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Clear as Mud

We are one week past the attack on Abqaiq and Khurais and there is still a lot of uncertainty (or disinformation) about what is really going on there.  Take for example these two news stories.

The first is the from the Wall Street Journal, posted last night.

Many Aramco executives and board members, meanwhile, are privately expressing doubt that the company can meet its target of a three-week return. They estimate the production recovery will take twice as much time, according to people in touch with them.

Some “board members are horrified” that the company could communicate such optimistic assessments, said one of the people.

The second was posted this morning on Reuters.

Saudi Arabia has restored around 75% of crude output lost after attacks on its facilities and return to full volumes by early next week

I have been pondering all morning how both of these stories, from reputable news outlets, can be true.

The attack took offline 5 million bbl/d of throughput.   According to the Reuters article, Aramco is already back to 4.3 mmbbl/d.  So it is basically a non-issue.

But if that is the case then where is the WSJ getting their information from?  Who are the board member and executives that are “expressing doubts”.  How can they be expressing doubts about a situation that has already rectified itself.

Some are suggesting that the stories are talking about different things – that Reuters is talking about production and the WSJ is talking about capacity.  But that is not what I read – the doubts being expressed are about the return of production.

I’m not the only one that is skeptical about the Saudi optimism.

My Way to Play it – Canadian Oil

Fortunately, I can hold the Canadian oil stocks I bought without having to worry too much about where the truth lies because they haven’t really been bid up very much any way.  What’s more, most of them are starting to benefit from big stock buyback programs (Gear Energy just announced a 5% program today) and there are other non-Saudi positives that should play to their benefit as well.

What are those positives?  We know that Alberta pipeline adds (optimization from Enbridge and TC) are 185,000 bbl per day in the fourth quarter.  We also know that the Sturgeon refinery is likely to switch to bitumen feed-stock shortly.  We also know that Jason Kenny said last week that he would lift the curtailment if you can ship your oil by rail.

Meanwhile heavy oil seems to be supported by the attacks in Saudi Arabia.  I have to admit I don’t really get this part – it seems that it is light oil that the Saudi’s are hinting they might have trouble delivering, yet when you look at spreads it seems like heavy oil has been more of a beneficiary.

As I mentioned last week I made a bet on PBF Energy with the thesis that the pop in high sulphur fuel oil (HSFO) wouldn’t last.  That has somewhat played out – HSFO did drop off its highs and the December contract is back to $36/bbl – it was $33/bbl before the attack.  PBF Energy recovered as I expected.   I unfortunately sold out a day too early, on Friday, while the stock has continued to pop today.

But I am still not sure where all this is going.  Is there going to be less HSFO because the Saudi’s will use it to run their power plants (this is not good for the environment by the way) so they can ship more low-sulphur oil to their customers?  Or will the Saudi’s ship high-sulphur crude abroad to refiners like PBF and they will make a killing on the collapsing differentials?  It’s not at all clear.

Overstock – I Swear I’m Out for Good This Time

Another bit of news today is Overstock, which has become even more of a gong-show than even I thought possible.  The CFO resigned and the company reduced guidance (which they had only just raised in July!).

I sold out of what remained of my position as fast as I could this morning.  When a CFO leaves, particularly in the middle of tumult (as has been the case with Overstock), it is better to stand aside.  I made some money on the way up, and gave some of that back on the way down.  I do think this will be the last trip I have with the stock.

Mission Ready Conference Call

Last Thursday Mission Ready had a conference call with investors.  I thought it was pretty positive.  The company outlined the business in more detail than they have done before.

I learned that gross margins are in the 12% area right now and they’d like to see them up to 15%, but that they can’t go much higher without raising eyebrows at the Department of Defense.

I learned that the major impediment to growth right now is the small team and that they have plans to grow their sales staff significantly.

I learned the foreign military deal is indeed dead but that there are others they are in contract with.

Most importantly, I also learned that we should expect more extensions on the TLS contract rather than a new 10-year contract being awarded.  As I wrote in this post, the TLS contract has 6 prime-vendors, with Mission Ready subsidiary Unifire being one of them.  The largest of these 6 vendors is a company called ADS.   ADS has volumes in the billions of dollars.

ADS is in trouble because they were stripped of their small-business designation and they had to pay a settlement associated with having fraudulently obtained some of the small-business set-asides from these contracts.  This article from the Washington Post describes the situation.

The upshot of this is that ADS may get removed from the vendor list of the next TLS contract.  What I learned from the call was that if they did, ADS would almost certainly protest the decision.  If, on the other hand, they didn’t get removed, all the other vendors would protest.

The mess that this would entail makes it very likely that there will just be 6 month to 1 year extensions made to the existing contract.

This isn’t a bad thing for Mission Ready, as extensions mean there is no review of vendors, it gives them time to ramp Unifire as a vendor and prove themselves.  If Mission Ready can continue to take contract wins at the rate they have over the last 6 months or so, I think the company is setting itself up quite well.

After the conference call Mission Ready announced another $15 million in wins the next day.  They are up to $75 million to date.

Nuvectra Bonus

On Friday night Nuvectra filed their employment agreement with their new CFO, Jennifer Kosharek,  As part of that employment agreement the filing stated that Ms. Kosharek and other executives are in line for a “transaction bonus”:

Transaction Bonus Plan

As previously disclosed, the Company is exploring potential strategic alternatives to enhance shareholder value and recently implemented a reduction in force. To incentivize and reward employees for their increased responsibilities in light of these events, on September 16, 2019, the Company’s Board of Directors, upon the recommendation of its Compensation Committee, approved a cash incentive plan to reward a broad base of employees in connection with a potential sale of the Company (the “Transaction Bonus Plan”). Under the Transaction Bonus Plan, cash payments would be made to eligible employees (1) 50% upon the signing of a definitive agreement for the sale of the Company and (2) provided that the definitive agreement remains in effect, 50% upon the earlier to occur of March 31, 2020 and the closing of the transaction. Participants must be employed by the Company at the time of payment. The total cost of the Transaction Bonus Plan, if fully implemented, will not exceed $1.6 million.

In general, executives do not decide institute a big incentive to be paid out in the case of a transaction unless they feel that transaction may occur.

Emmaus – Blah

I also sold most of my Emmaus on Friday (I should have sold it all, its down again today!).  The stock is acting so bad and the company didn’t get approval of their appeal at the EU (they announced this Thursday).  I can’t figure out why insiders were buying so much given that since they have bought there has been nothing but negative news.  and am left to conclude that maybe they were just wrong.  I have been too, and what is left of my position is pretty insignificant so I might just sell it and admit defeat on this one.

A Couple of General Comments

Overall I remain even more cautious than last week.  In addition to my skepticism that oil prices will remain so sanguine, it occurs to me that if oil prices do continue to do nothing, it could be because the world economy continues to sputter.   There seems to be more and more evidence that the global slowdown is getting worse, not better.

We are also entering a time where liquidity is unusually tight.  We had the odd spike in repo rates last week that the stock market does not seem to care about but which nevertheless is just a little disconcerting.  We are also in a period where a lot of US dollars are leaving the system all at the same time.   This kind of liquidity squeeze is usually not good for the speculative sort of stocks that I like to hold.

This morning I received from a friend a PDF of the latest Macro Insights piece from the founders of Real Vision.  In it they pointed out:

When you consider that with quantitative easing the Federal Reserve balance rose about $3 trillion over 6 years, it just seems like this one-time treasury issuance, which has the effect of the opposite, is not insignificant.

When you couple that with what seems to be real funding stress in the repo market, well, you just have to wonder where we are going.

Look, I don’t know this stuff inside out.  I invest my money and write a little blog saying why I do what I do.  This could be a whole lot of nothing.  Probably is.  But for me, I’m going to be even more cautious than usual.  With that in mind I sold Scorpio Tankers (for now), sold Ardmore Shipping (for now), sold the rest of Moneygram and bought some more inverse ETF shares on the S&P.

Last point: Elizabeth Warren appears to be gaining momentum in the polls.  I do not necessarily disagree with much of what Elizabeth Warren says, but I am pretty sure that if she gets elected and does what she says she is going to do, it is not going to be good for the stock market.   The market obviously doesn’t care about this yet but at some point, if her strength continues, it will.

Complacency

I think the market is being too complacent about the events in Saudi Arabia over the weekend.

Oil was up some, but the S&P was hardly down at all.  I find it hard to believe that we can have an event of this magnitude, and a corresponding increase to the threat of war with Iran, and add so little risk premium into the market.

I’ve read everything I could about the extent of the damage and it is as clear as mud to me.  But as I tweeted on the weekend, if they really did blow up a bunch of gas-oil separation towers, those aren’t the sort of things that can be ordered overnight. They are likely custom towers that would take at least a month or two to build, if not more.

This word “redundancy” keeps coming up in tweets and in the media.  What does that word actually refer to?  Is it just a placebo word to quell an argument, or are there specific redundancies (other than storage) that will make this a non-event?  I suspect it is more of the former.  Again, if they hit enough of the separation towers, I don’t think there is much that can be done other than to rebuild the towers and get them back online.

The one thing that really did make an out-sized move was high sulfur fuel oil (HSFO).  I think this is because there is the expectation that Saudi Arabia will use HSFO to run their power stations as they divert crude to fill their export requirements.  But then I also just read a Reuters article that said that Asian refiners are expected to get heavy crude instead of medium crude, so it’s all still very uncertain.

At the margin I actually added a little to Crescent Point when it dipped mid-day.  I also took a small position in PBF Energy.  PBF was likely getting hit because HSFO was popping.  They are somewhat more dependent on heavy oil price than other refiners.  But at the same time, yesterday Jason Kenney lifted restrictions on Alberta production if they can get it moving by rail.  This seems to have flown under the radar, but it should increase supply of heavy oil in North America at least.  That, and the expectation that higher oil prices are generally good for refiners, makes me think PBF is worth trading when it gets into the $22’s.

Other than that I was cautious yesterday and added to index shorts.

This reminds me of the chapter in Reminiscences of a Stock Operator when the earthquake hit in San Francisco.  The market did not react right away.  It was a bull market.  There was too much positive energy to digest such a negative event immediately.  It took time for the market to realize what had just happened.

I don’t understand how we can have this big of an event and it is a non-factor to the market.  I believe the oil market still matters.  The Middle East still matters.  We’ll see if I’m wrong.

Week 425: A few good moves

Portfolio Performance

Thoughts and Review

The last six weeks saw the sudden move up a number of stocks I own.

The biggest move was by Smith Micro, which went from $3.23 to over $6 on a great second quarter.

Then there was the near doubling of Moneygram which I bought at $3.06 and it has moved to almost $6 itself.  There has also been a nice move in Evolus, though I’m not sure anything Evolus stock does matters until we get a resolution on the status of Passport.

There’s Overstock, as there is always Overstock.  It moves up and down like a crazy Byrne but in the last 6 weeks it has been mostly up and who knows what the hell is going on there (by the way did you know that Marina Butina, who is Byrne mistress and the reason he stepped down as CEO is portrayed on an episode of the Family on Netflix-great show-for having been caught infiltrating the Christian prayer breakfasts in Washington.  No joke, it gets weirder and weirder).

Gold stocks also moved up (though they gave up some of those gains these last couple of weeks and according to most of fintwit I would qualify as a “bagholder” now), as did, miraculously, oil (of which I am, of course, a bagholder).

All in all, it was a good 6 weeks for the portfolio.  If I were to have a complaint it was that I continue to make too many mistakes and piss away dollars on stupid purchases, which have eaten into what should have been a better period of performance.

I’m going to use this update to talk about one of those losers that I own, Mynd Analytics, now Emmaus Pharmaceuticals, and one idea that I have been in and out of – the swine flu trade.

Emmaus Pharmaceuticals

This has been a bit of a bust, to say the least.  The merger between Emmaus Pharmaceuticals and Mynd Analytics was completed in July.  Though it was first announced in January, it seems as though both of these companies were completely unprepared for it.

I say that because as things stand now the old Mynd tele-psychiatry business remains unlisted and Emmaus is trading, but they received a ruling of delisting from the Nasdaq on Tuesday, which I doubt was part of the plan.

The stock price of Emmaus has been on a rollercoaster since taking over the Mynd listing and changing the symbol to EMMA.  It started out trading as high as $11.  In all honestly, I knew that was crazy high.  But I was lulled into holding on the speculation that the stock might pop really high due to lack of float and lack of sellers.  There’s some saying about pigs that applies here…

As a consequence I blew the chance to sell out my shares at a nice price – it would have meant a 15% gain on my Mynd purchase and I’d still have the free-bees of the standalone Mynd Analytics once (if?) it began trading gain.

Instead I watch Emmaus fall precipitously, all the way down to $2.50, where it was back to yesterday.

I wasn’t compelled to buy down there the first time, but I did this time, adding to my position on Tuesday.  It remains quite a small position and this is a very speculative stock.

So why double down?  Remembering back to my thesis on Mynd/Emmaus, the premise was that the growth from Endari, a sickle cell immunity drug that Emmaus is launching, could more than justify the share price of Mynd at the time.

Indeed, the SEC disclosures from Emmaus have put out some pretty stellar looking forecasts that back up the potential if this thesis plays out.

Clearly if Endari hits these sorts of numbers over the next few years, the stock is going to be worth more than what it is currently trading for.

So far Endari has seen moderate results.  I had hoped for more. Sales in the second quarter were only $500,000 higher than the first quarter, so 11% sequential growth.

The company forecast is predicting $45 million of revenue for 2019.  I’m not sure that they can get there given the results through the first half.

But having said that, there are some positives.   For one, Emmaus is getting close to cash flow neutral.  The first half showed a moderate $2 million cash burn.  There aren’t many pharmaceuticals in the middle of a launch that are that close to break-even.

Also, the company has $15 million of cash on the balance sheet.  On top of that there is another $37 million in Telcon stock, a Korean company that is a supplier of L-glucosamine for Endari (this stock is pledged right now to the supplier but I think that is a technicality as long as Endari is a success)

At the current price of $3 the stock has a market capitalization of under $150 million, which mean a little less than $100 million for the Endari business.

Second, when Emmaus stock collapsed the insiders really stepped up with their purchases.  In fact there were shares bought the day before the delisting notice. There was another 20,000 share purchase yesterday that is not in the table.  Oops!

At the very least, no one can say insiders are using the public listing as a way of unloading their shares.

The other part of the deal, the old Mynd Analytics tele-psychiatry business, is not trading yet.  It has a symbol (PSYC) and the last quarter of financials show a bit of progress with revenue but still nothing to write home about.   That business is what it is.

Anyway, I kinda like Emmaus.  I get that Endari is nothing really that special, it is a medical grade version of an over-the-counter product.  And doctors could decide to go with the cheaper, albeit less regulated and less convenient OTC option if they wanted.  But I think this price is reasonable and I don’t believe the insiders are throwing good money after bad.

Swine Flu Trade

I stepped back into the swine flu trade by buying back BRF SA and adding a new position in Seaboard.  Both of these positions are relatively small and to be honest I don’t know how long I will hold them.

At 30,000 feet the swine flu trade makes a lot of sense.  The news from China just keeps getting worse.  The disease has spread to Vietnam, Mongolia, Cambodia, Laos and North Korea.  It was just reported in the Philippines a few days ago.

To recap, swine flu causes death to hogs within 10 days.  It is highly contagious can be found in food and water.  It has spread to every province in China, and they have slaughtered 35% of their hogs.

Those numbers may even be higher. As the NY Times points out:

Farmers and industry observers in China say that large numbers of African swine fever cases have gone unreported to the authorities, and that many infected pigs end up sold into the market as a result.

In a funny way, the disease kept a lid on pork prices until fairly recently.  Because so many pigs were being infected, farmers in China were culling their herds early (and likely killing known diseased pigs that they could sneak into the supply before it became apparent).  This surge in slaughter, as well as just the loss of pigs to the disease, led to a dramatic drop in Chinese inventory.

But prices could only be held down so long.  In the last few months we are seeing skyrocketing pork prices in China.

The price of pork has been rising for months, and it is now nearly 50 percent higher than it was a year ago, data published on Tuesday showed.

With such a large drop in Chinese supply, China’s imports of pork, beef and chicken are rising.

These extra imports of pork should be beneficial to BRF SA, which is a Brazilian pork producer.

Consider this article, which is titled: “Will pork imports from Denmark and Brazil save China’s bacon after African swine fever hits supplies?”.

On Monday [September 10^th], China added 25 Brazilian meat plants to its list of approved exporters, bringing the total to 89, according to Brazil’s Ministry of Agriculture.

Citi had a positive take on these additional export license grants:

BRF SA reported decent results in the second quarter.  Revenue was up 7% to $2.13 billion.  Gross margins were up 4.5% sequentially to 25%.  Adjusted EBITDA was $317 million versus $104 million a year ago and $195 million in the first quarter.

With all this in mind, BRF SA is not a perfect vehicle for this trade.  The company seems to perennially disappoint, it does have a lot of debt and so far in the first half of the year the company hasn’t done a very good job of converting EBITDA into cash.

BRF SA is fairly highly leveraged with Debt/EBITDA of 3.7x.  What’s more the leverage is expensive, with an average interest rate of over 10%.

The second half should see better EBITDA than the first half as exports rise along with prices.  Average estimates are for $1.04 billion of EBITDA.  This would value BRF SA at a little over 10x EBITDA.  That’s probably a fair valuation.

My hope here is that swine flu gives us another bottom-line boost in the second half that is not yet priced into the stock.

With that in mind I decided to take a second position in the swine fever trade with the purchase of Seaboard.

Seaboard is not the perfect vehicle either, but at least it diversifies my single company exposure a little.  It should benefit from their pig business (about 9 million hogs) and their turkey business (they own 50% of butterball).   The downside of Seaboard is that they own a bunch of other non-hog related businesses, many of which are in questionable countries (like Argentina) and they don’t really have a great record of generating cash.

Retailers Running

I took back a position in Big 5 Sports this week.  I owned the stock a couple months ago (it was a stock in my last update) along with Dean Foods.  I was waffling on the retailers at the time, even having looked at Francesca Holding which I held for all of one day.  But I had no conviction in the idea and sold them all.

With the rotation we are seeing out of tech and into pretty much anything else that has been weak, retail plays like these are starting to make big moves.

Of course, I bought back Big 5 Sports so Dean Foods, not to mention Francesca, have went on a tear.  Oh well.  I like Big 5’s chances better in the long run.

Not that those chances are all that stellar.  This is a beleaguered retailer without a doubt.  Big 5 has a market capitalization of $50 million and even including debt the enterprise value is only $114 million.

For that price you are getting 433 store locations with an average size of 11,000 sq. ft.

Of course, you are also getting stagnant sales and precipitously falling EBITDA.  Last year Big 5 did $20 million of EBITDA. The year before that they did $41 million. The year before that they did $50 million.  Notice the trend…

There are plenty of negative articles on Big 5 on SeekingAlpha.  This Detroit Bear guy does a good job of explaining the bear thesis, which is not without merit.

Yet the last quarter was not terrible.  And when you have a $2 price tag on a stock that used to be well into the double digits, not terrible is not all that bad.

The company increased revenue marginally, dropped operating expense by a percentage and generated an extra million of cash flow before working capital.  It’s moving in the right direction.

I have no grand plan thesis here.  It’s simply that with the rotation going on, moving in the right direction might be enough.

After all, look at FRAN.

Portfolio Composition

Click here for the last six weeks of trades.  Note that when I did this update I realized I hadn’t bought Nuvectra or sold Marathon Petroleum in the tracking portfolio.  I have made both moves this week but they are not reflected below.

Nuvectra

I am going to start this post with all the reasons I can think of to not buy Nuvectra.

That list has to start with the chart.   This was a $20 stock less than 12 months ago.  Now its barely $2 and only a few weeks ago it flirted with $1.

The collapse of the stock coincided with the resignation of most of the C-suite that had run the company since going public.  The CEO Scott Dree resigned in January.   This was followed up by the departure of the COO/CFO in May.

The collapse has also coincided with the demise of the Nuvectra growth story.  Prior guidance of $57 – $62 million was reduced to $50 – $55 million in August.

In the second quarter year-over-year revenue growth fell to 7%.  This is way down from 80% growth average in 2018 at odds with the increasing salesforce that the company has put in place.

In fact, Nuvectra has long said that they believe their salespeople can generate $1 million to $1.5 million of sales.  The current 60 person sales team should be able to achieve $60 million to $90 million of revenue.  Yet the company recently reduced guidance to a range of $50 million to $55 million.

Even more disturbing, Nuvectra is having trouble keeping their salesforce.  On the last couple of calls they have mentioned sales attrition as a factor limiting growth a number of times.

The sales attrition could be due to the fact that the salespeople aren’t selling.  On the last quarterly call new CEO Frank Parks admitted that in some cases as much as 75% of the salespersons time is spent non-selling.

One flaw in the product that has come to the attention of management is the charging process.

In part, selling (inaudible) have been impeded by some reports of patient frustration with the Algovita charging process.

Our core technology continues to function as designed and labeled, repeating, our core technology continues to function as designed and labeled, but we believe the ergonomics of the charging process sometimes creates frustration amongst patients.

The slowdown is not just a company specific hiccup.  The industry that Nuvectra is in (sacral nerve stimulation or SCS) appears to be slowing as a whole.  Competitor Nevro has seen revenue decline over the first 6 months of the year.  Boston Scientific said this on their second quarter call:

In SCS, we continue to see some softness in the overall market, and we face tough comps as mentioned due to our WaveWriter spinal cord stim system launch in the U.S. early last year. While we continue to be optimistic about the long-term 7% to 10% growth potential of this market, we do expect some continued softness in 2019 given the 21% second half comp.

What makes the growth situation more dire is that the company is burning cash.  Nuvectra has burned on average $11 million of cash per quarter for the last 6 quarters.  There is very little in the trend to suggest it is coming down.  Cash levels sit at $69 million at the end of the second quarter.

Last week the company announced that they would be “implementing a force reduction plan” that will “result in the termination of approximately 20% to 25% of the Company’s employees during the third quarter of 2019”.

While the cuts will reduce cash burn by $5.8 million in 2020, they aren’t going to do much for guidance or employee moral.

Finally, Nuvectra’s second product, the Virtis system, which is a neuromodulation system intended to address the sacral nerve stimulation (SNS) market, has been held up by FDA requests.  The FDA has asked for additional supplementary data on Virtis leads with chemical composition and biocompatibility studies.  This has pushed out Virtis approval until mid-2020.

So there you have it. Cash burn, slowing growth, terrible chart.

Yet as far as I can tell, Nuvectra has a real product.  Their Algovita system, which is approved for SCS by the FDA, is a legitimate alternative to competitive products from Nevro, Boston Scientific and Medtronics.

The competition trades at a significant premium to Nuvectra.  Nevro, which is the only pure play competitor, trades at nearly 7x 2019 sales and that is on declining revenue.  Boston Scientific and Medtronic, which are much larger multi-product companies with competitive SCS offerings, trade at 6.2x and 5.1x revenue respectively.  Nuvectra trades at under 1x revenue based on their market cap and well under 1x if you include their net cash position.

The slip in Algovita sales is fairly recent.  Up until the last quarter sales of Algovita had been growing at a rapid clip with expected 2019 growth of 29%.

The product has been available for 3 years now.  It would seem to me that if it was truly not competitive, we would have seen an indication before this.

Algovita has a small slice of the SCS market.  This is in part because of its relatively recent release.  It is also in part because the product only has approval for head-only MR.  This limits the market compared to the competition.

The company has completed regulatory submission for full-body MR which will strengthen the products competitive position.  The approval, which is expected to come in the fourth quarter, would be a catalyst for the stock.

At the same time that Dree resigned the company named Chris Chavez to the board of directors.  From everything I have read Chavez has a very strong background, is a pioneer in the neuromodulation industry and that he would put his reputation on the line again with Nuvectra is a vote of confidence for the company.

He served as President, Chief Executive Officer and Chairman of TriVascular Technologies, Inc. from April 2012 through its merger with Endologix, Inc. in February 2016.  Following the merger, he served as an Endologix Director from February 2016 through June 2018.  Mr. Chavez also served as President of the Neuromodulation Division (NMD) of St. Jude Medical Inc. from 2005 through 2011 following the acquisition of Advanced Neuromodulation Systems Inc. by St. Jude Medical in 2005.  Prior, he served as CEO, President and Director of ANSI from 1998 through 2005 and led ANSI/NMD through 14 years of profitable growth and innovation.  In 1997, Mr. Chavez served as Vice President, Worldwide Marketing & Strategic Planning for the Health Imaging Division of the Eastman Kodak Company.

Finally, Nuvectra has formally announced a strategic review.

The combination of a management team overhaul, an interim CEO, the addition of Chavez as a board member and the reduction in staff all suggest to me that the company is on the block and ready for sale.

It seems to me that in a sale the combination of cash, Agovita revenue and growth and Virtis potential should be worth more than $12 million.

Anyway, that is my contrarian thesis in the face of an admittedly long list of negatives.