Boeing & Corn & The Weather Oh My

Common Sense Controls Probabilities

It all started last week and exemplified itself overnight into today’s trading patterns. To be a good investor or trader you have to keep both eyes and ears open and common sense rules. The sheer number of rhetorical events published throughout the world is important. They control the probabilities signifying success. You just need to know where to look for them.

I’m a follower of Warren Buffett and a seasonal commodity trader because patterns do repeat themselves. I’m watching both today so time is not something I have. Let’s dig into what I’m seeing and get this message out. At the end of this presentation keep on reading as how we are going to present information of this nature and more takes the stage thanks to Mahdi Nikpour and Micah Kindy, The Ticker team.

Is Buffett’s Philosophy Is Predictable?

The idea may sound a bit outlandish on the surface because it rubs against Berkshire’s conservative nature. There’s also the major sticking point that Warren Buffett doesn’t do turnarounds. He wants companies with strong leadership. Then again, Buffett likes to bet on American manufacturing. He favors industries with growing moats around their industries. He must have Boeing stock on his radar as the upside for Boeing, if the planemaker can get its “house in order”, is huge.

Remember, he’s been sitting on about a $190 billion pile of cash and that does nothing but increase. Berkshire is a victim of its own success. The company’s sheer size makes it difficult to make deals and investments to move the needle on growth. Several of the marquee acquisitions, Kraft Heinz and Precision Castparts, have underperformed.

One could argue that the pain around the purchase of Precision Castparts, a maker of specialized components for aircraft, would make Buffett shy away from ever investing again in the aerospace industry. Berkshire paid $32 billion for it in 2016 and ended up writing down $11 billion after the “pandemic” disrupted commercial flights, throwing the industry into a tailspin. Buffett even conceded in his annual letter in 2021 that he overpaid for the company. To compound matters, Buffett announced in May 2020 that he had sold his stakes in the four largest U.S. airlines at a significant loss. He’s human. Berkshire has other investments linked to ‘aerospace’ that do very well, including the private-jet operator Netjets and Flight Safety, which trains pilots.

Boeing brings an extra dose of risk. The company has caught the eye of Congress after a ‘door plug’ blew out on a new Boeing 737 during an Alaska Airlines flight in January. That resulted in hearings in April of this year. The promise of more public floggings will undoubtedly follow. Biden’s Department of Justice is now considering nullifying a deferred prosecution agreement that resolved charges of Boeing conspiring to defraud the Federal Aviation Administration during the certification of the 737 Max. The $2.5 billion penalty included payments to the families of all of the 346 passengers who died in two 737 Max crashes in 2018 and 2019.

The FAA has limited Boeing to producing a maximum of 38 of its workhorse 737 Max jets each month while Boeing addresses deficiencies in its overall safety culture and production quality. Boeing isn’t even close to being able to produce that many 737s as it seeks to fix its factory problems and to shore up suppliers. The company spent $3.9 billion of cash in the first quarter and will spend more to fix those problems. Boeing’s debt has swelled to about $48 billion after it endured the pandemic and the grounding of its 737 Max and 787 Dreamliner aircraft. It’s still borrowing money, another cause for concern.

Chief Executive Officer Dave Calhoun was forced to step down at the end of this year after executives of the main airlines, Boeing’s biggest customers, met directly with the board to express that they had lost confidence in management. Boeing will likely have to pay up for not meeting contract obligations on aircraft deliveries as well. On top of that, Boeing’s defense business is struggling because of fixed-cost contracts that have gone well over budget. The only bright spot is the global services unit. So, why in the world would Buffett want to buy this hot mess?

For one, the demand for aircraft is huge. Boeing has a $448 billion backlog to produce more than 5,600 commercial aircraft. There is but one other “large manufacturer” of these commercial airlines, Airbus SE, and it’s also struggling to keep up with orders. That’s the moat that Buffett likes.

Boeing is also cheap considering the potential cash generation if and when it regains its footing. The shares traded at an average of about $280 in 2017 and 2018, before the fallout from the 737 Max crashes, and have sunk to $180, giving the company a market value of about $110 billion. Fixed-income investors are eager to invest in the company. Boeing attracted $77 billion of total offers for its most recent $10 billion bond offering despite Moody’s cutting the company’s credit rating to one step above the junk level a week earlier. Even paying a premium, Berkshire has the cash. There is precedent for Buffett raising funds by paring his other equity holdings as well. If he wants it, Buffett is sitting in the driver’s seat. I wonder what Charlie Munger would say if he was alive.

Boeing would be a bet not only on American manufacturing but on global growth. As countries increase wealth, people fly more. That long-term trend won’t change. In my book I’m a strong buyer of Boeing by selling naked near term “out-of-the-money” put options and buying 2024 September 200 & 205 calls with the proceeds. I’m a buyer of the stock as well. I’m carefully watching its volume as well. If someone is just buying up its shares it will show here.

Of course, Greg Abel would have to embrace the idea because he would be tasked with finding a superstar CEO to clean up Boeing. Shareholders, who are attracted to Berkshire’s steadiness, would be shocked at such a bold move. Charlie Munger, Buffett’s longtime vice chairman who died in November at age 99, isn’t around to object. In the end, the idea of Buffett buying Boeing may be too outlandish, but it’s certainly entertaining to ponder. What do you think?

Weather Patterns Matter

Dorothy from “The Wizard of Oz” can teach us more about tornadoes and inclement weather than anyone I know. What I know is that seasonal patterns in both technical worlds and the weather collide and the best traders in the world are well aware of all of these events. I’ll be short here as I’m trading Corn today. It was an easy assessment, buy low and hold. Corn held its lows of Friday overnight and charged higher. Trailing stops are in place as always but my expectation is for higher levels. What do you think?

Opinions and thoughts are important and it is important to me and The Ticker team that we deliver this information to you in a logical, useable format. We have looked at several ways to accomplish this and came up with a simple strategy.

Here on Substack and LinkedIn, we’ll post more philosophical commentary designed to give you the “big” picture along with direct insight, from time-to-time, illustrating our positions. For a more direct narrative of actions we’re taking, we’ve put together an informational site, The Ticker Free Community. The Ticker team is assembling an initial email coupled with an invitation for you to join us for “free”. We’re refining the email and invitation this week and look to start disseminating these to you early next week so stay tuned. We’ve successfully tested this process as we roll it out to you but always remember, just like you we’re human. Back to work for me, best always.

Have you ever met a “cowardly lion”? They are out there. I usually find them hiding in the “herd”. You know them, the ‘followers’, those who are afraid to take charge of their own thoughts. Instead they just follow the crowd, we don’t and neither should you. It takes time to develop all of your investing and trading skills. It takes us ‘time’ to be sure we present the information you need, in a logical manner, so you accomplish your goals. Thanks for sticking with us and remember, learning is a marathon, not a sprint.