The Long Investor
patreon
THE LIT SUNDAY NEWS
🕑 Added 2025-02-09 19:53:02 +0000 UTCTrump’s Policies Could Undermine U.S. Bond Market Stability
Market Response to Trump’s Actions
Markets also remained calm despite concerns over Musk-aligned figures gaining access to Treasury operations and pushing for budget cuts.
Treasuries Face Rising Uncertainty
The U.S. enjoys the privilege of issuing the world’s dominant reserve currency, making Treasuries a key asset for global investors.
However, since Trump’s re-election in November, demand for U.S. Treasuries from global reserve managers has weakened, with $78 billion in outflows between election day and early January.
This decline may reflect geopolitical concerns, fear of U.S. sanctions, and asset freezes, similar to those imposed on Russia.
Broader Economic Implications
Treasury yields remain high despite the Federal Reserve’s aggressive rate cuts, keeping borrowing costs elevated.
Foreign reserve managers are not shifting to alternative bond markets, but some are turning to gold, particularly in off-hours trading.
Even a small reduction in the dollar’s share of global reserves could impact Treasury prices and raise borrowing costs for the U.S. government.
Long-Term Risks
Analysts see zero chance of the U.S. losing its reserve currency status, as no viable alternative exists.
However, direct interference in the Treasury’s payment system could damage confidence in U.S. institutions.
If Trump’s inflationary trade policies deter buyers from stepping in, the cost of debt financing for the U.S. could rise.
TL;DR
Trump’s policies—including tariff threats and fiscal uncertainty—are testing investor confidence in U.S. Treasuries. While the dollar remains dominant, foreign demand for U.S. debt is weakening, potentially pushing borrowing costs higher. Even small shifts away from Treasuries could exacerbate market volatility, raising concerns about long-term financial stability.
The Global Impact of Trump’s Trade Policies
Trump’s Continued Push for Tariffs
Canada, Mexico, and China have dodged the worst of Trump’s tariffs—for now—by offering concessions, such as increasing border security efforts against fentanyl trafficking and retaliatory energy tariffs from China.
However, Trump is expected to escalate tariffs against more countries, including the EU and Vietnam, the latter being a key supply chain hub for Chinese goods.
The Challenge for Global Exporters
Trump’s goal is to reduce overall U.S. imports, but this will hurt both foreign exporters and the U.S. economy.
Cutting the $800 de minimis customs exemption has already hit Chinese ecommerce firms like Temu and Shein, and more restrictions on other countries are under consideration.
Can Emerging Economies Fill the Gap?
Trade between middle-income economies (excluding China) is growing at 3.8% annually, while trade between emerging and developed economies is growing at 3.7%.
However, this shift does not fully replace U.S. consumer demand, which remains critical for global trade.
China’s weak domestic demand has pushed it back to an export-driven model, further increasing global competition for limited markets.
China’s “Predatory” Trade Policy
China’s export volume grew 13% annually in Q3 2024, far outpacing global import growth of 1.5%.
Beijing is attempting to reduce its reliance on imports while capturing more market share, making other economies more dependent on China.
Many developing countries are responding with antidumping tariffs, particularly on industrial goods like steel.
Other Potential Markets for Exports
East Asia (Malaysia, Singapore, Thailand, the Philippines, South Korea, Japan) generally runs trade surpluses, meaning they consume less than they export.
The EU, particularly Germany, is unlikely to increase consumption significantly, making it a weak substitute for U.S. demand.
The Economic Consequences for the U.S.
Trump’s policies will widen the U.S. trade deficit, contradicting his goal of reducing reliance on imports.
His proposed tax cuts will increase consumer demand, leading to higher imports.
Tariffs strengthen the dollar, making U.S. exports less competitive globally.
TL;DR
Trump’s push for higher tariffs threatens global trade, but exporters will struggle to find alternative markets as China shifts back to export-driven growth. While emerging economies are trading more with each other, they cannot replace U.S. consumer demand. Ironically, Trump’s economic policies will likely increase the U.S. trade deficit rather than reduce it.
China’s Response to Trump’s Tariff Threats
China’s Countermeasures
China also launched an investigation into Google, tightened export controls on rare metals, and added two U.S. companies to its national security blacklist.
Unlike Trump’s broad across-the-board tariffs, China’s actions target less than 10% of U.S. imports, aiming to signal resistance without escalating tensions.
Impact on Energy Trade
Coal: In 2024, 11% of U.S. coal exports went to China, but this accounted for less than 1% of China’s total coal consumption.
China can easily replace U.S. coal imports, but U.S. coal miners may struggle to find alternative buyers, creating political pressure in coal-producing states.
Crude oil and LNG: China has increased its U.S. gas and oil imports in recent years, but these still represent a small fraction of total Chinese consumption.
China is already expected to hit peak oil demand by 2027, so the tariff impact will be more disruptive to U.S. suppliers.
Limited Effect of Other Measures
Google does little business in China, making the investigation largely symbolic.
One of the two blacklisted U.S. companies was already under investigation.
Restrictions on rare metals exports were implemented last year, and U.S. importers have already adapted.
Why China Is Holding Back
China’s economy is already struggling and heavily reliant on exports.
In 2024, net exports contributed 30% of China’s GDP growth, compared to being a drag the previous year.
Major tariffs from the U.S. would hurt China’s economy, increasing unemployment, wage pressures, and weakening domestic demand.
China’s response is calculated to maintain leverage for future negotiations while avoiding serious economic self-harm.
U.S. Stance on Negotiations
Trump’s economic team shows little interest in diplomacy.
His trade adviser, Peter Navarro, claimed Trump would speak with Xi Jinping, but the call did not happen.
Finding common ground for a deal remains unlikely.
TL;DR
China has responded to Trump’s tariffs with targeted retaliatory tariffs on U.S. energy exports, an investigation into Google, and export controls on rare metals. However, its response is restrained—it doesn’t want to escalate tensions due to its economic struggles and reliance on exports. Meanwhile, Trump’s team shows no interest in negotiations, making a long-term resolution uncertain.
Berkshire Hathaway Increases Stake in Sirius XM to Over 35%
Key Details
This raises Berkshire's ownership to 35.4% of the satellite radio company.
The purchases were disclosed in an SEC filing on Monday evening.
Background on the Investment
Berkshire initially invested in Liberty Media’s tracking stocks in 2016.
Early 2024: Began increasing its stake in Sirius XM in what is believed to be a merger arbitrage play.
Liberty Media’s restructuring in September 2024 merged tracking stocks with Sirius XM and spun off the Atlanta Braves, which Berkshire also holds.
Market Performance & Analyst Sentiment
2024 Performance: Sirius XM shares fell 58% due to subscriber losses and demographic shifts.
2025 Outlook: Up 5% YTD but remains out of favor among analysts.
Analyst Ratings:
16 analysts cover the stock.
Only 3 have a Buy rating (FactSet).
Who’s Behind the Investment?
Warren Buffett has not commented on the Sirius XM stake.
The investment could have been made by his lieutenants Ted Weschler or Todd Combs.
TL;DR
Berkshire Hathaway increased its stake in Sirius XM to 35.4%, purchasing 2.3 million shares for $54 million. The stock fell 58% in 2024 but is up 5% in 2025. Buffett hasn’t publicly addressed the investment, and it remains uncertain if it was his decision or that of Ted Weschler/Todd Combs. Wall Street remains cautious, with only 3 out of 16 analysts giving it a Buy rating.
Goldman Sachs Expands into Active Fixed Income ETFs in Europe
Key Developments
Goldman Sachs Asset Management has entered the active fixed income ETF market in Europe.
New Listings: An active investment-grade corporate bond ETF in USD and EUR.
Upcoming Launch: A high-yield strategy ETF targeting further expansion.
Why the Shift?
Struggles with Passive ETFs: Goldman’s passive ETF range in Europe has struggled to gain scale since launching in 2019.
Competitive Market: Scaling passive ETFs has become challenging due to dominance by major providers.
Active ETFs Provide an Edge:
Lower barriers to entry than passive ETFs.
More differentiation through strategy-based management.
Better alignment with market demand for actively managed fixed-income investments.
Industry Context
Active ETF Growth: Assets in active ETFs in Europe reached $56.7bn in 2024, though this remains a small fraction of the $2.2tn European ETF market.
Goldman’s Active ETF Positioning:
Managed by Goldman’s Fixed Income & Liquidity Solutions team (overseeing $1.8tn globally).
Aims to outperform Bloomberg benchmarks with an active investment strategy.
More “benchmark-aware” than some competitors, balancing risk and alpha opportunities.
Goldman’s Global ETF Business
U.S. Active ETF Business:
Recorded $667mn net inflows in 2024.
Total assets: $1.8bn across 13 ETFs.
Global ETF Holdings:
$38.7bn in ETFs across 49 funds, including active and passive strategies.
TL;DR
Goldman Sachs is shifting focus to active ETFs in Europe, launching fixed-income strategies after struggling to scale in passive ETFs. The firm sees growth potential in actively managed bond ETFs, following trends in demand for active strategies. The move aligns with Goldman’s broader ETF expansion, especially as active ETFs gain traction in the global market.
Michael Saylor’s Strategy Reports Another Loss Before Accounting Shift
Key Financials
Net Loss: $670.8 million, or $3.03 per share.
Revenue: Fell 3% to $120.7 million.
Impairment Charge: $1 billion due to Bitcoin holdings—largest since the company began purchasing Bitcoin in 2020.
Cash Holdings: Dropped to $38.1 million, the lowest year-end amount since 2002.
Bitcoin Holdings & Capital Strategy
Total Bitcoin Owned: 471,107 BTC, over 2% of all Bitcoin that will ever exist.
Value of Holdings: $46 billion.
Capital Raising Plan:
$42 billion target in equity and debt funding by 2027.
$4.4 billion of equity issuance left as of January 26, 2025.
Plans to refinance and expand its convertible debt structure.
Accounting Shift & Tax Concerns
New Crypto Accounting:
Fair value changes in Bitcoin holdings will be reflected on the income statement.
Could significantly boost profitability in Q1.
Potential Tax Implications:
May trigger a 15% corporate alternative minimum tax (CAMT).
Strategy & Coinbase petitioned the IRS for relief.
If no relief is granted, the company must find alternative ways to pay taxes since it does not plan to sell its Bitcoin.
Stock Performance
Strategy (MSTR) Stock: +16% YTD.
Bitcoin (BTC): +3.9% YTD.
TL;DR
Michael Saylor’s Strategy (formerly MicroStrategy) reported a $670.8M net loss, largely due to a $1B impairment on Bitcoin holdings. The company now holds 471,107 BTC ($46B value) and is raising $42B in capital through equity and debt. A new crypto accounting rule could boost Q1 profits but may trigger a 15% corporate minimum tax, prompting a request for relief from the IRS. Strategy’s stock is up 16% YTD, outperforming Bitcoin’s 3.9% gain.
Qualcomm and Arm Post Strong Revenue Growth on Smartphone Demand
Smartphone Demand Drives Growth
Qualcomm reported $11.7 billion in revenue for the last quarter, up 17% YoY, surpassing analyst expectations of $10.9 billion.
Arm posted $983 million in revenue, up 19% YoY, also beating forecasts.
AI Integration as a Growth Driver
Qualcomm’s Snapdragon 8 Elite chip was fully adopted by Samsung’s new S25 flagship model, boosting sales.
Arm emphasized the rise of edge AI applications, where smartphones process AI tasks locally rather than relying on cloud servers.
Shifting Industry Dynamics
Apple will stop using Qualcomm’s 5G modems by 2026 as it transitions to in-house chip design.
Qualcomm is diversifying into automotive computing and PCs to reduce reliance on smartphones.
The recent success of China’s DeepSeek AI models is seen as a positive sign for Qualcomm’s on-device AI chip capabilities.
Legal and Strategic Developments
Qualcomm recently won a licensing dispute with Arm over its custom chip architecture, securing its ability to build future products.
Arm is involved in OpenAI and SoftBank’s $500 billion Stargate project, further integrating itself into AI infrastructure development.
Market Reaction
Despite strong earnings, Qualcomm’s stock dropped 4.5% and Arm’s fell 6% in after-hours trading, as investors had already priced in high expectations following a strong year.
TL;DR
Qualcomm and Arm posted strong revenue growth due to better-than-expected smartphone demand, particularly for AI-integrated devices. Qualcomm’s partnership with Samsung’s S25 helped drive sales, while Arm is benefiting from edge AI adoption. Qualcomm faces challenges as Apple moves away from its 5G modems, but it’s expanding into automotive and PC chips. Both companies remain positioned for long-term AI-driven growth, despite a negative market reaction to their earnings reports.
Norwegian Startup Deploys Nio ES8 Vehicles for Self-Driving Pilot in Oslo
Self-Driving Ride-Hailing Service in Oslo
The program uses Nio’s first-generation ES8 electric SUVs, which were first introduced in 2018.
The vehicles are equipped with Mobileye’s sensors and autonomous driving software.
Passengers can book autonomous rides via an app, with a safety operator present in each vehicle.
Background on Nio and Mobileye Partnership
Nio partnered with Mobileye in 2019 to develop highly automated and autonomous vehicles for China and other major markets.
In August 2024, Mobileye showcased a Nio ES8 navigating complex roads, intersections, and roundabouts in Norway.
Pilot Project Details
The service began on February 3, 2025, operating weekdays from 07:00 to 20:00 in a designated area.
Ruter will offer free rides for the first few weeks as part of the testing phase.
The pilot is expected to run until 2026 or 2027 and involves collaboration with Holo, Mobileye, and Moovit.
This initiative aligns with the growing adoption of self-driving technology in public transport across Europe.
Nio’s Struggles in Germany
In an effort to boost sales, Nio is offering free access to its Battery-as-a-Service (BaaS) program for up to 60,000 km to buyers of the ET5 and ET7 models in Germany.
Customers who order by June 30 will receive two years of BaaS, covering:
A monthly subscription fee of €289
Swap service fees of €10 per swap
Electricity costs at €0.39 per kWh
Nio registered only 31 vehicles in Germany in December, bringing total 2024 deliveries to 398 units, a 68% decline from 2023.
TL;DR
Norwegian transport operator Ruter has launched an autonomous ride-hailing pilot using Nio ES8 electric SUVs equipped with Mobileye’s self-driving technology. The pilot will run until 2026 or 2027. Meanwhile, Nio is struggling in Germany, offering free Battery-as-a-Service for 60,000 km to boost sales after a 68% drop in deliveries in 2024.
Nio Plans Quarterly Model Launches and Facelifts from Q2 2025
Strategic Expansion and Model Updates
Nio CEO William Li announced that from Q2 to Q4 2025, the company will release new models or facelifts every quarter across its three brands: Nio, Onvo, and Firefly.
Facelifts are planned for key models: ET5, ET5 Touring, ES6, and EC6, featuring minor exterior changes and upgraded interiors.
A regulatory filing from China's MIIT next week may reveal further details and images of these facelifted models.
Technology and Design Upgrades
The center screen layout will transition from vertical to horizontal, aligning with Tesla and broader industry trends.
Nio’s Shenji NX9031 autonomous driving chip, built on a 5 nm process, will be used in facelifted models, replacing third-party solutions.
The first model with Nio’s in-house chip, the ET9, is set for deliveries in March 2025.
Pricing and Market Strategy
The facelifted models will not be priced lower than current versions, according to Li.
Nio encourages customers to purchase existing models now, suggesting potential price increases or limited promotional offers in the future.
Onvo and Firefly Expansion
Onvo (sub-brand) will launch two new SUVs in 2025:
Mid-to-large-size 6/7-seater SUV
Large 5-seater SUV
Onvo’s first model, the L60, began deliveries in September 2024.
Firefly, expected to focus on lower-cost EVs, will also see new releases within 2025.
Long-Term Vision and Growth Targets
Nio aims to double sales in 2025 compared to 2024 levels.
By 2026, Nio expects to have fully upgraded its product lineup, completing a major transition cycle.
TL;DR
Nio will release new models or facelifts every quarter from Q2 2025, upgrading its ET5, ES6, and EC6 models with horizontal screens and its in-house Shenji chip. New Onvo SUVs and Firefly models are also planned. The company aims to double sales in 2025 and fully upgrade its lineup by 2026, reinforcing its push into premium EV technology.
Tesla Stock Drops as California and Europe Show Signs of Cooling on Musk
Stock Performance and Political Turmoil
The stock has been volatile:
Up 56% since Trump’s Nov. 5 election.
Down 8% since his Jan. 20 inauguration.
Investors are assessing whether CEO Elon Musk’s political involvement—especially his role in Trump’s Department of Government Efficiency (DOGE)—is affecting Tesla’s business.
DOGE Controversy and Potential Risks
DOGE has gained access to the Treasury payments system, giving it the ability to halt funding for government departments.
Critics, including Sen. Elizabeth Warren, argue that these moves are illegal, while Musk claims DOGE is acting on Trump’s orders.
So far, investors have not significantly reacted to Musk’s political role, but Tesla’s underperformance this week suggests growing concerns.
Tesla’s Declining Market Share in California and Europe
California Sales Decline
Tesla’s Q4 sales in California fell 8%, marking the fifth consecutive quarterly decline.
For 2024, Tesla’s California sales dropped 12%, steeper than its overall U.S. decline of 6%.
Tesla still holds over 50% of California’s EV market, slightly above its 49% U.S. market share.
Competition from Enphase in Residential Energy Storage
Enphase, a solar and battery storage rival, reported strong Q4 earnings.
California demand for Enphase’s batteries appears to be increasing, possibly at Tesla Powerwall’s expense.
Tesla’s energy storage business could face growing competitive pressure in its home state.
European Sales Weakness
Tesla’s European sales fell 11% in 2024, outpacing its 1% global decline.
Despite this, Tesla still led the European EV market, with the Model 3 and Model Y as the top sellers.
January sales reports suggest further declines in key European markets, raising concerns for 2025.
TL;DR
Tesla stock fell 3.6% as investors assess potential backlash from Elon Musk’s political involvement with Trump’s administration. Tesla’s California sales fell 12% in 2024, and European sales declined 11%, underperforming its global average. Meanwhile, rival Enphase is gaining traction in the residential battery market, particularly in California, possibly at Tesla’s expense. Musk’s political role hasn’t spooked investors yet, but Tesla’s regional market declines could be an early warning sign.
Klarna Targets US IPO in April With $15B Valuation
IPO Plans and Market Position
Klarna is preparing for a US IPO in April, potentially valuing the company at up to $15 billion.
The Swedish buy-now, pay-later (BNPL) firm filed with the SEC in November but has yet to finalize its listing venue.
If successful, the listing would be one of the biggest IPOs of 2025.
Fintech Boom, Bust, and Recovery
Klarna was once Europe’s most valuable startup, reaching a $46 billion valuation in 2021.
Its value plummeted to $6.7 billion in 2022 amid market turmoil and rising interest rates.
The company has since narrowed losses and is on track to return to profitability after years of aggressive expansion.
Cost-Cutting and AI Integration
Klarna has implemented cost-cutting measures and is reducing its workforce, aiming to nearly halve headcount through AI-driven efficiency.
The company has offloaded loan portfolios to free up capital, including the sale of most of its UK loan book to Elliott Management.
Discussions are ongoing to sell part of its US loan portfolio ahead of the IPO.
Governance Challenges and Restructuring
Klarna recently resolved a boardroom dispute between CEO Sebastian Siemiatkowski and co-founder Victor Jacobsson, which led to Jacobsson’s representative being ousted from the board.
TL;DR
Klarna is targeting an April IPO in the US with a potential $15 billion valuation, marking a recovery from its 2022 collapse to $6.7 billion. The BNPL firm has cut costs, sold loans, and leveraged AI to improve efficiency ahead of its public debut. However, past governance issues and the competitive fintech landscape remain factors to watch.
GFL Environmental Poised for Growth Amid Debt Reduction and Share Buybacks
Industry Position and Underperformance
Its peers—Waste Management, Republic Services, and Waste Connections—have returned an average of 59% over three years, outperforming the S&P 500’s 40% return.
GFL, however, has lagged at 39%, weighed down by high debt and private equity ownership concerns.
Debt Burden and Private Equity Overhang
GFL has $6.6 billion in debt, about 4x its 2025 EBITDA, significantly higher than the 2-3x range of competitors.
The company was historically owned by BC Partners, which still holds 24% of shares, raising concerns about potential share liquidations.
Transformational Sale to Reduce Debt and Unlock Value
In January 2025, GFL agreed to sell its environmental services division for $5.6 billion to Apollo and BC Partners.
The deal will generate $4.3 billion in cash and $1.2 billion in equity in the newly formed entity.
Planned cash usage:
$2.7 billion to repay debt, improving financial health.
$1.6 billion to buy back shares, likely reducing BC Partners' stake.
Valuation Discount and Growth Outlook
GFL’s environmental services business is being sold at 16-18x EBITDA, while its solid waste operations trade at just 13x EBITDA, below the industry average of 16x.
The company’s remaining assets—solid waste operations and a $1.2B stake in environmental services—position it for margin expansion and stronger free cash flow.
Analysts forecast 6% annual revenue growth and 1.5-2 percentage points of margin expansion over the next three years.
Stock Catalysts and Price Target
CIBC analyst Kevin Chiang rates GFL a Buy, setting a $53 price target (20%+ upside from $44.18).
After the sale and restructuring, GFL could trade at industry multiples, pushing the stock into the mid-$50s.
GFL’s $1.2B stake in environmental services and 45% stake in Green Infrastructure Partners add another $4-$5 per share in hidden value.
TL;DR
GFL Environmental is undervalued compared to its peers, but a $5.6B asset sale will cut debt, fund buybacks, and improve financial stability. As private equity ownership shrinks and margins expand, GFL’s valuation gap should close, offering 20%+ upside with a $53+ price target in the near term.
Comments
Jeffrey Santoro
This is unreal thorough and well done. Thanks for these weekly readouts gents!
Martin Charles Christiansen
🥰
DK
☕️ 🗞️
