Post by Admin/YBB on Dec 4, 2021 7:44:37 GMT -6
Pg 35, TRADER. In a DOWN WEEK, major indexes pulled back from the highs but the small-cap R2000 was in correction territory; there is probably more pain to come. The FED is spooking the market more than Covid-19 or inflation. It was a volatile week in which Fed Chair POWELL forcefully mentioned that inflation is NOT transitory and that the QE-taper schedule may be accelerated. And this when the new Covid-19-Omnicron virus was making headlines. Fear gauge VIX rose to 30s (on some down days, SP500/SPY VIX is almost same or higher than Nasdaq 100/QQQ VXN). JOBS report was a huge miss, but the unemployment rate fell to 4.2%. Economic data were good.
In spite of the health crisis created by Covid-19 pandemic, NYSE Arca PHARMA Index is badly lagging the SP500; several pharma stocks have YTD losses (AMGN, BMY, MRK). Earnings, revenues or cash flows aren’t the problem, but the proposed rules on DRUG PRICING, including allowing Medicare to negotiate drug prices, in the soft-infrastructure bill are. BMY (-11% YTD; fwd P/E 7 only) has other issues such as drugs coming off patent but has strong drug pipeline. The concerns are overblown and BMY along with the pharma sector will rebound.
TRANSITORY is dead, so declared POWELL. Higher inflation will benefit INDUSTRIALS such as Deere/DE that can pass on cost increases. Industrial sector (XLI) has been lagging and is attractive. (Financials will be the obvious beneficiaries)
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 January 2022 FOMC. Beyond, the probabilities of rate rise are in double-digit %; more than 50% for June 2022 FOMC and later (the current QE-taper schedule will end the QE in June but there is now talk of accelerating it).
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -0.91%, SP500 -1.22%, Nasdaq Comp -2.62%, R2000 -3.86%. DJ Transports -1.53%; DJ Utilities +0.78%. (Rotating spot China MCHI -4.38%) US$ index (spot) +0.08%, oil/WTI futures -2.77%, gold futures -0.19%.
YTD (index changes only), DJIA +12.98%, SP500 +20.83%, Nasdaq Comp +17.05%. (Rotating spot China MCHI -21.91%)
Pg 38, EUROPE. Hot JOBS markets globally are benefitting the UK recruiter Robert Walters (RWA.uk; fwd P/E 15.9). It has developed an AI-based tool to make job matches faster through virtual interviews and remote evaluation and processing. It has also developed a database for headhunters that generates higher response rates than LinkedIn. There are many jobs opening in the US (10 million), the UK (1.7 million) and many parts of the world, and 41% of the employees are looking to make changes within the next 12 months.
Pg 38, EMERGING MARKETS. Latin America is leading Asia in full Covid-19 vaccinations (Chile 84%, Brazil 63%, Mexico 50%); the US is at 59%. But BRAZILIAN stocks (EWZ -25% in 5 months) are facing headwinds of high inflation (11%) and 2022 elections. There are power shortages due to drought. Long-term investors may find bargains in Brazilian techs, e-commerce, banks, and bonds.
Pg 39, OPTIONS. Fear gauge VIX doubled from late-October. Puts have become more expensive than calls (high SKEW). It is attractive to sell puts on stocks or ETFs (e.g. tech XLK) that one would like to own; use expirations before the FOMC Statement date of December 15 (there may be surprises).
(SP500 VIX 30.67, Nasdaq 100 VXN 33.41, SKEW 149.64 (high)) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg 40, COMMODITIES. The auto market (new or used cars) is very tight. But PALLADIUM (-26% YTD) and PLATINUM (-14% YTD) are down sharply because of the drop in auto production caused by SEMI CHIPS shortages. This is unusual as most commodities are strong (S&P GSCI commodity index +28% YTD). Palladium is used more widely in the catalytic converters of gasoline-powered cars while platinum is used more in diesel-powered cars; although either metal can be used, there are large capex costs for the switch for the manufacturers. Rebound in palladium may be dramatic when the auto production picks up as chips supply-chain issues ease. On the other hand, platinum demand has fallen sharply for investments and also for other industrial application, so there is now a platinum surplus. Platinum is also much cheaper than gold (it used to be the reverse years ago).
Pg 57, 62: A down week in EUROPE (Greece +2.14%, Finland +1.69%, Denmark -2.46%) and a bad week in ASIA (Taiwan +2.01%, Singapore -4.98%). The equity CEF index (data to Thursday) outperformed the DJIA, and its discount was -1.5%.
TREASURY* 3-mo yield 0.06%, 2-yr 0.60%, 5-yr 1.13%, 10-yr 1.35%, 30-yr 1.69%. DOLLAR rose, DXY 96.15, +0.06% (corrected as Barron’s has stale data; the highest since mid-2020; pg 65). GOLD (Handy & Harman spot, Thursday) fell to $1,768, -1.8% (pg 68); the gold-miners tanked again. (^XAU was at 125.52, -4.23% 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 1.24% (pg 63).
*For local rates www.depositaccounts.com/banks/rates-map/
US SAVINGS I-Bonds, current rate 7.12% (annualized). Rates change on May 1 & Nov 1. Limit $10K/person/yr (additional $5K possible via tax refund). Cannot cash within 12 months; 3-month interest penalty if cashed in 1-5 years. Tax may be deferred until redeemed. Better than EE Bonds now. Not tradable like TIPS. Need to open account at Treasury Direct.
www.treasurydirect.gov/tdhome.htm
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 20: COVER STORY, “Through the Roof/The Big Buildup”. MILLENNIALS may drive this HOUSING BOOM for a decade. There is a lack of housing supply. Housing starts are still far below the peak of 2004-06 and housing inventories are low. HOMEBUILDERS are using options on lots from land developers rather than buying the lots outright, so there isn’t much speculative building; they are buying back their own shares instead. Supply-chain and labor issues have driven up the COSTS of new home construction. Stay/work from home trend is favoring larger single-family homes and people are willing to move to farther suburbs. RISKS include low population growth, rising mortgage rates, worsening housing affordability. Attractive homebuilders are trading at single-digit fwd P/Es: large-cap DHI, LEN, PHM, TOL; small-cap CCS, MTH.
Pg 8, UP & DOWN WALL STREET. What’s with these strange names? Square will become Block, Facebook became Meta, and a while back, National Biscuit became Mondelez (and Fiat Chrysler just made up Stellantis). Anyway, many highflyers, whatever they were called, hit the earth. JOBS report was a miss (some say mixed), Fed Chair POWELL may speedup the QE-taper (and forget about inflation being transitory), a new Covid-19-Omicron virus was in town, VIX in 30s was the highest since late-January. With such “welcoming” news, there may just not be a Santa Rally.
The BOND market isn’t following the Fed Chair POWELL’s script – he reversed himself on inflation being transitory AND hinted on accelerating the QE-taper (from the current -15 billion/mo). But the intermediate/long-term bond yields fell due to a new Covid-19-Omicron scare. The YIELD-CURVE flattened with 2Y-10Y yield spread only 83 bps and 10Y-30Y yield spread only 32 bps. The nominal GDP growth now far exceeds the 10-yr yield (very unusual). CRUDE OIL fell sharply; inflation-expectations also fell. Real fed funds yield remains quite negative. The fed fund futures market is projecting multiple RATE HIKES (June? September? December?).
Pg 10, STREETWISE. After false starts in 1960s and 1980s, AI is finally hot. The current AI is based on machine-learning or rule-based software. It has outdone humans in playing several games. But the role of AI will keep growing and people will have AI tools at their fingertips with more powerful smartphones. Big players in this area are AMZN, MSFT, GOOGL, NVDA, NFLX, TSLA (no Meta/FB?). “Smaller” players include Xilinx/XLNX (bought by AMD), MRVL, AVGO. There are ETFs BOTZ, AIEQ. But Eric SCHMIDT (former Alphabet/GOOGL CEO) has several cautions. He points to the risks of overreliance on AI that may start wars or create fake news (videos create strong impressions even when known to be fake) or spread negative news (people tend to share negative news 7x more than good/rational news). He has coauthored a new book, The Age of A.I. and Our Human Nature, by Kissinger, Schmidt, Huttenlocher.
(More later….)
In spite of the health crisis created by Covid-19 pandemic, NYSE Arca PHARMA Index is badly lagging the SP500; several pharma stocks have YTD losses (AMGN, BMY, MRK). Earnings, revenues or cash flows aren’t the problem, but the proposed rules on DRUG PRICING, including allowing Medicare to negotiate drug prices, in the soft-infrastructure bill are. BMY (-11% YTD; fwd P/E 7 only) has other issues such as drugs coming off patent but has strong drug pipeline. The concerns are overblown and BMY along with the pharma sector will rebound.
TRANSITORY is dead, so declared POWELL. Higher inflation will benefit INDUSTRIALS such as Deere/DE that can pass on cost increases. Industrial sector (XLI) has been lagging and is attractive. (Financials will be the obvious beneficiaries)
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 January 2022 FOMC. Beyond, the probabilities of rate rise are in double-digit %; more than 50% for June 2022 FOMC and later (the current QE-taper schedule will end the QE in June but there is now talk of accelerating it).
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -0.91%, SP500 -1.22%, Nasdaq Comp -2.62%, R2000 -3.86%. DJ Transports -1.53%; DJ Utilities +0.78%. (Rotating spot China MCHI -4.38%) US$ index (spot) +0.08%, oil/WTI futures -2.77%, gold futures -0.19%.
YTD (index changes only), DJIA +12.98%, SP500 +20.83%, Nasdaq Comp +17.05%. (Rotating spot China MCHI -21.91%)
Pg 38, EUROPE. Hot JOBS markets globally are benefitting the UK recruiter Robert Walters (RWA.uk; fwd P/E 15.9). It has developed an AI-based tool to make job matches faster through virtual interviews and remote evaluation and processing. It has also developed a database for headhunters that generates higher response rates than LinkedIn. There are many jobs opening in the US (10 million), the UK (1.7 million) and many parts of the world, and 41% of the employees are looking to make changes within the next 12 months.
Pg 38, EMERGING MARKETS. Latin America is leading Asia in full Covid-19 vaccinations (Chile 84%, Brazil 63%, Mexico 50%); the US is at 59%. But BRAZILIAN stocks (EWZ -25% in 5 months) are facing headwinds of high inflation (11%) and 2022 elections. There are power shortages due to drought. Long-term investors may find bargains in Brazilian techs, e-commerce, banks, and bonds.
Pg 39, OPTIONS. Fear gauge VIX doubled from late-October. Puts have become more expensive than calls (high SKEW). It is attractive to sell puts on stocks or ETFs (e.g. tech XLK) that one would like to own; use expirations before the FOMC Statement date of December 15 (there may be surprises).
(SP500 VIX 30.67, Nasdaq 100 VXN 33.41, SKEW 149.64 (high)) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg 40, COMMODITIES. The auto market (new or used cars) is very tight. But PALLADIUM (-26% YTD) and PLATINUM (-14% YTD) are down sharply because of the drop in auto production caused by SEMI CHIPS shortages. This is unusual as most commodities are strong (S&P GSCI commodity index +28% YTD). Palladium is used more widely in the catalytic converters of gasoline-powered cars while platinum is used more in diesel-powered cars; although either metal can be used, there are large capex costs for the switch for the manufacturers. Rebound in palladium may be dramatic when the auto production picks up as chips supply-chain issues ease. On the other hand, platinum demand has fallen sharply for investments and also for other industrial application, so there is now a platinum surplus. Platinum is also much cheaper than gold (it used to be the reverse years ago).
Pg 57, 62: A down week in EUROPE (Greece +2.14%, Finland +1.69%, Denmark -2.46%) and a bad week in ASIA (Taiwan +2.01%, Singapore -4.98%). The equity CEF index (data to Thursday) outperformed the DJIA, and its discount was -1.5%.
TREASURY* 3-mo yield 0.06%, 2-yr 0.60%, 5-yr 1.13%, 10-yr 1.35%, 30-yr 1.69%. DOLLAR rose, DXY 96.15, +0.06% (corrected as Barron’s has stale data; the highest since mid-2020; pg 65). GOLD (Handy & Harman spot, Thursday) fell to $1,768, -1.8% (pg 68); the gold-miners tanked again. (^XAU was at 125.52, -4.23% 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 1.24% (pg 63).
*For local rates www.depositaccounts.com/banks/rates-map/
US SAVINGS I-Bonds, current rate 7.12% (annualized). Rates change on May 1 & Nov 1. Limit $10K/person/yr (additional $5K possible via tax refund). Cannot cash within 12 months; 3-month interest penalty if cashed in 1-5 years. Tax may be deferred until redeemed. Better than EE Bonds now. Not tradable like TIPS. Need to open account at Treasury Direct.
www.treasurydirect.gov/tdhome.htm
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 20: COVER STORY, “Through the Roof/The Big Buildup”. MILLENNIALS may drive this HOUSING BOOM for a decade. There is a lack of housing supply. Housing starts are still far below the peak of 2004-06 and housing inventories are low. HOMEBUILDERS are using options on lots from land developers rather than buying the lots outright, so there isn’t much speculative building; they are buying back their own shares instead. Supply-chain and labor issues have driven up the COSTS of new home construction. Stay/work from home trend is favoring larger single-family homes and people are willing to move to farther suburbs. RISKS include low population growth, rising mortgage rates, worsening housing affordability. Attractive homebuilders are trading at single-digit fwd P/Es: large-cap DHI, LEN, PHM, TOL; small-cap CCS, MTH.
Pg 8, UP & DOWN WALL STREET. What’s with these strange names? Square will become Block, Facebook became Meta, and a while back, National Biscuit became Mondelez (and Fiat Chrysler just made up Stellantis). Anyway, many highflyers, whatever they were called, hit the earth. JOBS report was a miss (some say mixed), Fed Chair POWELL may speedup the QE-taper (and forget about inflation being transitory), a new Covid-19-Omicron virus was in town, VIX in 30s was the highest since late-January. With such “welcoming” news, there may just not be a Santa Rally.
The BOND market isn’t following the Fed Chair POWELL’s script – he reversed himself on inflation being transitory AND hinted on accelerating the QE-taper (from the current -15 billion/mo). But the intermediate/long-term bond yields fell due to a new Covid-19-Omicron scare. The YIELD-CURVE flattened with 2Y-10Y yield spread only 83 bps and 10Y-30Y yield spread only 32 bps. The nominal GDP growth now far exceeds the 10-yr yield (very unusual). CRUDE OIL fell sharply; inflation-expectations also fell. Real fed funds yield remains quite negative. The fed fund futures market is projecting multiple RATE HIKES (June? September? December?).
Pg 10, STREETWISE. After false starts in 1960s and 1980s, AI is finally hot. The current AI is based on machine-learning or rule-based software. It has outdone humans in playing several games. But the role of AI will keep growing and people will have AI tools at their fingertips with more powerful smartphones. Big players in this area are AMZN, MSFT, GOOGL, NVDA, NFLX, TSLA (no Meta/FB?). “Smaller” players include Xilinx/XLNX (bought by AMD), MRVL, AVGO. There are ETFs BOTZ, AIEQ. But Eric SCHMIDT (former Alphabet/GOOGL CEO) has several cautions. He points to the risks of overreliance on AI that may start wars or create fake news (videos create strong impressions even when known to be fake) or spread negative news (people tend to share negative news 7x more than good/rational news). He has coauthored a new book, The Age of A.I. and Our Human Nature, by Kissinger, Schmidt, Huttenlocher.
(More later….)