Post by Admin/YBB on Aug 21, 2021 7:12:57 GMT -6
Pg M1, TRADER. TAPER scare? Or is it just a paper tiger? Almost everyone expects taper at some point (so, no BERNANKE-type surprise of 2013). There are signs of SLOWDOWN: Some economic data are weak although industrial production and jobs remain strong; small-caps are lagging (a huge part of the US GDP is from small businesses); Covid-19-Delta is affecting reopening. Look for FED signals from its annual conference at Jackson Hole, August 26-28.
Can the SEMI CHIPS shortage become like the oil shortage of the 1970s? Chips delivery BACKLOGS now are 20+ weeks (you can laugh at the old JIT delivery ideas). 80% of chips are from Northeast Asia. Reshoring and federal incentives for chips R&D/manufacturing will take years to have any effect. Long-term chip shortages will also be inflationary (unlike the past deflationary effects from MOORE’s law). Many industries are affected by chip shortages but the impact on auto industry is quite noticeable – unavailability of new cars and near empty dealer lots; some used cars selling above the new car prices; price gouging in car-rentals. A problem is that auto industry uses low-end chips that it bought in the spot markets (i.e. without long-term contracts) and that is not where the chip industry profits are.
Retailers are hot (see Followup, Part 2), but what’s wrong with Walmart/WMT? In spite of spectacular earnings beat, the stock is below its all-time high in November. May be WMT is too big, into too many things, and still focused on sales volume instead of profit margins (meaning it isn’t passing along higher costs aggressively to the consumers, and is that bad?).
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes.
NO-CHANGE (for the current ZIRP of 0-0.25%) through May 2022 FOMC. Beyond, the probabilities of rate rise are in double-digit %; more than 50% for December 2022 FOMC and later.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -1.11%, SP500 -0.59%, Nasdaq Comp -0.73%, R2000 -2.50%. DJ Transports -2.50%; DJ Utilities +1.33%. (Rotating spot small-cap R2000 -2.50%) US$ index (spot) +1.02%, oil/WTI futures -8.91%, gold futures +0.33%.
YTD (index changes only), DJIA +14.75%, SP500 +18.25%, Nasdaq Comp +14.17%. (Rotating spot small-cap R2000 +9.76%)
Pg M4, EUROPE. Swiss Swatch (SWGAY; P/E 20.1) is attractive. It was hurt badly by the pandemic but is a good recovery play. 40% of its global sales are in China. Its strong brands include Omega, Longines, Tissot for watches; Harry Winston (jewelry), Hour Passion (airport boutiques), Tourbillion (boutiques). It owns or controls its supply-chain, including EM Microelectronic (semi chips for itself and auto industry), so it has good profit margins in better times.
Pg M4, EMERGING MARKETS. CHINA wants access to NATURAL RESOURCES (oil, copper, lithium, rare earth metals, etc) through friendly relations with AFGHANISTAN. China shares a small border with Afghanistan, but those border areas also have issues related to Muslim minorities. China also shares a long border with PAKISTAN, so it may also access Afghanistan through friendly Pakistan. But Chinese should be aware of the history that Afghanistan has frustrated British, Russians and Americans before.
Pg M6, COMMODITIES. IRON-ORE has sold off (-32% from July 16 high) on the news that CHINA has cut/restricted STEEL production for 2021/H2. There is good global demand for steel, but China wants to control pollution and do some cleanup ahead of the WINTER OLYMPICS in Beijing, February 4-20, 2022. It has reduced export incentives for steel and even imposed export taxes/tariffs on crude forms of iron. It is encouraging the use of ferrous scraps for steel production, and these futures will soon trade on its Dalian Commodities Exchange. Covid-19-Delta spread is also creating uncertainties.
Pg M5, OPTIONS. If worried about rising rates and market correction, consider 1) put-spread on SPY; 2) stock replacements with calls. It is also noted that while hedging can be useful at times, hedging all the time is very expensive and ineffective.
(SP500 VIX 18.56, Nasdaq 100 VXN 20.97, SKEW 153.51 (very high)) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg M27, M32: A bad week in EUROPE (Denmark +1.85%, France -3.36%) and an ugly week in ASIA (Philippines +4.93%, Chine -7.48%). The equity CEF index (data to Thursday) underperformed the DJIA and its discount was -4.5%.
TREASURY* 3-mo yield 0.05%, 2-yr 0.23%, 5-yr 0.80%, 10-yr 1.26%, 30-yr 1.87%. DOLLAR rose, DXY 93.46, +1.02% (M35). GOLD (Handy & Harman spot, Thursday) rose to $1,782, +0.25% (M38); the gold-miners fell sharply uncharacteristically. (^XAU was at 125.89, -6.93% for the week)
*Treasury Yield-Curve www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
Top FDIC insured savings deposit rates*: Money-market accounts 0.61%; 3-mo Jumbo CD 0.35%, 1-yr CDs 0.60%; 5-yr CDs 1.10% (M33).
*For local rates www.depositaccounts.com/banks/rates-map/
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 18: COVER STORY, “BIG TECH Is In a Perilous Moment. The Stocks Are Unstoppable”. In spite of REGULATORY risks, the big techs (FAAMG especially) will continue to march forward. FAAMG now account for 23.3% of the SP500. They had a great Q2 but most fell due to concerns about post-pandemic hangover (AMZN most affected), semi chips shortages, rising shipping costs. There are uncertainties related to regulations with the involvement of White House, Congress, courts. Some think that any breakups may even benefit shareholders. There are more details on each FAAMG.
EXTRA. President BIDEN has made appointments and issued executive orders that make it clear that more regulations are coming for big techs. These may relate to antitrust, privacy, app stores, extra funding for enforcements by the DOJ and FTC, restrictions on M&A and potential breakups.
Pg 7, UP & DOWN WALL STREET. Stock market ignored AFGHANISTAN collapse and takeover by Taliban. This may however impact the US dealings with IRAN and CHINA. With the US gone from Afghanistan and its presence dwindling in Iraq, Iran may no longer feel threatened by the US physical presence in its neighborhood. China may misread US intentions and resolve. DOLLAR should benefit from any geopolitical tensions. CRUDE OIL has been weak due to recent OPEC decisions (however tortured) and Covid-19-Delta spread.
The stock market was affected by the FOMC Minutes that indicated that TAPER talks have started. Minutes noted progress on INFLATION but not yet on JOBS. For more hints, watch POWELL’s speech (virtual) at 10 AM Eastern on Friday, August 27 at Jackson Hole. The economic news since the last FOMC has been mixed. There has been progress on reopening but also adverse impacts of Covid-19-Delta. Philippa DUNNE and Doug HENWOOD (TLR on the Economy) noted better job gains in states with higher vaccination levels. Weak commodity prices (oil, Dr Copper, iron-ore, etc) and low 10-yr yield are signaling economic slowdown. While large-cap oriented broad indexes have held up (DJIA/DIA, SP500/SPY, Nasdaq 100/QQQ), equal-weight SP500/RSP and small-cap R2000/IWM have started to lag. Let us see how Powell addresses many mixed signals – hopefully not as a 2-handed economist.
Pg ?, STREETWISE. Missing
(More later….)
Can the SEMI CHIPS shortage become like the oil shortage of the 1970s? Chips delivery BACKLOGS now are 20+ weeks (you can laugh at the old JIT delivery ideas). 80% of chips are from Northeast Asia. Reshoring and federal incentives for chips R&D/manufacturing will take years to have any effect. Long-term chip shortages will also be inflationary (unlike the past deflationary effects from MOORE’s law). Many industries are affected by chip shortages but the impact on auto industry is quite noticeable – unavailability of new cars and near empty dealer lots; some used cars selling above the new car prices; price gouging in car-rentals. A problem is that auto industry uses low-end chips that it bought in the spot markets (i.e. without long-term contracts) and that is not where the chip industry profits are.
Retailers are hot (see Followup, Part 2), but what’s wrong with Walmart/WMT? In spite of spectacular earnings beat, the stock is below its all-time high in November. May be WMT is too big, into too many things, and still focused on sales volume instead of profit margins (meaning it isn’t passing along higher costs aggressively to the consumers, and is that bad?).
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes.
NO-CHANGE (for the current ZIRP of 0-0.25%) through May 2022 FOMC. Beyond, the probabilities of rate rise are in double-digit %; more than 50% for December 2022 FOMC and later.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -1.11%, SP500 -0.59%, Nasdaq Comp -0.73%, R2000 -2.50%. DJ Transports -2.50%; DJ Utilities +1.33%. (Rotating spot small-cap R2000 -2.50%) US$ index (spot) +1.02%, oil/WTI futures -8.91%, gold futures +0.33%.
YTD (index changes only), DJIA +14.75%, SP500 +18.25%, Nasdaq Comp +14.17%. (Rotating spot small-cap R2000 +9.76%)
Pg M4, EUROPE. Swiss Swatch (SWGAY; P/E 20.1) is attractive. It was hurt badly by the pandemic but is a good recovery play. 40% of its global sales are in China. Its strong brands include Omega, Longines, Tissot for watches; Harry Winston (jewelry), Hour Passion (airport boutiques), Tourbillion (boutiques). It owns or controls its supply-chain, including EM Microelectronic (semi chips for itself and auto industry), so it has good profit margins in better times.
Pg M4, EMERGING MARKETS. CHINA wants access to NATURAL RESOURCES (oil, copper, lithium, rare earth metals, etc) through friendly relations with AFGHANISTAN. China shares a small border with Afghanistan, but those border areas also have issues related to Muslim minorities. China also shares a long border with PAKISTAN, so it may also access Afghanistan through friendly Pakistan. But Chinese should be aware of the history that Afghanistan has frustrated British, Russians and Americans before.
Pg M6, COMMODITIES. IRON-ORE has sold off (-32% from July 16 high) on the news that CHINA has cut/restricted STEEL production for 2021/H2. There is good global demand for steel, but China wants to control pollution and do some cleanup ahead of the WINTER OLYMPICS in Beijing, February 4-20, 2022. It has reduced export incentives for steel and even imposed export taxes/tariffs on crude forms of iron. It is encouraging the use of ferrous scraps for steel production, and these futures will soon trade on its Dalian Commodities Exchange. Covid-19-Delta spread is also creating uncertainties.
Pg M5, OPTIONS. If worried about rising rates and market correction, consider 1) put-spread on SPY; 2) stock replacements with calls. It is also noted that while hedging can be useful at times, hedging all the time is very expensive and ineffective.
(SP500 VIX 18.56, Nasdaq 100 VXN 20.97, SKEW 153.51 (very high)) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg M27, M32: A bad week in EUROPE (Denmark +1.85%, France -3.36%) and an ugly week in ASIA (Philippines +4.93%, Chine -7.48%). The equity CEF index (data to Thursday) underperformed the DJIA and its discount was -4.5%.
TREASURY* 3-mo yield 0.05%, 2-yr 0.23%, 5-yr 0.80%, 10-yr 1.26%, 30-yr 1.87%. DOLLAR rose, DXY 93.46, +1.02% (M35). GOLD (Handy & Harman spot, Thursday) rose to $1,782, +0.25% (M38); the gold-miners fell sharply uncharacteristically. (^XAU was at 125.89, -6.93% for the week)
*Treasury Yield-Curve www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
Top FDIC insured savings deposit rates*: Money-market accounts 0.61%; 3-mo Jumbo CD 0.35%, 1-yr CDs 0.60%; 5-yr CDs 1.10% (M33).
*For local rates www.depositaccounts.com/banks/rates-map/
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 18: COVER STORY, “BIG TECH Is In a Perilous Moment. The Stocks Are Unstoppable”. In spite of REGULATORY risks, the big techs (FAAMG especially) will continue to march forward. FAAMG now account for 23.3% of the SP500. They had a great Q2 but most fell due to concerns about post-pandemic hangover (AMZN most affected), semi chips shortages, rising shipping costs. There are uncertainties related to regulations with the involvement of White House, Congress, courts. Some think that any breakups may even benefit shareholders. There are more details on each FAAMG.
EXTRA. President BIDEN has made appointments and issued executive orders that make it clear that more regulations are coming for big techs. These may relate to antitrust, privacy, app stores, extra funding for enforcements by the DOJ and FTC, restrictions on M&A and potential breakups.
Pg 7, UP & DOWN WALL STREET. Stock market ignored AFGHANISTAN collapse and takeover by Taliban. This may however impact the US dealings with IRAN and CHINA. With the US gone from Afghanistan and its presence dwindling in Iraq, Iran may no longer feel threatened by the US physical presence in its neighborhood. China may misread US intentions and resolve. DOLLAR should benefit from any geopolitical tensions. CRUDE OIL has been weak due to recent OPEC decisions (however tortured) and Covid-19-Delta spread.
The stock market was affected by the FOMC Minutes that indicated that TAPER talks have started. Minutes noted progress on INFLATION but not yet on JOBS. For more hints, watch POWELL’s speech (virtual) at 10 AM Eastern on Friday, August 27 at Jackson Hole. The economic news since the last FOMC has been mixed. There has been progress on reopening but also adverse impacts of Covid-19-Delta. Philippa DUNNE and Doug HENWOOD (TLR on the Economy) noted better job gains in states with higher vaccination levels. Weak commodity prices (oil, Dr Copper, iron-ore, etc) and low 10-yr yield are signaling economic slowdown. While large-cap oriented broad indexes have held up (DJIA/DIA, SP500/SPY, Nasdaq 100/QQQ), equal-weight SP500/RSP and small-cap R2000/IWM have started to lag. Let us see how Powell addresses many mixed signals – hopefully not as a 2-handed economist.
Pg ?, STREETWISE. Missing
(More later….)