Bye-bye FLIR

I unloaded my FLIR (Nasdaq: FLIR) today at US$58.25/share. Past 10 year chart for reference before the company disappears this quarter:

I’ve been stalking this company for ages. I originally did a very short post on it from July 2011, but never got around to purchasing the stock until the Covid crisis in April 2020.

I wrote about the Teledyne acquisition here which occurred at the beginning of the new year.

I am not typically a large-cap S&P 500 company investor. I make rare exceptions now and then, but for the most part I prefer the smallcap space. FLIR investors will receive 0.0718 shares of Teledyne per FLIR share and US$28 in cash. Teledyne has had an excellent track history of integration acquisitions, although their style of acquisitions have been bolt-on and tuck-ins, and FLIR is a mammoth acquisition for them, the largest in their history. I don’t know if they can execute, although strategically given their product portfolio, it makes sense. Financially, TDY is expensive, but they are also in a business domain that is relatively stable and should continue producing stable cash flows going forward. They will also be a positive recipient of passive index money from the S&P 500 (a larger fraction given how their market capitalization will increase post-merger). But that said, they are too large for me, and hence my decision to eliminate them from my portfolio. I paid about a 30 cent merger arbitrage spread (or about 0.5%) which worked out much better than Atlantic Power!

There few decent alternatives for re-investing at the moment. I am feeling quite conflicted about things in the market, so I continue to reduce exposure.

The “proper” amount of cash allocation

How much spare change should you keep behind the couch? You need a little bit in case if you want to head out to the grocery store to pick up some beer and popcorn, but too much of it and it will be wasting away earning a zero yield, which can be more efficiently thrown into the short term treasury bill market where you can skim off a rich 25 basis points. Depending on how much you actually have in the couch, that could translate into an extra beer!

Sarcasm aside, in the case of the US government, they raised a ton of money during the COVID-19 crisis as illustrated by the following chart:

In recent history, the US treasury normally keeps $200-$400 billion in cash available for day-to-day operations (noting that the annual US deficit in recent years typically hovers around the trillion dollar range), but they raised about 5 times this much during Covid-19.

However, now that the worst of things presumably are over, they have begun to bleed away this excess cash balance, approximately half of it. This can be attributed to some factors, but I would estimate the stimulus spending bill has accelerated the distribution of this cash, coupled with the necessity of keeping a high float due to the even further elevated deficit the government is incurring (estimated $3.3 trillion in 2020).

I don’t know what to make of the implication of the US government bleeding off the cash balances, but I will also note that the Government of Canada appears to have a similar trajectory:

Balances held by auction participants have presumably been zeroed because participants could get higher yields on their capital from other areas.

My understanding is that with the BoC still engaging in a very healthy amount of quantitative easing (‘at least’ $4 billion a week) interest rates will continue to be suppressed. I will note that the 10-year yield has almost reached to the range of the pre-Covid yields and the financial overlords are probably trying to manage some fine balance between the level of QE vs. what is truly going on in the economy. However, the current course of action (accumulation of massive amounts of debt and monetary suppression of interest rates) will come at a cost of economic growth being lower than what it could be – it is sort of like strapping additional weights on the ankles of a marathon runner.

Reasons to shut the radar off IPOs and SPACs entirely

Here is a prototypical example. MDA (TSX: MDA) has gone public yet again. Most people here probably know the financial history of the firm – purchased by Maxar (TSX: MAXR), and then taken private so that Maxar could de-leverage, and then now it is taken public again with a price of CAD$14/share.

The company had its founding in the Greater Vancouver area, and continues today to perform engineering services in the space satellite domain, among other things.

The offensive thing about the public offering is page 65 of the 275 page prospectus:

The overlords of MDA knew perfectly well that they were probably going to go public again, and in the process granted themselves a ton of cheaply issued stock (noting that the right-hand table contains the applicable prices because of the 6:1 reverse split they performed before the IPO). They were looking to raising more money (at a higher share price) but had to taper it back to CAD$14 due to the tepid reception – probably partly due to this table. The other is the financial status of the company (it isn’t making that much money).

At the very minimum, I’d wait until the 180 day lockup period is over before even considering it, but knowing that space is a hype sector, I’m sure it’ll take off soon before then. Comparisons to SpaceX, however, is incredibly misguided – SpaceX has the reusable rocket technology which contains a massive competitive advantage on launch costs, while satellite construction and manufacturing is a much more competitive (and hence lower margin) industry, albeit played by a much fewer number of participants.

Late Night Finance with Sacha – Episode 12

Date: Wednesday April 7, 2021
Time: 6:00pm, Pacific Time
Duration: Projected 60 minutes.
Where: Zoom (Registration)

Frequently Asked Questions:

Q: What are you doing?
A: I’ll give my Q1-2021 performance report and some forward-looking observations. Any time left will be for Q&A.

Q: How do I register?
A: Zoom link is here. I’ll need your city/province or state and country, and if you have any questions in advance just add it to the “Questions and Comments” part of the form. You’ll instantly receive the login to the Zoom channel.

Q: Are you trying to spam me, try to sell me garbage, etc. if I register?
A: If you register for this, I will not harvest your email or send you any solicitations. Also I am not using this to pump and dump any securities to you, although I will certainly offer opinions on what I see.

Q: Why do I have to register? I just want to be anonymous.
A: I’m curious who you are as well.

Q: If I register and don’t show up, will you be mad at me?
A: No.

Q: Will you (Sacha) be on video (i.e. this isn’t just an audio-only stream)?
A: Yes. You’ll get to see me, but the majority will be on “screen share” mode with my web browser and PDFs from SEDAR as I explain what’s going on in my mind as I present.

Q: Will I need to be on video?
A: I’d prefer it, and you are more than welcome to be in your pajamas. No judgements!

Q: Can I be a silent participant?
A: Yes. I might pick on some of you though. Bonus points if you can get your cat on camera.

Q: Is there an archive of the video I can watch later if I can’t make it?
A: No.

Q: Will there be a summary of the video?
A: A short summary will get added to the comments of this posting after the video.

Q: Will there be some other video presentation in the future?
A: Most likely, yes.