Post by Admin/YBB on Jul 10, 2021 10:57:41 GMT -6
Pg 8-9: Big banks kick off Q2 earnings season on TUESDAY. BOJ policy decision on FRIDAY.
REVIEW. This has been a difficult Summer for TRAVEL and LEISURE stocks (new ETF CRUZ). They rebounded too much in Fall 2020 on Covid-19 vaccine news but have sold off on uncertain prospects and growing Covid-19-Delta threat. It is also questionable whether price gouging for car rentals and hotel rooms in some markets is sustainable (but it is bad PR).
PREVIEW. STEEL prices have rallied on supply constraints. Imports are expected to be low and domestic production should rise. This situation should last for 2 more years (although some worry about sharp price declines soon). Attractive steel stocks include X, CLF, NUE, STLD, EAF; these have far outpaced SP500 but there is still much more upside.
DATA THIS WEEK. CPI (+4.9% y-o-y, core +4.00%), small business optimism index on TUESDAY; PPI, Fed beige book on WEDNESDAY; capacity utilization, industrial production on THURSDAY; UM consumer sentiment, retail sales, business inventories on FRIDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Small-cap powerboat maker Malibu Boats (MBUU; fwd P/E 9.7; 80%+ of its 2022 production is already presold and the order book may normalize by 2024; there is severe shortage of boats but demand may be peaking as people move on to other types of recreation as economy reopens; vertically integrated company is growing organically and via acquisitions – Cobalt Boats (2017), Pursuit Boats (2018), Maverick Boat Group (January 2021); pg 14).
BEARISH. See other stories.
Pg 10: CHINA’s regulatory environment has become complex and difficult. It may be too early to bargain hunt in Chinese stocks (KWEB -15% since June 30). Pay attention to the harsh treatments of Ant, BABA and DIDI. Chinese government wants to assert CONTROL and show who is the boss. Long-term investors may ride this out but beware of higher VOLATILITY in the short-term. The US-listed Chinese stocks (240 with $2 trillion market-cap) face additional risks related to disclosures from the US and China. These have complex VIE structures to avoid Chinese restrictions on foreign ownerships; the VIEs may require future approvals from Chinese regulators for non-Chinese listings (new) and secondaries (for existing). Some like BABA, YUMC, JD have dual-listed (US, HK); those unable to list in HK or China Mainland may just go private. The US also bans investments in Chinese companies with ties to Chinese military; indexers (MSCI, FTSI, S&P/DJI) are developing indexes without problematic Chinese companies. Institutional managers can handle these issues better, but the retail investors should use mutual funds and ETFs (and avoid individual Chinese companies listed in the US, HK or Mainland).
Pg 12: FDA’s controversial approval (after ignoring its external panel) of new Alzheimer’s drug (aducanumab/Aduhelm) with marginal utility, and price-gouging by Biogen/BIIB, have put the focus on FDA and its relations with the drug industry. The FDA raises half of its budget as user fees from the companies it regulates. Critics say that there seems a recent shift in the FDA from a tough and independent regulator to a drug industry facilitator (with some companies having better access to the FDA). If the FDA’s reputation is damaged, scientists, doctors and insurers would start to second guess FDA approvals. Recall another controversial FDA approval 5 years ago of eteplirsen from SRPT for DMD, and some of the same FDA officials were now involved with the approval of Aduhelm from BIIB. Finally, the FDA Acting Director WOODCOCK asked an Inspector General on Friday to investigate the processes used by FDA and BIIB; and on Thursday, the FDA also revised the label for Aduhelm from unrestricted to early-stage use (a minor reversal). Hopefully, a permanent FDA Director will address some of these issues.
Pg 15: 100 YEARS OF BARRON’S traces the long history of ups and down in US-CHINA relations since 1921 when cheap Chinese labor was being tapped by the US. During WW II, the US provided military help to China to fight Japan. After the 1949 Communist revolution, China was seen as an enemy, and Korean War in 1950 brought the US and China into military conflict. Then there were 1960s when China supported North Vietnam against the US positions in South Vietnam. Nixon’s 1972 visit to China changed everything again, diplomatic relations started in 1979, Tiananmen Square massacre happened in 1989, US-China trade frictions started in 1996 (so, it is not a new thing), relations may have reached the lowest point in the Trump era, and we see the events unfolding now. As 2 growth engines of the world, the US and China are stuck with each other and have to find a way to calibrate their relationship.
Pg 17: ECONOMY. Even the Democrats cannot agree among themselves on the size of INFRASTRUCTURE plan (range $3-10 trillion) with the BUDGET RESULUTION deadline of 7/31/21 and Congressional recess that follows. After a budget resolution is passed with broad outlines and a topline number, the budget RECONCILIATION can be used later without any Republican support. A failure of infrastructure plan will surprise the Wall Street and investors (who have priced it in), may affect FED’s timetable for adjusting monetary policy and will affect the course of economic RECOVERY. A basket of infrastructure stocks by Jefferies (EXP, NUE, MLM, URI, WCC, etc) has outperformed with +84% in 12 months (vs +36% for SP500) but has underperformed with -8% over 1 month (vs +2% for SP500). That also fits the scenario by some that economic growth is peaking now (from the past stimuli) and the current inflation may hurt profit margins later. The broad market may react negatively. But that may be positive for already high debt/GDP ratio, current-account deficit and longer-term inflation – and that may allow the Fed to go slow for longer. Easier monetary policy with slower growth may be good for growth stocks (ADBE, AMZN, GLW, etc) and the broad market. So, add infrastructure plan to the list of your near-term risks. (This fuzzy rationale for smoothly rising market led by either cyclicals or growth stocks may be wishful thinking)
Pg 24: FUNDS. Comanager Bill NYGREN of large-cap value OAKMX (also OAKLX) looks for RELATIVE-value and likes some big techs (FB, NFLX, GOOGL), big banks (C, BAC), energy (APA, EOG). The GAAP accounting doesn’t lead to straightforward evaluation of some modern companies as there may be high developmental costs for emerging businesses that become hugely profitable later. He got burned by financials during the financial crisis (2008) but those are much stronger now and the fund has 35% weight.
Pg 25: FUNDS. ESG is hot! AMG (AUM $738 billion) bought a controlling stake for $600 million in the last big independent ESG firm PARNASSUS Investments (AUM $47 billion) founded by Jerome DODSON (78) in 1984. AMG’s ESG assets are now $80 billion (with Boston Common). AMG is a collection of boutique fund firms, and it lets its stronger firms alone but may restructure its weaker firms. It is expected to let Parnassus operate as-is except that it may now become more activist like Boston Common. Most big ESG firms are now part of much bigger firms: Calvert (MS that acquired Eaton Vance that had acquired Calvert), Pax (IPXAF-UK), Trillium (Perpetual-Australia). However, newer ESG firms will keep popping up, e.g., Engine No 1 out of the blue that has been in the news related to Exxon/XOM board room drama. Morningstar’s HALE is cited extensively (M* owns the ESG rating firm Sustainalytics).
Pg 26: TECH TRADER. A new growth area for tech is IT infrastructure management tools that focus on “observability” of complex IT systems. Companies include DDOG, DT, ESTC, SPLK.
Apple/AAPL at new high is now $2.4 trillion company. Hardware sales grew faster than services. iPhone 13 (no triskaidekaphobia here) launch is 2 weeks away. Its App Store is facing regulatory scrutiny.
Pg 28: Robert KAPLAN, Dallas Fed. He is a nonvoting member of FOMC and will be a voting member in 2023. He is among those at the FED who want the Fed to move sooner than later. He wants well-telegraphed reductions/TAPERING in mortgage-QE ($40 billion/mo now) and Treasury-QE ($80 billion/mo now) before any RATE hikes. His projections for PCE are 3.4% by 2021 yearend, 2.4% in 2022, 1.75-2.00% in 2023. He doesn’t like the term TRANSITORY because some prices are more cyclical and tied to reopening (and those may moderate later), but others will be persistent and will indirectly creep into other areas. Current easy monetary policy is forcing investors and savers to take more RISKS; while many have benefitted from asset inflation, they have to be weaned off gradually from those risks and assets (he doesn’t want a repeat of 2013 taper tantrums).
Pg 30. OTHER VOICES. Dan COATS, SPAC SCVX; King & Spalding; Director of Intelligence 2017-19; former Senator-Indiana. Global COMPETITION is not a zero-sum game. Many countries try to get ahead in undesirable ways (from the US perspective). He suggests that national security, critical domestic capacity and capitalism go hand in hand. The government should promote private investments, not government aid, to maintain its global leadership.
Pg 31: INCOME. REITs have done well YTD but be selective now as REITs are quite diverse. Some will continue to do well post-pandemic but others that were hurt badly may not recover fully. Attractive are gambling/casinos, apartments, storage, industrial, data-centers, selected malls; be cautious with office, travel, most malls.
(EXTRAS from online Friday that didn’t make the weekend paper version)
None
REVIEW. This has been a difficult Summer for TRAVEL and LEISURE stocks (new ETF CRUZ). They rebounded too much in Fall 2020 on Covid-19 vaccine news but have sold off on uncertain prospects and growing Covid-19-Delta threat. It is also questionable whether price gouging for car rentals and hotel rooms in some markets is sustainable (but it is bad PR).
PREVIEW. STEEL prices have rallied on supply constraints. Imports are expected to be low and domestic production should rise. This situation should last for 2 more years (although some worry about sharp price declines soon). Attractive steel stocks include X, CLF, NUE, STLD, EAF; these have far outpaced SP500 but there is still much more upside.
DATA THIS WEEK. CPI (+4.9% y-o-y, core +4.00%), small business optimism index on TUESDAY; PPI, Fed beige book on WEDNESDAY; capacity utilization, industrial production on THURSDAY; UM consumer sentiment, retail sales, business inventories on FRIDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Small-cap powerboat maker Malibu Boats (MBUU; fwd P/E 9.7; 80%+ of its 2022 production is already presold and the order book may normalize by 2024; there is severe shortage of boats but demand may be peaking as people move on to other types of recreation as economy reopens; vertically integrated company is growing organically and via acquisitions – Cobalt Boats (2017), Pursuit Boats (2018), Maverick Boat Group (January 2021); pg 14).
BEARISH. See other stories.
Pg 10: CHINA’s regulatory environment has become complex and difficult. It may be too early to bargain hunt in Chinese stocks (KWEB -15% since June 30). Pay attention to the harsh treatments of Ant, BABA and DIDI. Chinese government wants to assert CONTROL and show who is the boss. Long-term investors may ride this out but beware of higher VOLATILITY in the short-term. The US-listed Chinese stocks (240 with $2 trillion market-cap) face additional risks related to disclosures from the US and China. These have complex VIE structures to avoid Chinese restrictions on foreign ownerships; the VIEs may require future approvals from Chinese regulators for non-Chinese listings (new) and secondaries (for existing). Some like BABA, YUMC, JD have dual-listed (US, HK); those unable to list in HK or China Mainland may just go private. The US also bans investments in Chinese companies with ties to Chinese military; indexers (MSCI, FTSI, S&P/DJI) are developing indexes without problematic Chinese companies. Institutional managers can handle these issues better, but the retail investors should use mutual funds and ETFs (and avoid individual Chinese companies listed in the US, HK or Mainland).
Pg 12: FDA’s controversial approval (after ignoring its external panel) of new Alzheimer’s drug (aducanumab/Aduhelm) with marginal utility, and price-gouging by Biogen/BIIB, have put the focus on FDA and its relations with the drug industry. The FDA raises half of its budget as user fees from the companies it regulates. Critics say that there seems a recent shift in the FDA from a tough and independent regulator to a drug industry facilitator (with some companies having better access to the FDA). If the FDA’s reputation is damaged, scientists, doctors and insurers would start to second guess FDA approvals. Recall another controversial FDA approval 5 years ago of eteplirsen from SRPT for DMD, and some of the same FDA officials were now involved with the approval of Aduhelm from BIIB. Finally, the FDA Acting Director WOODCOCK asked an Inspector General on Friday to investigate the processes used by FDA and BIIB; and on Thursday, the FDA also revised the label for Aduhelm from unrestricted to early-stage use (a minor reversal). Hopefully, a permanent FDA Director will address some of these issues.
Pg 15: 100 YEARS OF BARRON’S traces the long history of ups and down in US-CHINA relations since 1921 when cheap Chinese labor was being tapped by the US. During WW II, the US provided military help to China to fight Japan. After the 1949 Communist revolution, China was seen as an enemy, and Korean War in 1950 brought the US and China into military conflict. Then there were 1960s when China supported North Vietnam against the US positions in South Vietnam. Nixon’s 1972 visit to China changed everything again, diplomatic relations started in 1979, Tiananmen Square massacre happened in 1989, US-China trade frictions started in 1996 (so, it is not a new thing), relations may have reached the lowest point in the Trump era, and we see the events unfolding now. As 2 growth engines of the world, the US and China are stuck with each other and have to find a way to calibrate their relationship.
Pg 17: ECONOMY. Even the Democrats cannot agree among themselves on the size of INFRASTRUCTURE plan (range $3-10 trillion) with the BUDGET RESULUTION deadline of 7/31/21 and Congressional recess that follows. After a budget resolution is passed with broad outlines and a topline number, the budget RECONCILIATION can be used later without any Republican support. A failure of infrastructure plan will surprise the Wall Street and investors (who have priced it in), may affect FED’s timetable for adjusting monetary policy and will affect the course of economic RECOVERY. A basket of infrastructure stocks by Jefferies (EXP, NUE, MLM, URI, WCC, etc) has outperformed with +84% in 12 months (vs +36% for SP500) but has underperformed with -8% over 1 month (vs +2% for SP500). That also fits the scenario by some that economic growth is peaking now (from the past stimuli) and the current inflation may hurt profit margins later. The broad market may react negatively. But that may be positive for already high debt/GDP ratio, current-account deficit and longer-term inflation – and that may allow the Fed to go slow for longer. Easier monetary policy with slower growth may be good for growth stocks (ADBE, AMZN, GLW, etc) and the broad market. So, add infrastructure plan to the list of your near-term risks. (This fuzzy rationale for smoothly rising market led by either cyclicals or growth stocks may be wishful thinking)
Pg 24: FUNDS. Comanager Bill NYGREN of large-cap value OAKMX (also OAKLX) looks for RELATIVE-value and likes some big techs (FB, NFLX, GOOGL), big banks (C, BAC), energy (APA, EOG). The GAAP accounting doesn’t lead to straightforward evaluation of some modern companies as there may be high developmental costs for emerging businesses that become hugely profitable later. He got burned by financials during the financial crisis (2008) but those are much stronger now and the fund has 35% weight.
Pg 25: FUNDS. ESG is hot! AMG (AUM $738 billion) bought a controlling stake for $600 million in the last big independent ESG firm PARNASSUS Investments (AUM $47 billion) founded by Jerome DODSON (78) in 1984. AMG’s ESG assets are now $80 billion (with Boston Common). AMG is a collection of boutique fund firms, and it lets its stronger firms alone but may restructure its weaker firms. It is expected to let Parnassus operate as-is except that it may now become more activist like Boston Common. Most big ESG firms are now part of much bigger firms: Calvert (MS that acquired Eaton Vance that had acquired Calvert), Pax (IPXAF-UK), Trillium (Perpetual-Australia). However, newer ESG firms will keep popping up, e.g., Engine No 1 out of the blue that has been in the news related to Exxon/XOM board room drama. Morningstar’s HALE is cited extensively (M* owns the ESG rating firm Sustainalytics).
Pg 26: TECH TRADER. A new growth area for tech is IT infrastructure management tools that focus on “observability” of complex IT systems. Companies include DDOG, DT, ESTC, SPLK.
Apple/AAPL at new high is now $2.4 trillion company. Hardware sales grew faster than services. iPhone 13 (no triskaidekaphobia here) launch is 2 weeks away. Its App Store is facing regulatory scrutiny.
Pg 28: Robert KAPLAN, Dallas Fed. He is a nonvoting member of FOMC and will be a voting member in 2023. He is among those at the FED who want the Fed to move sooner than later. He wants well-telegraphed reductions/TAPERING in mortgage-QE ($40 billion/mo now) and Treasury-QE ($80 billion/mo now) before any RATE hikes. His projections for PCE are 3.4% by 2021 yearend, 2.4% in 2022, 1.75-2.00% in 2023. He doesn’t like the term TRANSITORY because some prices are more cyclical and tied to reopening (and those may moderate later), but others will be persistent and will indirectly creep into other areas. Current easy monetary policy is forcing investors and savers to take more RISKS; while many have benefitted from asset inflation, they have to be weaned off gradually from those risks and assets (he doesn’t want a repeat of 2013 taper tantrums).
Pg 30. OTHER VOICES. Dan COATS, SPAC SCVX; King & Spalding; Director of Intelligence 2017-19; former Senator-Indiana. Global COMPETITION is not a zero-sum game. Many countries try to get ahead in undesirable ways (from the US perspective). He suggests that national security, critical domestic capacity and capitalism go hand in hand. The government should promote private investments, not government aid, to maintain its global leadership.
Pg 31: INCOME. REITs have done well YTD but be selective now as REITs are quite diverse. Some will continue to do well post-pandemic but others that were hurt badly may not recover fully. Attractive are gambling/casinos, apartments, storage, industrial, data-centers, selected malls; be cautious with office, travel, most malls.
(EXTRAS from online Friday that didn’t make the weekend paper version)
None