Post by Admin/YBB on Apr 23, 2022 5:44:56 GMT -6
Pg 36, TRADER. The FED finally did it – it pushed stocks over the edge and investors got ready for possible Fed-induced recession (so, that would explain the contradictory signals from stocks and bonds). Economic data were mixed and didn’t justify the market route. The Fed Chair POWELL mentioned possible 50-bps hike at May FOMC and St Louis Fed President BULLARD chimed in with possible 75-bps hike at June FOMC, and the results of these verbal manipulations are seen in the CME FedWatch data (below). Investors sold all kinds of stocks, value, growth, small, large, etc. Atlanta GDPNow is showing only +1.3% growth for Q1 (so, what about Q2?), and don’t forget there is a war going on in Europe causing continuing post-pandemic disruptions. This talking until something breaks will be followed soon by the Fed doing something. The talk of soft landing has turned into that of hard landing. Last bull, please turn the lights out.
5 of the FAAMNG have fallen, only one, Apple remains standing (only -8.9% YTD but that beats SP500). And 5 FAAMNG along with Apple report this week, so keep fingers crossed (6th, NFLX was the disaster of the past week). YTD, 6 FAAMNG have accounted for half of the drop in SP500 (but nobody complained on the way up). FAAMNG technical look week, so earnings expectations are low except for mixed hopes for Apple.
Netflix/NFLX collapse was a warning for STREAMING and other streaming stocks also fell (WBD, PARA, DIS, LGF-A, etc). Consumers love streaming but companies require lot of capex for content and expenses for marketing that cut into profits. While more than one will survive (NFLX, DIS, WBD, etc), not all will. Some like AAPL, AMZN, DIS, CMCSA may see streaming as loss-leader for their other businesses. Higher interest rates and cash-burn don’t mix. Cautious investors may just avoid streaming until the dust settles.
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 & 6th rate hikes, FOMC 6/15/22+ (75 bps hike possible)
7th & 8th rate hike, FOMC 7/27/22+ (50 bps hike possible)
9th rate hike, FOMC 9/21/22+
10th & 11th rate hike, FOMC 11/2/22+ (target 2.75-3.00%)
That’s all folks! FOMC 12/14/22+ (well, more in 2023)
(The Fed talking circus pulled the fed fund futures market sharply forward and it may have gone a bit too far. Showtime for the Fed starts in early-May.)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -1.86%, SP500 -2.75%, Nasdaq Comp -3.83%, R2000 -3.21%. DJ Transports +2.58%; DJ Utilities -0.86%. (Rotating spot energy -4.57%) US$ index (spot) +0.63%, oil/WTI futures -4.56%, gold futures -2.02%.
YTD (index changes only), DJIA -6.44% (wrong data on Barron’s pg 36; another mistake that copy editors should have caught), SP500 -10.37%, Nasdaq Comp -17.93%. (Rotating spot energy XLE +37.30%)
Pg 39, EUROPE. Luxury goods company LVMH (LVMUY; fwd P/E 23.1) is attractive (-14% YTD). It has been hurt by inflation and Covid-19 in China. Strong brands. Good growth in the US.
Pg 39, EMERGING MARKETS. Commodities-exporter BRAZIL is up sharply (+30% YTD) but some bargains can still be found. Central bank is trying to control inflation and has increased interest RATES from 2.5% last year to 11.75% now; real is up +24%. ELECTIONS are in October, but the presidential choice is unexciting. Attractive are stocks that may benefit from eventual rate cuts – banks, retail, IT, etc.
Pg 40, OPTIONS. Stock and bond markets are sending opposite signals. Use covered calls for stocks in your portfolio. (Early piece from Wednesday was edited on Friday; there may have been complaints about stale content on the fast moving options market in many early filings of the piece on Wednesdays.)
(SP500 VIX 28.21, Nasdaq 100 VXN 35.39, SKEW 136.22) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg 42, COMMODITIES. Russia-Ukraine war and related sanctions have disrupted FERTILIZER production and supplies and that is causing high FOOD prices. Corn is the most fertilizer-intensive crop and farmers are switching to soybeans and wheat. Russia and Belarus have been big exporters of fertilizer and of chemicals needed for fertilizer production (potash, etc). Natural gas needed for fertilizer production is also very expensive. The US fertilizer producers include MOS, CF, NTR.
Pg 56, 62: A bad week in EUROPE (Greece +2.13%, Finland +0.90%, Italy -2.19%) and a bad week in ASIA (Indonesia +1.53%, China -5.97%). The equity CEF index (data to Thursday) underperformed the DJIA, and its discount was -2%.
TREASURY* 3-mo yield 0.83%, 1-yr 2.06%, 2-yr 2.72%, 5-yr 2.94%, 10-yr 2.90%, 30-yr 2.95%. DOLLAR rose, ^DXY 101.12, +0.6% (2-yr high; pg 65). GOLD fell to $1,944, -1% (Handy & Harman spot, Thursday) (pg 68); the gold-miners tanked. (^XAU was at 151.14, -9.91% 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 0.38%, 1-yr CDs 1.19%; 5-yr CDs 2.47% (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.
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 18: COVER STORY, “FACEBOOK is Broken. Execs Say a Fix Won’t Come Fast”. Everyone is pointing fingers at Meta/FB – Congress, regulators, investors, users. It has been disrupted badly by Apple’s/AAPL privacy changes (basically, opt-in for ads vs opt-out previously) that has caused almost 9% hit to the revenues; Google plans similar changes by 2023. Competition is growing from TikTok/ByteDance and its Reels/FB is struggling. Investors are worried about the huge capex required for uncertain metaverse, a money losing operation with only 2% revenues now. It reports in the coming week and the expectations are low. Stock is down -52% since 09/2021; ZUCKERBERG has 50% control.
Pg 7, UP & DOWN WALL STREET. This week the 10-yr real yield touched 0% and the nominal yield touched 2.954%. The real rate may soon be positive. But the SPREAD of 10-yr yield over fed fund rate is now very wide. INFLATION-EXPECTATIONS (nominal yield minus real yield) are much lower than the current inflation and the expected/hoped-for dramatic fall in inflation may not happen. A danger is that as nominal yields rise, the DEBT SERVICE on the mountain of debt will skyrocket. STOCK market valuation and performance would also be impacted by higher nominal yields and 3% has been an important threshold for 10-yr yields. Stocks have returned +21.9% annualized with lower volatility when 10-yr yield was under 3%, but only +10% with higher volatility when 10-yr yield was over 3%. There may be a FINANCIAL CRISIS (with or without recession) if the spread of 10-yr yield over fed fund rate narrows too much too fast. (I have added a long-term chart of the spread of 10-yr yield vs fed fund rate from FRED, fred.stlouisfed.org/graph/?g=OtIm )
The saying goes “Don’t fight the FED” even as this Fed seems a meek fighter. But the Fed crowd has been talking with gusto lately. POWELL mentioned frontloading rate hikes with possible 50-bps start at May 3-4 FOMC meeting, while some Fed Presidents mentioned even 75 bps hikes later; the CME FedWatch jumped the gun by super-frontloading (see above). STOCKS got hit this week; YTD both stocks and BONDS are down and allocation/balanced 60-40 portfolios offered no relief (VBINX -10.4%, and it is just April). Good thing is that starting next week the Fed crowd will shut up until the May 3-4 FOMC (OK, the quiet period) but strong inflation data will keep coming in.
Pg 11, STREETWISE. Tough times for NFLX (poor report; Bill ACKMAN dumped his entire stake) and DIS (FL mess). Both are suffering from high capex for streaming content and slower growth.
(More later….)
5 of the FAAMNG have fallen, only one, Apple remains standing (only -8.9% YTD but that beats SP500). And 5 FAAMNG along with Apple report this week, so keep fingers crossed (6th, NFLX was the disaster of the past week). YTD, 6 FAAMNG have accounted for half of the drop in SP500 (but nobody complained on the way up). FAAMNG technical look week, so earnings expectations are low except for mixed hopes for Apple.
Netflix/NFLX collapse was a warning for STREAMING and other streaming stocks also fell (WBD, PARA, DIS, LGF-A, etc). Consumers love streaming but companies require lot of capex for content and expenses for marketing that cut into profits. While more than one will survive (NFLX, DIS, WBD, etc), not all will. Some like AAPL, AMZN, DIS, CMCSA may see streaming as loss-leader for their other businesses. Higher interest rates and cash-burn don’t mix. Cautious investors may just avoid streaming until the dust settles.
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 & 6th rate hikes, FOMC 6/15/22+ (75 bps hike possible)
7th & 8th rate hike, FOMC 7/27/22+ (50 bps hike possible)
9th rate hike, FOMC 9/21/22+
10th & 11th rate hike, FOMC 11/2/22+ (target 2.75-3.00%)
That’s all folks! FOMC 12/14/22+ (well, more in 2023)
(The Fed talking circus pulled the fed fund futures market sharply forward and it may have gone a bit too far. Showtime for the Fed starts in early-May.)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -1.86%, SP500 -2.75%, Nasdaq Comp -3.83%, R2000 -3.21%. DJ Transports +2.58%; DJ Utilities -0.86%. (Rotating spot energy -4.57%) US$ index (spot) +0.63%, oil/WTI futures -4.56%, gold futures -2.02%.
YTD (index changes only), DJIA -6.44% (wrong data on Barron’s pg 36; another mistake that copy editors should have caught), SP500 -10.37%, Nasdaq Comp -17.93%. (Rotating spot energy XLE +37.30%)
Pg 39, EUROPE. Luxury goods company LVMH (LVMUY; fwd P/E 23.1) is attractive (-14% YTD). It has been hurt by inflation and Covid-19 in China. Strong brands. Good growth in the US.
Pg 39, EMERGING MARKETS. Commodities-exporter BRAZIL is up sharply (+30% YTD) but some bargains can still be found. Central bank is trying to control inflation and has increased interest RATES from 2.5% last year to 11.75% now; real is up +24%. ELECTIONS are in October, but the presidential choice is unexciting. Attractive are stocks that may benefit from eventual rate cuts – banks, retail, IT, etc.
Pg 40, OPTIONS. Stock and bond markets are sending opposite signals. Use covered calls for stocks in your portfolio. (Early piece from Wednesday was edited on Friday; there may have been complaints about stale content on the fast moving options market in many early filings of the piece on Wednesdays.)
(SP500 VIX 28.21, Nasdaq 100 VXN 35.39, SKEW 136.22) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg 42, COMMODITIES. Russia-Ukraine war and related sanctions have disrupted FERTILIZER production and supplies and that is causing high FOOD prices. Corn is the most fertilizer-intensive crop and farmers are switching to soybeans and wheat. Russia and Belarus have been big exporters of fertilizer and of chemicals needed for fertilizer production (potash, etc). Natural gas needed for fertilizer production is also very expensive. The US fertilizer producers include MOS, CF, NTR.
Pg 56, 62: A bad week in EUROPE (Greece +2.13%, Finland +0.90%, Italy -2.19%) and a bad week in ASIA (Indonesia +1.53%, China -5.97%). The equity CEF index (data to Thursday) underperformed the DJIA, and its discount was -2%.
TREASURY* 3-mo yield 0.83%, 1-yr 2.06%, 2-yr 2.72%, 5-yr 2.94%, 10-yr 2.90%, 30-yr 2.95%. DOLLAR rose, ^DXY 101.12, +0.6% (2-yr high; pg 65). GOLD fell to $1,944, -1% (Handy & Harman spot, Thursday) (pg 68); the gold-miners tanked. (^XAU was at 151.14, -9.91% 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 0.38%, 1-yr CDs 1.19%; 5-yr CDs 2.47% (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.
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 18: COVER STORY, “FACEBOOK is Broken. Execs Say a Fix Won’t Come Fast”. Everyone is pointing fingers at Meta/FB – Congress, regulators, investors, users. It has been disrupted badly by Apple’s/AAPL privacy changes (basically, opt-in for ads vs opt-out previously) that has caused almost 9% hit to the revenues; Google plans similar changes by 2023. Competition is growing from TikTok/ByteDance and its Reels/FB is struggling. Investors are worried about the huge capex required for uncertain metaverse, a money losing operation with only 2% revenues now. It reports in the coming week and the expectations are low. Stock is down -52% since 09/2021; ZUCKERBERG has 50% control.
Pg 7, UP & DOWN WALL STREET. This week the 10-yr real yield touched 0% and the nominal yield touched 2.954%. The real rate may soon be positive. But the SPREAD of 10-yr yield over fed fund rate is now very wide. INFLATION-EXPECTATIONS (nominal yield minus real yield) are much lower than the current inflation and the expected/hoped-for dramatic fall in inflation may not happen. A danger is that as nominal yields rise, the DEBT SERVICE on the mountain of debt will skyrocket. STOCK market valuation and performance would also be impacted by higher nominal yields and 3% has been an important threshold for 10-yr yields. Stocks have returned +21.9% annualized with lower volatility when 10-yr yield was under 3%, but only +10% with higher volatility when 10-yr yield was over 3%. There may be a FINANCIAL CRISIS (with or without recession) if the spread of 10-yr yield over fed fund rate narrows too much too fast. (I have added a long-term chart of the spread of 10-yr yield vs fed fund rate from FRED, fred.stlouisfed.org/graph/?g=OtIm )
The saying goes “Don’t fight the FED” even as this Fed seems a meek fighter. But the Fed crowd has been talking with gusto lately. POWELL mentioned frontloading rate hikes with possible 50-bps start at May 3-4 FOMC meeting, while some Fed Presidents mentioned even 75 bps hikes later; the CME FedWatch jumped the gun by super-frontloading (see above). STOCKS got hit this week; YTD both stocks and BONDS are down and allocation/balanced 60-40 portfolios offered no relief (VBINX -10.4%, and it is just April). Good thing is that starting next week the Fed crowd will shut up until the May 3-4 FOMC (OK, the quiet period) but strong inflation data will keep coming in.
Pg 11, STREETWISE. Tough times for NFLX (poor report; Bill ACKMAN dumped his entire stake) and DIS (FL mess). Both are suffering from high capex for streaming content and slower growth.
(More later….)