Post by Admin/YBB on Apr 30, 2022 5:43:18 GMT -6
Pg 27, TRADER. The WORST 4 months since 1970s or 1930! Depends in the index (some backdating/backtesting used as not all indexes had existed). YTD SP500 -13%, DJIA -9.2%, Nasdaq Comp -17% (Stockcharts and Barron’s elsewhere show -21.2%). There is also data on rolling 4-mo declines. What was disconcerting was that the YTD drop now wasn’t due to terrible earnings but just fears. The FOMC will try to wake up from its slumber by hiking at least 50 bps on Wednesday.
EARNINGS so far (with 69% reported) have been decent but investors were in mood to sell. The techs generally had weak earnings. Blames were put on supply-chain issues; cost pressures; several techs cited privacy setting changes by AAPL. Avoid stocks with high expectations and look for the fallen angels (hopefully they have fallen enough).
Market is too negative on RETAILERS and is pricing them at recession levels (ETF XRT -21% YTD). Retailers had a good Q4; the jobs market is strong; wages are rising; households have extra savings. Attractive are AEO, VSCO, ROST, BBWI.
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 & 7th rate hike, FOMC 7/27/22+ (50 bps hike possible)
8th& 9th rate hike, FOMC 9/21/22+ (50 bps hike possible)
10th rate hike, FOMC 11/2/22+
11th rate hike FOMC 12/14/22+ (target 3.00-3.25%)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -2.47%, SP500 -3.27%, Nasdaq Comp -3.93%, R2000 -3.95%. DJ Transports -1.34%; DJ Utilities -4.10% (ouch!). (Rotating spot tech-software IGV -1.91%) US$ index (spot) +1.96%, oil/WTI futures +2.57%, gold futures -1.12%.
YTD (index changes only), DJIA -9.25%, SP500 -13.31%, Nasdaq Comp -21.16%. (Rotating spot tech-software IGV -24.57%)
Pg 30, EUROPE. In the aftermath of Russia-Ukraine war, DEFENSE spending will go up in Europe. A beneficiary will be the aerospace and defense company Thales (THLLY; fwd P/E 17.5; owned 25% by French Government, 24% by Dassault/DASTY) that should continue to rally post-pandemic. All of its businesses are doing well. In times like these, some ESG lovers may find reasons to like defense companies; recently Swedish ESG firm SEB did just that in a limited way.
Pg 30, EMERGING MARKETS. Russia stopped NATURAL GAS supplies to Poland and Bulgaria because they had refused to pay for gas in rubles. Other EU countries that also had refused said that they will now comply ASAP – either via euro payments to Gazprombank that will be converted immediately into rubles or pay in rubles directly. But the EU remains firm in its anti-Putin stance in other aspects.
Pg 31, OPTIONS. A repeat recommendation for COVERED CALL strategy. Risks of assignment for ITM options are not high (but that does occur randomly) except near/at expiry. If the stock moves above the strike price, one can cover the call or roll to a later expiry.
(SP500 VIX 33.40, Nasdaq 100 VXN 38.25, SKEW 136.69) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg 32, COMMODITIES. NATURAL GAS and FOOD are leading the S&P GSCI commodity index (ETF GSG; energy-heavy) although the increases are across the board for its 24 futures contracts in 5 commodity areas. A new worry is what if the bullish commodity positions cannot even be delivered due to disruptions from Russia-Ukraine war? The US has plenty of natural gas, but it is hard to send it Europe (except as LNG) and the US market will also be affected by the HURRICANE season. CRUDE OIL can go either way due to many factors. Don’t bet on the course of the War as only PUTIN can decide that (even the UN Chief said so after his recent visits to Russia and Ukraine). CHINA is in partial lockdown again. The IMF and World Bank have lowered global growth forecasts.
Pg 48, 54: A down week in EUROPE (Denmark+1.92%, Sweden -2.73%, Greece -2.81%) and a flat week in ASIA (China +3.81%, Philippines -3.80%). The equity CEF index (data to Thursday) underperformed the DJIA, and its discount was -2.2%.
TREASURY* 3-mo yield 0.85%, 1-yr 2.10%, 2-yr 2.70%, 5-yr 2.92%, 10-yr 2.89%, 30-yr 2.96%. DOLLAR rose, ^DXY 103.21, +2% (amazing! pg 57). GOLD fell to $1,911, -1.6% (Handy & Harman spot, Thursday) (pg 60); the gold-miners tanked. (^XAU was at 142.61, -5.64% 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 1.23%; 5-yr CDs 2.47% (pg 55).
**For local rates www.depositaccounts.com/banks/rates-map/
US SAVINGS I-Bonds, current rate 7.12% (annualized). Rates change on May 1 (May 2, Monday AM?) & 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 14: COVER STORY, “Elon MUSK Needs to Make Twitter a Financial Success. Here is How He Can Do It”. After Tesla/TSLA and SpaceX comes the troubled Twitter/TWTR. It just had a poor earnings report. Under Musk, TWTR will have high debt ($12.5 billion; debt/EBITDA in high single-digits); he is paying P/S 7, “E” was a loss and has been inconsistent. Deal BREAUP fee is only $1 billion, but Musk walking away is less likely with more cash he has raised from TSLA sales in recent days; he has to come up with $21 billion. TWTR is trading a 10% DISCOUNT from its cash-deal price, so there is healthy skepticism for deal completion. Musk wants to change the business MODEL from ads to subscriptions but that would be difficult with high debt-servicing. There may be severe staff cuts as Musk wants a freewheeling, hands-off, less monitored Twitter that would support his free speech ideal. He may also cut or eliminate stock-based compensation but then the cash costs will go up.
Pg 16: More ideas for TWTR TURNAROUND: Cut unproductive/fruitless R&D; shift sales and marketing strategy (he himself will be enough for marketing); eliminate spam accounts; improve Suggestion mechanisms; improve new Communities; switch from ad to subscription model (Musk already wants that); rank content by votes/likes; with less noise, the need for monitoring may go down naturally.
Pg 17: Risks to Tesla/TSLA stock from Twitter/TWTR are overblown. Beyond Musk’s immediate CASH needs of $21 billion, there isn’t much of a connection. Morgan Stanley/MS with 8.8% and Elliot Investment with 1.3% may also stick around lowering his cash needs. He has put up $62.5 billion in TSLA stock as collateral to get MARGIN loan of $12.5 billion; he will need to put up more if the TSLA collateral falls to $35.7 billion, i.e. a TSLA stock collapse by 43% (possible but unlikely). He has also pledged lot of TSLA stock for his other endeavors but after all this is done, he will still have $73 billion in unpledged TSLA stock to cover whatever/ wherever need arises. Would Musk be distracted? No, he is a great MULTITASKER. More worrisome are CHINA lockdowns that are affecting most profitable TSLA plants (not some Chinese conspiracy being mentioned in social-media). Workers there have started living at/near the facilities. There are also supply-chain issues and growing competition for EV BATTERIES – until the TSLA EV battery factory starts running. So, while many things can go wrong, Musk should be able to manage things.
Pg 4, UP & DOWN WALL STREET. It was a TOUGH April for STOCKS (SP500 -8.8%, the worst since 03/2020; Nasdaq Comp -13.3%, the worst since 10/2008) but the ECONOMY has held up so far. The month of May should be “interesting”. The FOMC meeting on Tuesday-Wednesday will reveal what is behind the recent aggressive Fed rhetoric. The FOMC will have to look at the negative Q1 GDP, but the next jobs report won’t be available until Friday. Watch if there is 50 or 75 bps frontloaded hike and the rate of Fed balance sheet reduction. The Fed waited too long to address inflation, but that fight is still Powell’s to win or lose. The 10-yr yield closed the week at 2.887% and stocks and bonds show the damage from that quick rise.
EURO, Chinese YUAN, Japanese YEN have been very weak (or, the DOLLAR has been very strong). Trilemma for countries is that they can control only 1-2 out of the following 3: Monetary policy (with rates, QE/QT), exchange rates (by setting or interventions), capital flows; for most advanced countries, it is just the first or the first two. Russia-Ukraine war is impacting EUROPE and euro; global exports are also slowing. CHINA is being impacted by Covid-19 lockdowns. JAPAN is sticking with super-easy monetary policy. In the US, strong dollar is now doing some of the inflation fighting for the FED. ASIAN countries are hurt by weak yen and yuan. Keep an eye on the current unstable currency situation.
EXTRA. Home prices and mortgage rates are rising, and home sales are down, but the feared slowdown in housing hasn’t happened yet. There are more qualified homebuyers now (and there are new cash-paying institutional buyers in the market).
Pg x, STREETWISE. Missing.
(More later….)
Also accessible from Morningstar (M*), Big Bang, Facebook (“at” yogibearbull), Twitter (“at” YBB_Finance).
EARNINGS so far (with 69% reported) have been decent but investors were in mood to sell. The techs generally had weak earnings. Blames were put on supply-chain issues; cost pressures; several techs cited privacy setting changes by AAPL. Avoid stocks with high expectations and look for the fallen angels (hopefully they have fallen enough).
Market is too negative on RETAILERS and is pricing them at recession levels (ETF XRT -21% YTD). Retailers had a good Q4; the jobs market is strong; wages are rising; households have extra savings. Attractive are AEO, VSCO, ROST, BBWI.
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 & 7th rate hike, FOMC 7/27/22+ (50 bps hike possible)
8th& 9th rate hike, FOMC 9/21/22+ (50 bps hike possible)
10th rate hike, FOMC 11/2/22+
11th rate hike FOMC 12/14/22+ (target 3.00-3.25%)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -2.47%, SP500 -3.27%, Nasdaq Comp -3.93%, R2000 -3.95%. DJ Transports -1.34%; DJ Utilities -4.10% (ouch!). (Rotating spot tech-software IGV -1.91%) US$ index (spot) +1.96%, oil/WTI futures +2.57%, gold futures -1.12%.
YTD (index changes only), DJIA -9.25%, SP500 -13.31%, Nasdaq Comp -21.16%. (Rotating spot tech-software IGV -24.57%)
Pg 30, EUROPE. In the aftermath of Russia-Ukraine war, DEFENSE spending will go up in Europe. A beneficiary will be the aerospace and defense company Thales (THLLY; fwd P/E 17.5; owned 25% by French Government, 24% by Dassault/DASTY) that should continue to rally post-pandemic. All of its businesses are doing well. In times like these, some ESG lovers may find reasons to like defense companies; recently Swedish ESG firm SEB did just that in a limited way.
Pg 30, EMERGING MARKETS. Russia stopped NATURAL GAS supplies to Poland and Bulgaria because they had refused to pay for gas in rubles. Other EU countries that also had refused said that they will now comply ASAP – either via euro payments to Gazprombank that will be converted immediately into rubles or pay in rubles directly. But the EU remains firm in its anti-Putin stance in other aspects.
Pg 31, OPTIONS. A repeat recommendation for COVERED CALL strategy. Risks of assignment for ITM options are not high (but that does occur randomly) except near/at expiry. If the stock moves above the strike price, one can cover the call or roll to a later expiry.
(SP500 VIX 33.40, Nasdaq 100 VXN 38.25, SKEW 136.69) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg 32, COMMODITIES. NATURAL GAS and FOOD are leading the S&P GSCI commodity index (ETF GSG; energy-heavy) although the increases are across the board for its 24 futures contracts in 5 commodity areas. A new worry is what if the bullish commodity positions cannot even be delivered due to disruptions from Russia-Ukraine war? The US has plenty of natural gas, but it is hard to send it Europe (except as LNG) and the US market will also be affected by the HURRICANE season. CRUDE OIL can go either way due to many factors. Don’t bet on the course of the War as only PUTIN can decide that (even the UN Chief said so after his recent visits to Russia and Ukraine). CHINA is in partial lockdown again. The IMF and World Bank have lowered global growth forecasts.
Pg 48, 54: A down week in EUROPE (Denmark+1.92%, Sweden -2.73%, Greece -2.81%) and a flat week in ASIA (China +3.81%, Philippines -3.80%). The equity CEF index (data to Thursday) underperformed the DJIA, and its discount was -2.2%.
TREASURY* 3-mo yield 0.85%, 1-yr 2.10%, 2-yr 2.70%, 5-yr 2.92%, 10-yr 2.89%, 30-yr 2.96%. DOLLAR rose, ^DXY 103.21, +2% (amazing! pg 57). GOLD fell to $1,911, -1.6% (Handy & Harman spot, Thursday) (pg 60); the gold-miners tanked. (^XAU was at 142.61, -5.64% 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 1.23%; 5-yr CDs 2.47% (pg 55).
**For local rates www.depositaccounts.com/banks/rates-map/
US SAVINGS I-Bonds, current rate 7.12% (annualized). Rates change on May 1 (May 2, Monday AM?) & 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 14: COVER STORY, “Elon MUSK Needs to Make Twitter a Financial Success. Here is How He Can Do It”. After Tesla/TSLA and SpaceX comes the troubled Twitter/TWTR. It just had a poor earnings report. Under Musk, TWTR will have high debt ($12.5 billion; debt/EBITDA in high single-digits); he is paying P/S 7, “E” was a loss and has been inconsistent. Deal BREAUP fee is only $1 billion, but Musk walking away is less likely with more cash he has raised from TSLA sales in recent days; he has to come up with $21 billion. TWTR is trading a 10% DISCOUNT from its cash-deal price, so there is healthy skepticism for deal completion. Musk wants to change the business MODEL from ads to subscriptions but that would be difficult with high debt-servicing. There may be severe staff cuts as Musk wants a freewheeling, hands-off, less monitored Twitter that would support his free speech ideal. He may also cut or eliminate stock-based compensation but then the cash costs will go up.
Pg 16: More ideas for TWTR TURNAROUND: Cut unproductive/fruitless R&D; shift sales and marketing strategy (he himself will be enough for marketing); eliminate spam accounts; improve Suggestion mechanisms; improve new Communities; switch from ad to subscription model (Musk already wants that); rank content by votes/likes; with less noise, the need for monitoring may go down naturally.
Pg 17: Risks to Tesla/TSLA stock from Twitter/TWTR are overblown. Beyond Musk’s immediate CASH needs of $21 billion, there isn’t much of a connection. Morgan Stanley/MS with 8.8% and Elliot Investment with 1.3% may also stick around lowering his cash needs. He has put up $62.5 billion in TSLA stock as collateral to get MARGIN loan of $12.5 billion; he will need to put up more if the TSLA collateral falls to $35.7 billion, i.e. a TSLA stock collapse by 43% (possible but unlikely). He has also pledged lot of TSLA stock for his other endeavors but after all this is done, he will still have $73 billion in unpledged TSLA stock to cover whatever/ wherever need arises. Would Musk be distracted? No, he is a great MULTITASKER. More worrisome are CHINA lockdowns that are affecting most profitable TSLA plants (not some Chinese conspiracy being mentioned in social-media). Workers there have started living at/near the facilities. There are also supply-chain issues and growing competition for EV BATTERIES – until the TSLA EV battery factory starts running. So, while many things can go wrong, Musk should be able to manage things.
Pg 4, UP & DOWN WALL STREET. It was a TOUGH April for STOCKS (SP500 -8.8%, the worst since 03/2020; Nasdaq Comp -13.3%, the worst since 10/2008) but the ECONOMY has held up so far. The month of May should be “interesting”. The FOMC meeting on Tuesday-Wednesday will reveal what is behind the recent aggressive Fed rhetoric. The FOMC will have to look at the negative Q1 GDP, but the next jobs report won’t be available until Friday. Watch if there is 50 or 75 bps frontloaded hike and the rate of Fed balance sheet reduction. The Fed waited too long to address inflation, but that fight is still Powell’s to win or lose. The 10-yr yield closed the week at 2.887% and stocks and bonds show the damage from that quick rise.
EURO, Chinese YUAN, Japanese YEN have been very weak (or, the DOLLAR has been very strong). Trilemma for countries is that they can control only 1-2 out of the following 3: Monetary policy (with rates, QE/QT), exchange rates (by setting or interventions), capital flows; for most advanced countries, it is just the first or the first two. Russia-Ukraine war is impacting EUROPE and euro; global exports are also slowing. CHINA is being impacted by Covid-19 lockdowns. JAPAN is sticking with super-easy monetary policy. In the US, strong dollar is now doing some of the inflation fighting for the FED. ASIAN countries are hurt by weak yen and yuan. Keep an eye on the current unstable currency situation.
EXTRA. Home prices and mortgage rates are rising, and home sales are down, but the feared slowdown in housing hasn’t happened yet. There are more qualified homebuyers now (and there are new cash-paying institutional buyers in the market).
Pg x, STREETWISE. Missing.
(More later….)
Also accessible from Morningstar (M*), Big Bang, Facebook (“at” yogibearbull), Twitter (“at” YBB_Finance).