Post by Admin/YBB on Aug 28, 2021 7:10:19 GMT -6
Pg M1, TRADER. New highs for SP500 and Nasdaq Comp; even the small-cap R2000 perked up. Markets liked POWELL’s no-surprise speech at Jackson Hole; as expected, he said that QE taper may start later this year, but rate hikes may be only in late-2022 or later. The Covid-19-Delta may be peaking. The economic data were strong. Markets looked beyond the unfolding events in Afghanistan. The reopening trade (or rotation from growth to cyclicals) was back ON with strong showings for energy, materials, tech and financials (although growthy Nasdaq Comp did much better than both blend SP500 and industrials heavy DJIA). The stock market may move ahead with broadening participation. But expect volatility to increase.
HOUSING is hot (ITB +30%, XHB +35% YTD; new home prices +18.5% y-o-y), but not yet close to the housing bubble in 2007. The 8-yr CAGR (rolling) for home prices is only +6.5% (vs average +3.7%; peak +9.4% in 2005). But easy money has been made in housing stocks and rate rise (much) later may be a headwind.
Lululemon (LULU; fwd P/S 8.1) has stalled since September 2020. Its earnings have disappointed, online sales peaked in 2020, and some analysts have downgraded the stock. But it may pick up steam after September 8 earnings that may show strong in-store sales. It has invested in sustainable, plant-based materials company Genomatica.
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 +0.96%, SP500 +1.52%, Nasdaq Comp +2.82%, R2000 +5.05%. DJ Transports +2.41%; DJ Utilities -1.95%. (Rotating spot energy XLE +7.45%) US$ index (spot) -0.88%, oil/WTI futures +10.30%, gold futures +2.00%.
YTD (index changes only), DJIA +15.84%, SP500 +20.06%, Nasdaq Comp +17.39%. (Rotating spot energy XLE +30.11%)
Pg M4, EUROPE. UK chemical company Synthomer (fwd P/E 9.2) makes PPE products (gloves, masks, gowns, etc), adhesives, industrial additives, waterproofing materials, etc. It has benefitted from the pandemic and will continue to do well. It is growing by acquisitions (recent, Omnova in the US).
Pg M4, EMERGING MARKETS. Inflation from strong recovery in BRAZIL has forced its central bank to raise rates to 5.5% (from 2% in March); 10-yr at 10.5% is attractive. Presidential election is in October 2022. EWZ is up sharply from its March low but good news may be in already. Brazil’s economy is commodity-based but strong commodity prices are not benefitting real due to political and economic uncertainties.
Pg M6, COMMODITIES. WATER shortage in CA (major reservoirs at 53% of average capacity) and elsewhere has boosted water futures (new; +90% YTD) and water stocks (ETF PIO +22% YTD). Beware that almost 50% of all stocks also face risks related to water shortages.
EXTRA. NATURAL GAS hit 3-yr high and related stocks have started to respond (EQT, SWN, CHK, COG); their delayed response may be due to production hedging practices. There may be disruptions from Hurricane IDA that will hit the Gulf Coast (Louisiana to Alabama; New Orleans is vulnerable) over the weekend; it is also the 16th anniversary of Hurricane Katrina. Inventories are low ahead of Winter. Much of natural gas is byproduct of oil production and that is down, especially the shale oil production. LNG exports are also growing.
Pg M5, OPTIONS. MicroStrategy/MSTR offers a way to play Bitcoin – it owns $4.6 billion worth of Bitcoin and will be buying more from a bond sale (an interesting or crazy twist to issue bonds to buy Bitcoin). Short interest is high at 25%. Selling puts is recommended for aggressive investors.
(SP500 VIX 16.39, Nasdaq 100 VXN 18.54, SKEW 162.43 (very high)) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg M27, M32: An up week in EUROPE (Greece +5.06%, Netherlands +3.08%, Denmark -1.47%) and a great week in ASIA (Taiwan +5.30%, Indonesia -0.92%). The equity CEF index (data to Thursday) outperformed the DJIA and its discount was -4.5%.
TREASURY* 3-mo yield 0.05%, 2-yr 0.22%, 5-yr 0.79%, 10-yr 1.31%, 30-yr 1.91%. DOLLAR fell, DXY 92.68, -0.9% (M35). GOLD (Handy & Harman spot, Thursday) rose to $1,799, +1.1% (M38); the gold-miners were up sharply. (^XAU was at 134.46, +6.81% 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 16: COVER STORY, “Where to Find Opportunities in CHINA’s Stock Market”. Has China become uninvestible? No – but it has become very complex. That should be music to the ears of those suffering with China holdings (-20% in 6 months; BABA -30%, EDU & TAL -90%; ETF KWEB -45%). The internal conflict between the communist system and big businesses is growing. Risks are growing for the US-listed Chinese companies (using the controversial VIE mechanism) from both the US and China. Some China bulls have turned cautious. But the recent selloff has made China attractive. There is opportunity in areas targeted for growth by the Chinese government (Internet, healthcare, green energy, etc) – that is like investing along with the government. The long-term outlook for dominant companies BABA, TCEHY, YUMC, etc is also good. It may be prudent to use mutual funds (SIGIX, MCHFX, WAESX, ODMAX, etc) and ETFs. But all bets are off if military conflicts develop over South China Sea, Taiwan, etc.
Pg 7, UP & DOWN WALL STREET.
POWELL’s virtual speech at the Fed conference in Jackson Hole hinted on QE taper later this year but noted that rate hikes may be off for a while (until late-2022 or beyond). Reopening related cyclicals did well. PAULSON (Leuthold) said that very low rates can support the valuation of SP500 (2022 Earnings $220, fwd P/E 21; 2025 earnings $300, fwd P/E in 2024?).
COMMODITY PRODUCERS are good recovery/reopening plays. Dr Copper is used in renewable power, EVs and many industrial applications; copper producers include RIP, NGLOY, FCX.
Many SPACs are languishing near 50-week lows. This is due to huge number of SPACs that came to the market when SPACs were hot, some investor dissatisfaction and regulatory scrutiny. The US ETFs include SPCX (pre-deal SPACs), SPAK (pre-deal SPAC and completed deals) and there is a Canadian ETF Accelerate Arbitrage. (see another piece on them)
Hertz Global/HTZZ is attractive, but its 30-yr warrants/HTZZW may be even better. Company emerged from bankruptcy on June 30; its securities trade on Pink Sheets now but may list on NYSE or Nasdaq by the yearend.
(More later….)
HOUSING is hot (ITB +30%, XHB +35% YTD; new home prices +18.5% y-o-y), but not yet close to the housing bubble in 2007. The 8-yr CAGR (rolling) for home prices is only +6.5% (vs average +3.7%; peak +9.4% in 2005). But easy money has been made in housing stocks and rate rise (much) later may be a headwind.
Lululemon (LULU; fwd P/S 8.1) has stalled since September 2020. Its earnings have disappointed, online sales peaked in 2020, and some analysts have downgraded the stock. But it may pick up steam after September 8 earnings that may show strong in-store sales. It has invested in sustainable, plant-based materials company Genomatica.
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 +0.96%, SP500 +1.52%, Nasdaq Comp +2.82%, R2000 +5.05%. DJ Transports +2.41%; DJ Utilities -1.95%. (Rotating spot energy XLE +7.45%) US$ index (spot) -0.88%, oil/WTI futures +10.30%, gold futures +2.00%.
YTD (index changes only), DJIA +15.84%, SP500 +20.06%, Nasdaq Comp +17.39%. (Rotating spot energy XLE +30.11%)
Pg M4, EUROPE. UK chemical company Synthomer (fwd P/E 9.2) makes PPE products (gloves, masks, gowns, etc), adhesives, industrial additives, waterproofing materials, etc. It has benefitted from the pandemic and will continue to do well. It is growing by acquisitions (recent, Omnova in the US).
Pg M4, EMERGING MARKETS. Inflation from strong recovery in BRAZIL has forced its central bank to raise rates to 5.5% (from 2% in March); 10-yr at 10.5% is attractive. Presidential election is in October 2022. EWZ is up sharply from its March low but good news may be in already. Brazil’s economy is commodity-based but strong commodity prices are not benefitting real due to political and economic uncertainties.
Pg M6, COMMODITIES. WATER shortage in CA (major reservoirs at 53% of average capacity) and elsewhere has boosted water futures (new; +90% YTD) and water stocks (ETF PIO +22% YTD). Beware that almost 50% of all stocks also face risks related to water shortages.
EXTRA. NATURAL GAS hit 3-yr high and related stocks have started to respond (EQT, SWN, CHK, COG); their delayed response may be due to production hedging practices. There may be disruptions from Hurricane IDA that will hit the Gulf Coast (Louisiana to Alabama; New Orleans is vulnerable) over the weekend; it is also the 16th anniversary of Hurricane Katrina. Inventories are low ahead of Winter. Much of natural gas is byproduct of oil production and that is down, especially the shale oil production. LNG exports are also growing.
Pg M5, OPTIONS. MicroStrategy/MSTR offers a way to play Bitcoin – it owns $4.6 billion worth of Bitcoin and will be buying more from a bond sale (an interesting or crazy twist to issue bonds to buy Bitcoin). Short interest is high at 25%. Selling puts is recommended for aggressive investors.
(SP500 VIX 16.39, Nasdaq 100 VXN 18.54, SKEW 162.43 (very high)) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg M27, M32: An up week in EUROPE (Greece +5.06%, Netherlands +3.08%, Denmark -1.47%) and a great week in ASIA (Taiwan +5.30%, Indonesia -0.92%). The equity CEF index (data to Thursday) outperformed the DJIA and its discount was -4.5%.
TREASURY* 3-mo yield 0.05%, 2-yr 0.22%, 5-yr 0.79%, 10-yr 1.31%, 30-yr 1.91%. DOLLAR fell, DXY 92.68, -0.9% (M35). GOLD (Handy & Harman spot, Thursday) rose to $1,799, +1.1% (M38); the gold-miners were up sharply. (^XAU was at 134.46, +6.81% 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 16: COVER STORY, “Where to Find Opportunities in CHINA’s Stock Market”. Has China become uninvestible? No – but it has become very complex. That should be music to the ears of those suffering with China holdings (-20% in 6 months; BABA -30%, EDU & TAL -90%; ETF KWEB -45%). The internal conflict between the communist system and big businesses is growing. Risks are growing for the US-listed Chinese companies (using the controversial VIE mechanism) from both the US and China. Some China bulls have turned cautious. But the recent selloff has made China attractive. There is opportunity in areas targeted for growth by the Chinese government (Internet, healthcare, green energy, etc) – that is like investing along with the government. The long-term outlook for dominant companies BABA, TCEHY, YUMC, etc is also good. It may be prudent to use mutual funds (SIGIX, MCHFX, WAESX, ODMAX, etc) and ETFs. But all bets are off if military conflicts develop over South China Sea, Taiwan, etc.
Pg 7, UP & DOWN WALL STREET.
POWELL’s virtual speech at the Fed conference in Jackson Hole hinted on QE taper later this year but noted that rate hikes may be off for a while (until late-2022 or beyond). Reopening related cyclicals did well. PAULSON (Leuthold) said that very low rates can support the valuation of SP500 (2022 Earnings $220, fwd P/E 21; 2025 earnings $300, fwd P/E in 2024?).
COMMODITY PRODUCERS are good recovery/reopening plays. Dr Copper is used in renewable power, EVs and many industrial applications; copper producers include RIP, NGLOY, FCX.
Many SPACs are languishing near 50-week lows. This is due to huge number of SPACs that came to the market when SPACs were hot, some investor dissatisfaction and regulatory scrutiny. The US ETFs include SPCX (pre-deal SPACs), SPAK (pre-deal SPAC and completed deals) and there is a Canadian ETF Accelerate Arbitrage. (see another piece on them)
Hertz Global/HTZZ is attractive, but its 30-yr warrants/HTZZW may be even better. Company emerged from bankruptcy on June 30; its securities trade on Pink Sheets now but may list on NYSE or Nasdaq by the yearend.
(More later….)