are once again enjoying better returns with greater investment gains and fewer are losing money.

Brahman Capital Corp is one example of this.

“At its apex around two years ago, Brahman managed more than $5 billion, as principals Mitchell Kuflik and Robert Sobel bet big on hedge-fund favorite Valeant Pharmaceuticals Inc. When Valeant’s stock plummeted from $257 to $14 a share, Brahman fell in turn, as the firm reported losses and investors pulled their money. Brahman sold Valeant stock last year and with what is now $3.8 billion of remaining cash pivoted to new ideas like a stake in travel company Expedia, people close to the firm said. This year, Brahman’s main fund is up 17%, the people said.”

More than successful returns, some hedge fund managers are finding that they want to find more hedge funds in which to invest.  This sentiment was echoed by APG Group NV hedge fund manager Ronald Wuijester who said:

“We would like to invest more in hedge funds and private equity but the very best of them virtually have no capacity to accept more of our money.  We don’t want to be on a gliding scale where we accept a lower return for the same amount of risk.”

Hedge funds are back.  Compared to 2016, today’s outlook for hedge fund managers is extremely positive.

Gold to Make a Comeback, Analysts Predict

As a hedge against inflation, gold

Native gold from Nevada, USA. (3.7 ounces). Courtesy of James St. John

gleams. But the stronger the dollar, the lower the price of gold tends to fall.

According to Bart Melek, the global head of commodity strategy at TD Securities in Toronto, investors and observers can expect to see the price of gold to climb as the dollar continues to weaken.

Since April 11, 2018 gold bullion lost about 5% in value, due to a surging dollar. Despite confusion in Italy and other uncertainties around the world, gold was selling for under $1300. Melek is predicting a surge in the price during the final quarter of 2018 to an average of $1375 an ounce, and could possibly hit a high price of $1400.

“As time moves on, there’ll be less and less reasons to get into the U.S. dollar, which will likely reverse some of the flows,” said Melek, a speaker at a precious metals conference in Singapore. “We do ultimately think that as we move into 2019, the U.S. dollar will weaken, which is a very powerful fuel for the gold complex.”

The outlook for the very near future is less optimistic for gold, whcich Melek does not believe will rise given the dollars continued strengthening. In addtion, the Fed is expected to raise interest rates two more times this year. Prices for gold will most likely average at about $1290 in the third quarter, and $1300 in the fourth quarter of 2018.

American Released from Venezuelan Jail After Two Years

Nicolás Maduro Moros, interim President of The Boliviarian Republic of Venezuela following the death of Hugo Chávez. Courtesy of Wikipedia.

Joshua Holt, an American citizen who had been held in a Venezuelan jail for the past two years, was freed last week as a result of high-level diplomatic talks. His wife Thamara Caleno, was also released.

“Overwhelmed with gratitude,” Holt was welcomed in Washington, DC by his parents, Laurie and Jason Holt, and a few hours later by President Donald Trump.

“Those two years, they were a very, very, very difficult two years,” said an emotional Holt, sitting beside Trump in the Oval Office. “Not really the great vacation that I was looking for. … I’m just so grateful for what you guys have done.”

Holt, a Utah citizen, went to Venezuela in 2016 to marry Caleno, a woman he had met online but never in person. Soon after arriving in Venezuela and marrying Caleno he was arrested and labeled by the Venezuelan government as the “CIA’s top spy in Latin America.
Holt’s release was orchestrated by Senator Bob Corker, Republican of Tennessee, who met with Venezuelan President Nicolas Maduro, in what was a surprise meeting.

The couple was arrested on June 30, 2016 in a raid on Caleno’s family’s apartment. They were accused of stockpiling an assault rifle and grenades and being linked to other unspecified attempts by the US to weaken Maduro’s rule.

Upon his release the Holt family released the following statement:

“We thank you for your collaboration during this time of anguish. We ask that you allow us to meet with our son and his wife before giving any interviews and statements. We are grateful to all who participated in this miracle.”

It’s Good to Have Options

The following is a guest article written by Brad Martin, Senior Vice President, Marketing, Mass Market Sales & Services of Genie Energy:

I never really stopped to consider the vast amount of options available for some of the most mundane items we need. Standing in Target recently, I contemplated the purchase of a toothbrush for far too long as I weighed the brands, style, color, bristle stiffness and other options available. I mean, there must have been no fewer than thirty different choices. Shaking her head, a woman next to me who was equally perplexed said, “I’m just going to pick the cheapest one… they all end up in the same place eventually…”

I took her advice.

It’s a different story altogether, as many business owners and managers are struggling with a similar problem when it comes to their energy supply. Aside from the multitude of Retail Energy Provider companies out there offering procurement services versus the local utility company, there are a host of options available that should be carefully weighed, each with its own advantages and disadvantages. Some options include, “block”, “heat rate”, “nodal” and “variable” rate programs. However, in this article, I’d like to review two of the more commonly presented options, “fixed” and “index”, to address management of commercial electricity costs.

Choices… choices…

 A pure fixed rate plan is as it sounds. Your business locks in a fixed price per kilowatt hour (kWh) for some predetermined length of time. A term could be any length of time that provides you the best price and other desired options, taking into account your consumption amount and patterns, load factor, capacity and transmission charges, seasonality and a variety of other factors. (Please see http://www.businessdistrict.com/timing-is-everything/ “Timing is Everything”, a previous piece that explains the importance of term and timing of energy supply agreements). A fixed rate plan can be a good option for a company seeking budget certainty or protection from market volatility.

An index plan gives a business the opportunity to purchase at the varying prevailing market prices for electricity. This can be for as specific a period as each given hour in a day, corresponding to a published market index while fixing the adder to the wholesale energy component. An index plan is a more aggressive product, and would be a fine fit for a company looking for the flexibility to shop around, or for a position that allows them to take advantage of wholesale market price drops. A company may “float” on an index price, constantly watching the forward market for the right opportunity to lock in. While the index might be relatively cheaper to the fixed rate, the index can rise precipitously during peak demand periods in the very cold winter and/or very hot and humid summer periods.

Advantages for some may mean disadvantages for others.

With a fixed rate plan, your price certainty comes with a factor of some variable load cost, which reflects the variable risk the energy provider must take on in its hedge, by offering a fixed price over a period of time. The fully unitized fixed rate plan can also mitigate the risk of the utility’s peak-demand charges on the supply side of the bill as they would no longer apply. Most small/medium businesses will seek the Fixed Price option for budget certainty and the potential for year-over-year savings versus local utility supply pricing.

With an index plan, it’s the customer that absorbs most or all of the risk, and no variable load cost is associated, since pricing is in ‘real-time’. A large commercial or industrial company (i.e. manufacturers) may seek an index price option (or hybrid, also referred to as a ‘block’ plan, with only a percentage of their load on an index plan), where consumption is large enough to make it worthwhile to change consumption patterns based on anticipated hourly prices. They may opt for example, to use more electricity during off-peak hours (overnight).

While it may be good to have options…

…It’s best to take advantage of the expertise of an energy broker or supplier that can provide you with the analysis and recommendations suited to your business and specific usage patterns. No one option may be right for another business owner, and while there is the potential to realize reductions in your energy overhead, there is no reason to go it alone!

Own or manage a business that uses energy or know someone who could benefit? Message me to get connected with an energy expert who will provide a complimentary commercial energy analysis with no obligation.

Brad Martin is Senior Vice President, Marketing, Mass Market Sales & Services of Genie Energy

About Genie Energy Ltd.:

Genie Energy Ltd. (NYSE: GNE, GNEPRA), through its Genie Retail Energy (GRE) division, is a leading independent operator of retail energy providers and commercial brokerage services.  GRE’s providers supply electricity and natural gas to residential, small business and commercial customers in deregulated markets in the United States and the United Kingdom.  For more information, visit http://www.genie.com/.