Post by Admin/YBB on Apr 2, 2022 5:45:55 GMT -6
Pg 29, TRADER. The stock market so far is ignoring concerns about high INFLATION and rising RATES (while the bond market has been hurting). The SP500 fwd P/E is now 19.6. May be the stock market is looking at REAL rates that remain negative. On the other hand, SMALL-CAPS are attractive with SP-SC600 fwd P/E 13.5 only. But expect bumpy markets with aggressive FED and continuing Russia-Ukraine war.
The JOB market is strong, and WAGES are rising. As older workers retire, new workers may be hired at higher wages (this doesn’t make sense for younger hires). Companies face margin pressures from higher wages. But many companies are able to handle rising wages better: COST, ROK, KNX, BYD, MCD, etc.
Inverted YIELD-CURVE may or may not lead to RECESSION; it is partially inverted now. Some recession-proof stocks include consumer-staples (CLX, CPB, KR, CAG, HSY), healthcare (BDX, PFE, DHR, ABBV, AMGN), utilities (D, DUK, NEE, ATO, EXC). These will outperform in recession but will underperform if there is no recession.
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 (+/- 0.25%). In the list below, more than 50% probability is used to indicate rate hike; “+” is shown after the FOMC date to indicate that rate hike can be at that or a later FOMC.
2nd & 3rd rate hike, FOMC 5/4/22+ (50 bps hike possible)
4th & 5th rate hikes, FOMC 6/15/22+ (50 bps hike possible)
6th rate hike, FOMC 7/27/22+
7th rate hike, FOMC 9/21/22+
8th rate hike, FOMC 11/2/22+
9th rate hike, FOMC 12/14/22+ (target 2.50-2.75%)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -0.12%, SP500 +0.06%, Nasdaq Comp +0.65%, R2000 +0.63%. DJ Transports -5.34%; DJ Utilities +4.00% (strong utilities typically signal lower rates ahead but that isn’t likely). (Rotating spot meme stock GME +8.59%) US$ index (spot) -0.21%, oil/WTI futures -12.85%, gold futures -1.78%
YTD (index changes only), DJIA -4.18%, SP500 -4.62%, Nasdaq Comp -8.84%. (Rotating spot meme stock GME +11.19%)
Pg 32, EUROPE. Selloff in UK tobacco company Imperial Brands (IMBBY; yield 8.74%; fwd P/E 6.8; net debt/EBITDA 2.2; buybacks soon) on Russia-Ukraine war is overdone. Lot of bad news is in the stock. New CEO BOMHARD has started restructuring and expansion into next generation products (NGPs) such as heated tobacco, e-cigarettes, oral nicotine, etc. It is also increasing its footprint in the US (brands Winston, Kool).
Pg 32, EMERGING MARKETS. PUTIN’s another rash demand to be paid in rubles for oil/gas were ignored/rejected by the EU and UK. It seems that payments in euros and/or dollars can continue via Russian Gazprombank. The EU-US deal on LNG was a nonevent – it will replace barely 10% of the natural gas that the EU gets from Russia and even that may take years to materialize (handling LNG isn’t easy). But the EU will eventually ween out of the Russian oil/gas.
Pg 34, OPTIONS. With stocks and bonds diverging, it Is hard to understand this market. There is a war going on that may spin out of control into nuclear WW III but the fear gauge VIX is only 19. Suggested is pairing call-buying with put-selling for the private-equity firm KKR.
(SP500 VIX 19.63, Nasdaq 100 VXN 25.91, SKEW 145.51 (high)) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg 33, COMMODITIES. Demand for EV batteries will keep LITHIUM prices high. Lithium mining projects take 10+ years to develop; large producers are Australia, Chile, China. President BIDEN has invoked the Defense Production Act (DPA, 1950) to boost production and processing of lithium and other materials needed for large capacity batteries. Most lithium supply contracts are cost-plus.
Pg 50, 54: A good rebound week in EUROPE (Greece +5.42%, Denmark +4.75%, Netherlands +0.09%) and an up week in ASIA (India +2.93%, Japan -1.73%). The equity CEF index (data to Thursday) outperformed the DJIA, and its premium was +0.6%.
TREASURY* 3-mo yield 0.53%, 1-yr 1.72%, 2-yr 2.44%, 5-yr 2.56%, 10-yr 2.38%, 30-yr 2.44% (a hump from 2-10 yrs). DOLLAR fell, ^DXY 98.57, -0.2% (but yen is collapsing; pg 57). GOLD fell to $1,942, -2% (Handy & Harman spot, Thursday) (pg 60); the gold-miners rose. (^XAU was at 163.20, +1.50% for the week)
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
Top FDIC insured savings deposit rates**: Money-market accounts 0.70%; 3-mo Jumbo CD 0.35%, 1-yr CDs 1.05%; 5-yr CDs 1.79% (pg55).
**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.
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 16: COVER STORY, “Out of Reach: Why A Slice of American Dream is Disappearing”. First-time HOMEBUYERS are facing AFFORDABILITY issues due to rising home prices and rising mortgage rates; high down payments are also difficult for first-time buyers. WAGES are not keeping up. BIDDING WARS above list prices are common in several markets (favoring cash-buyers with least/no contingencies). Housing inventories are low. Presence of cash-paying institutional/speculative buyers is making things worse. Many first-time buyers are just walking away in frustration. RENTS are also rising and that will show up soon in inflation indexes (CPI, PCE) that use only owners’ rent-equivalents (so, housing has not been contributing to high inflation readings now, but it will soon).
Pg 18: Many years ago, housing was key to wealth and good retirement. But with housing market quite hot now, the stock market may offer better opportunities. NYU Professor Aswath DAMODARAN provides related data: From 1972-2021, SP500 +12.41% (annualized) vs housing +5.41%; from 2012-2021, SP500 +16.78% vs housing +7.38%. New data from Yale Professor Robert SHILLER and Ann THOMPSON (MIT and Brookings’) point out that bidding wars in hot markets are making some housing prices irrelevant and disconnected from fundamentals. Buyers at the peak of prior housing bubbles (recent in 1989, 2006) didn’t do well either and it took them years to just get even. Remember that housing is illiquid, has high transactional costs and comes with many headaches.
Pg 20: Homebuilder stocks have sold off (fwd P/E 4, very low; low P/B) and may be attractive: KBH, TMHC, TPH, PHM, TOL, DHI, LEN; ETF ITB.
Pg 5, UP & DOWN WALL STREET. This time may be different – the partially inverted YIELD-CURVE may be sending false recession signals. The widely watched 2Y-10Y and some other spreads have inverted. The fed fund FUTURES market is projecting 9 25-bps rate hikes in 2022 (so, a couple with 50-bps) with 2.50-2.75% fed fund target by the yearend. But REAL rates remain negative, and the JOB market is quite strong for recession. NOMINAL rates are also not high yet to hurt interest-sensitive sectors (housing, consumer-durables, cyclicals in general) or the business capex. Watch now the 3M-10Y spread that is actually widening.
Beware of the booming JAPANESE stock market. The BOJ is keeping monetary policy super easy and that has caused YEN to weaken (benefitting Japanese exporters) and Japanese stocks have rallied. On the other hand, weak yen increases the cost of many imported goods (energy, foods, etc); it may also lead to competitive devaluations among Asian currencies. Japan also has serious demographic issues. Note that weaker yen cuts into the returns of the US investors, so consider currency-hedged DXJ instead of EWJ.
Pg 9, STREETWISE. If you just looked the other way, the SP500 ran up from down -13% to down just -4.6% even in the face of lots of bad NEWS (war, inflation, monetary tightening, partially inverted yield-curve, sickening bond losses, actors slapping comedians). MEME stocks are back too. Has the world gone mad? Strategists are all over the place: The US economic growth from -1% to +3% (so, recession to boom); 10-yr by 2024 in the range 1.7% to 4.5% (when the Fed is on an aggressive rate hike path). ATTRACTIVE are dividend-paying stocks (SPYD), preferreds (FPFD), corporates (VCIT), HY, call-writing on portfolio stocks; but be careful with BDCs, mREITs, MLPs. Mentioned is the multi-asset funds BIICX (and its manager Michael FREDERICKS is cited widely).
(More later….)
The JOB market is strong, and WAGES are rising. As older workers retire, new workers may be hired at higher wages (this doesn’t make sense for younger hires). Companies face margin pressures from higher wages. But many companies are able to handle rising wages better: COST, ROK, KNX, BYD, MCD, etc.
Inverted YIELD-CURVE may or may not lead to RECESSION; it is partially inverted now. Some recession-proof stocks include consumer-staples (CLX, CPB, KR, CAG, HSY), healthcare (BDX, PFE, DHR, ABBV, AMGN), utilities (D, DUK, NEE, ATO, EXC). These will outperform in recession but will underperform if there is no recession.
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 (+/- 0.25%). In the list below, more than 50% probability is used to indicate rate hike; “+” is shown after the FOMC date to indicate that rate hike can be at that or a later FOMC.
2nd & 3rd rate hike, FOMC 5/4/22+ (50 bps hike possible)
4th & 5th rate hikes, FOMC 6/15/22+ (50 bps hike possible)
6th rate hike, FOMC 7/27/22+
7th rate hike, FOMC 9/21/22+
8th rate hike, FOMC 11/2/22+
9th rate hike, FOMC 12/14/22+ (target 2.50-2.75%)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -0.12%, SP500 +0.06%, Nasdaq Comp +0.65%, R2000 +0.63%. DJ Transports -5.34%; DJ Utilities +4.00% (strong utilities typically signal lower rates ahead but that isn’t likely). (Rotating spot meme stock GME +8.59%) US$ index (spot) -0.21%, oil/WTI futures -12.85%, gold futures -1.78%
YTD (index changes only), DJIA -4.18%, SP500 -4.62%, Nasdaq Comp -8.84%. (Rotating spot meme stock GME +11.19%)
Pg 32, EUROPE. Selloff in UK tobacco company Imperial Brands (IMBBY; yield 8.74%; fwd P/E 6.8; net debt/EBITDA 2.2; buybacks soon) on Russia-Ukraine war is overdone. Lot of bad news is in the stock. New CEO BOMHARD has started restructuring and expansion into next generation products (NGPs) such as heated tobacco, e-cigarettes, oral nicotine, etc. It is also increasing its footprint in the US (brands Winston, Kool).
Pg 32, EMERGING MARKETS. PUTIN’s another rash demand to be paid in rubles for oil/gas were ignored/rejected by the EU and UK. It seems that payments in euros and/or dollars can continue via Russian Gazprombank. The EU-US deal on LNG was a nonevent – it will replace barely 10% of the natural gas that the EU gets from Russia and even that may take years to materialize (handling LNG isn’t easy). But the EU will eventually ween out of the Russian oil/gas.
Pg 34, OPTIONS. With stocks and bonds diverging, it Is hard to understand this market. There is a war going on that may spin out of control into nuclear WW III but the fear gauge VIX is only 19. Suggested is pairing call-buying with put-selling for the private-equity firm KKR.
(SP500 VIX 19.63, Nasdaq 100 VXN 25.91, SKEW 145.51 (high)) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg 33, COMMODITIES. Demand for EV batteries will keep LITHIUM prices high. Lithium mining projects take 10+ years to develop; large producers are Australia, Chile, China. President BIDEN has invoked the Defense Production Act (DPA, 1950) to boost production and processing of lithium and other materials needed for large capacity batteries. Most lithium supply contracts are cost-plus.
Pg 50, 54: A good rebound week in EUROPE (Greece +5.42%, Denmark +4.75%, Netherlands +0.09%) and an up week in ASIA (India +2.93%, Japan -1.73%). The equity CEF index (data to Thursday) outperformed the DJIA, and its premium was +0.6%.
TREASURY* 3-mo yield 0.53%, 1-yr 1.72%, 2-yr 2.44%, 5-yr 2.56%, 10-yr 2.38%, 30-yr 2.44% (a hump from 2-10 yrs). DOLLAR fell, ^DXY 98.57, -0.2% (but yen is collapsing; pg 57). GOLD fell to $1,942, -2% (Handy & Harman spot, Thursday) (pg 60); the gold-miners rose. (^XAU was at 163.20, +1.50% for the week)
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
Top FDIC insured savings deposit rates**: Money-market accounts 0.70%; 3-mo Jumbo CD 0.35%, 1-yr CDs 1.05%; 5-yr CDs 1.79% (pg55).
**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.
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 16: COVER STORY, “Out of Reach: Why A Slice of American Dream is Disappearing”. First-time HOMEBUYERS are facing AFFORDABILITY issues due to rising home prices and rising mortgage rates; high down payments are also difficult for first-time buyers. WAGES are not keeping up. BIDDING WARS above list prices are common in several markets (favoring cash-buyers with least/no contingencies). Housing inventories are low. Presence of cash-paying institutional/speculative buyers is making things worse. Many first-time buyers are just walking away in frustration. RENTS are also rising and that will show up soon in inflation indexes (CPI, PCE) that use only owners’ rent-equivalents (so, housing has not been contributing to high inflation readings now, but it will soon).
Pg 18: Many years ago, housing was key to wealth and good retirement. But with housing market quite hot now, the stock market may offer better opportunities. NYU Professor Aswath DAMODARAN provides related data: From 1972-2021, SP500 +12.41% (annualized) vs housing +5.41%; from 2012-2021, SP500 +16.78% vs housing +7.38%. New data from Yale Professor Robert SHILLER and Ann THOMPSON (MIT and Brookings’) point out that bidding wars in hot markets are making some housing prices irrelevant and disconnected from fundamentals. Buyers at the peak of prior housing bubbles (recent in 1989, 2006) didn’t do well either and it took them years to just get even. Remember that housing is illiquid, has high transactional costs and comes with many headaches.
Pg 20: Homebuilder stocks have sold off (fwd P/E 4, very low; low P/B) and may be attractive: KBH, TMHC, TPH, PHM, TOL, DHI, LEN; ETF ITB.
Pg 5, UP & DOWN WALL STREET. This time may be different – the partially inverted YIELD-CURVE may be sending false recession signals. The widely watched 2Y-10Y and some other spreads have inverted. The fed fund FUTURES market is projecting 9 25-bps rate hikes in 2022 (so, a couple with 50-bps) with 2.50-2.75% fed fund target by the yearend. But REAL rates remain negative, and the JOB market is quite strong for recession. NOMINAL rates are also not high yet to hurt interest-sensitive sectors (housing, consumer-durables, cyclicals in general) or the business capex. Watch now the 3M-10Y spread that is actually widening.
Beware of the booming JAPANESE stock market. The BOJ is keeping monetary policy super easy and that has caused YEN to weaken (benefitting Japanese exporters) and Japanese stocks have rallied. On the other hand, weak yen increases the cost of many imported goods (energy, foods, etc); it may also lead to competitive devaluations among Asian currencies. Japan also has serious demographic issues. Note that weaker yen cuts into the returns of the US investors, so consider currency-hedged DXJ instead of EWJ.
Pg 9, STREETWISE. If you just looked the other way, the SP500 ran up from down -13% to down just -4.6% even in the face of lots of bad NEWS (war, inflation, monetary tightening, partially inverted yield-curve, sickening bond losses, actors slapping comedians). MEME stocks are back too. Has the world gone mad? Strategists are all over the place: The US economic growth from -1% to +3% (so, recession to boom); 10-yr by 2024 in the range 1.7% to 4.5% (when the Fed is on an aggressive rate hike path). ATTRACTIVE are dividend-paying stocks (SPYD), preferreds (FPFD), corporates (VCIT), HY, call-writing on portfolio stocks; but be careful with BDCs, mREITs, MLPs. Mentioned is the multi-asset funds BIICX (and its manager Michael FREDERICKS is cited widely).
(More later….)