Post by Admin/YBB on Jul 2, 2022 10:02:43 GMT -6
Pg 10-11. FOMC Minutes on WEDNESDAY. NY Fed President WILLIAMS speech at U Puerto Rico on FRIDAY.
REVIEW. Market strategists have mixed views on COMMODITIES (oil, Dr Copper, grains) due to the conflicting scenarios of inflation vs slowdown/recession.
PREVIEW. Online pet-products retailer Chewy/CHWY (06/2019 IPO, peaked in 02/2021) is attractive after selloff on supply-chain concerns. 70% of revenue is from recurring auto-ship orders.
DATA THIS WEEK: Durable goods report, factory orders on TUESDAY; JOLTS report, ISM services PMI on WEDNESDAY; weekly initial jobless claims, international trade deficit on THURSDAY; consumer credit, jobs report (+250,000 to +262,500), unemployment rate (3.6%) on FRIDAY.
CLOSED. The US markets on Monday.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Videogame publisher Activision (ATVI; MSFT all-cash acquisition is likely to go through and 17.3% discount should vanish by the time deal closes in 06/2023; CWA union now supports the deal; the FTC is reviewing the deal; WB/BRK owns 9.5%; pg12);
Auto-parts retailers (AAP, AZO, NAPA/GPC, ORLY; defensive recession plays; average US car is 12 years old; both used- and new- car markets are very tight due to chip shortages; hybrids and EVs (difficult to repair by DIY auto owners) are less than 1% of cars on the road and 10% of auto sales; pg 13).
BEARISH. See other stories.
Pg 14: FOLLOW UP. Now is not the time to bottom fish for CRUISE operator stocks (CCL, RCL, NCLH); MS warned that CCL may go bankrupt. They increased DEBT significantly during the pandemic just to survive. But the recovery has been slow, RATES have risen (making debt servicing and re-fi difficult), cash burn rates are high, and a RECESSION may be coming. Barron’s had a bullish piece on cruise stocks just a couple of months ago but now has concerns (well, that on 5/2/22 wasn’t the only bullish piece but there were several previous bullish pieces on potential travel and cruise rebound as high risk/reward plays that now seem all risks, no rewards).
Pg 23: Wall Street’s lovefest with CRYPTOS is ending in tears and the shakeout isn’t done yet. Cryptos are energy hogs, environment-unfriendly, and have turned out to be neither value (some STABLECOINS were not stable at all) or inflation hedges. Lacking regulations, cryptos are like the Wild West or Walking-Dead-like-anarchy and are reinventing financial crisis (runs, stampedes, frozen assets, giant margin calls, self-dealings, cascading collapses, contagions). Some crypto companies just registered as money-transfer businesses with the states. Listing rules don’t exist for cryptos, and they trade on hundreds of unregulated EXCHANGES around the globe. FED’s monetary tightening and rate hikes are creating liquidity issues for speculative assets in general and cryptos in particular. Cryptos may be creating SYSTEMIC RISKS to the financial system by being overly creative with crypto-backed zero-down no-credit-checks home loans, personal loans, interest-bearing deposits, etc. But the WH, regulators and Congress cannot agree who should regulate cryptos (SEC, CFTC or another agency) and whether some existing rules should apply or new rules should be developed. Underlying BLOCKCHAIN technology may find wider uses.
Pg 27: FUNDS. SMALL-CAPs (SCs) have sold off sharply (-31.9% from 11/8/21 high to 6/16/22 trough) and may be resilient in recession this time and may rebound better than blue chips in recovery. The SCs have EV/EBITDA discounts of 22% (20-year low) vs large-caps (LCs) while they typically trade at premium. Almost 44% of R2000 had losses for Q1. Although R2000 is a widely used SC index, the S&P SC600 is a better SC index (foreign investors don’t care for this distinction and tend to go for R2000). ACTIVE SC managers may outperform SC index during the rebound. The SCs are domestically oriented and benefit from deglobalization. Mentioned are OEFs AVALX, DSCPX, SSLCX, RYPRX, RYSEX, AASMX; ETFs IJR/S&P SC600, IWM/R2000, SLYV/S&P SC600-V.
Pg 28, TECH TRADER. Don’t look for H2 relief for TECHS after a terrible H1. With Nasdaq Comp down -28% in H1, it may be closer to the bottom, but it isn’t there yet. Analysts haven’t revised/cut their H2 ESTIMATES to account for higher inflation, interest rates, fuel costs; possible recession; continued supply-chain disruption from Russia-Ukraine war; China; volatile foreign exchange impacts. Micron/MU last week provided a glimpse of the ugly stuff to come – its report was much worse than already lowered expectations. It is hard to talk about earnings when REVENUES decline (whatever the cause). So, H2 tech EARNINGS and future GUIDANCE would be terrible. Most of the IT/tech, big and small, old and new, and semis would be hit hard. Cloud-computing may be hit the least. (Columnist SAVITZ apologized for his past optimism but is now calling it as he sees it)
Pg 29: ECONOMY. Double-digit EARNINGS growth estimates are just too high. The stock drop YTD has almost unwound the effects of Covid-19 monetary and fiscal stimulus. Going forward, further stock declines along with fwd P/E contraction are quite possible. The current profit estimates are for the optimistic scenario of high inflation quickly moderating and soft-landing (and not for probable recession), and even POWELL said recently that is unlikely. OIL is sending confusing signals – although oil prices have come down from highs, the supply remains tight (oil futures are in backwardation) and inventories are declining (the SPR drawdown is also alarming). So, expect oil prices to remain elevated for several years; oil demand destruction may be only when the US average gasoline price is above $6.60/gallon (this may be a moving target as there was no demand destruction when oil prices moved above $5, a previous such presumed level). Treasury YIELD declines from the recent highs mean that bond traders think that the Fed may be ready to pause/flip after the next FOMC, but what if it doesn’t?
Pg 30: Amy FALLS, Northwestern U CIO (05/2021- ). University endowments had a great FY 2021 but are struggling in FY2022; FY is July 1-June 30. The current CORRECTION was predictable and is healthy. RATES are getting normalized and real rates are positive. With monetary and fiscal TIGHTENING and INFLATION, there is a risk of RECESSION. LABOR market remains strong. The NWU portfolio is a mix of private equity and early-stage venture capital (34.6%), listed equities (21.4%), absolute return (14%), real assets (14); 70% is in the US, 30% foreign. She didn’t make big ALLOCATION changes but took some chips off the table (cash this year has been 10-13%). She aims for top quartile returns but also watches for the downside. With the selloff, she has been deploying some cash into cyclicals and distressed debt. Near 5% draw from endowment for university expenses is consistent, so her long-term target return is 7.5%; high inflation is a concern. There are currently 107 external managers that she would like to trim to 90. Small crypto investments are through venture-capital firms. At NWU, she also wants to teach.
(EXTRAS from online Friday that didn’t make the weekend paper version)
None
Accessible from Morningstar (M*), Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
REVIEW. Market strategists have mixed views on COMMODITIES (oil, Dr Copper, grains) due to the conflicting scenarios of inflation vs slowdown/recession.
PREVIEW. Online pet-products retailer Chewy/CHWY (06/2019 IPO, peaked in 02/2021) is attractive after selloff on supply-chain concerns. 70% of revenue is from recurring auto-ship orders.
DATA THIS WEEK: Durable goods report, factory orders on TUESDAY; JOLTS report, ISM services PMI on WEDNESDAY; weekly initial jobless claims, international trade deficit on THURSDAY; consumer credit, jobs report (+250,000 to +262,500), unemployment rate (3.6%) on FRIDAY.
CLOSED. The US markets on Monday.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Videogame publisher Activision (ATVI; MSFT all-cash acquisition is likely to go through and 17.3% discount should vanish by the time deal closes in 06/2023; CWA union now supports the deal; the FTC is reviewing the deal; WB/BRK owns 9.5%; pg12);
Auto-parts retailers (AAP, AZO, NAPA/GPC, ORLY; defensive recession plays; average US car is 12 years old; both used- and new- car markets are very tight due to chip shortages; hybrids and EVs (difficult to repair by DIY auto owners) are less than 1% of cars on the road and 10% of auto sales; pg 13).
BEARISH. See other stories.
Pg 14: FOLLOW UP. Now is not the time to bottom fish for CRUISE operator stocks (CCL, RCL, NCLH); MS warned that CCL may go bankrupt. They increased DEBT significantly during the pandemic just to survive. But the recovery has been slow, RATES have risen (making debt servicing and re-fi difficult), cash burn rates are high, and a RECESSION may be coming. Barron’s had a bullish piece on cruise stocks just a couple of months ago but now has concerns (well, that on 5/2/22 wasn’t the only bullish piece but there were several previous bullish pieces on potential travel and cruise rebound as high risk/reward plays that now seem all risks, no rewards).
Pg 23: Wall Street’s lovefest with CRYPTOS is ending in tears and the shakeout isn’t done yet. Cryptos are energy hogs, environment-unfriendly, and have turned out to be neither value (some STABLECOINS were not stable at all) or inflation hedges. Lacking regulations, cryptos are like the Wild West or Walking-Dead-like-anarchy and are reinventing financial crisis (runs, stampedes, frozen assets, giant margin calls, self-dealings, cascading collapses, contagions). Some crypto companies just registered as money-transfer businesses with the states. Listing rules don’t exist for cryptos, and they trade on hundreds of unregulated EXCHANGES around the globe. FED’s monetary tightening and rate hikes are creating liquidity issues for speculative assets in general and cryptos in particular. Cryptos may be creating SYSTEMIC RISKS to the financial system by being overly creative with crypto-backed zero-down no-credit-checks home loans, personal loans, interest-bearing deposits, etc. But the WH, regulators and Congress cannot agree who should regulate cryptos (SEC, CFTC or another agency) and whether some existing rules should apply or new rules should be developed. Underlying BLOCKCHAIN technology may find wider uses.
Pg 27: FUNDS. SMALL-CAPs (SCs) have sold off sharply (-31.9% from 11/8/21 high to 6/16/22 trough) and may be resilient in recession this time and may rebound better than blue chips in recovery. The SCs have EV/EBITDA discounts of 22% (20-year low) vs large-caps (LCs) while they typically trade at premium. Almost 44% of R2000 had losses for Q1. Although R2000 is a widely used SC index, the S&P SC600 is a better SC index (foreign investors don’t care for this distinction and tend to go for R2000). ACTIVE SC managers may outperform SC index during the rebound. The SCs are domestically oriented and benefit from deglobalization. Mentioned are OEFs AVALX, DSCPX, SSLCX, RYPRX, RYSEX, AASMX; ETFs IJR/S&P SC600, IWM/R2000, SLYV/S&P SC600-V.
Pg 28, TECH TRADER. Don’t look for H2 relief for TECHS after a terrible H1. With Nasdaq Comp down -28% in H1, it may be closer to the bottom, but it isn’t there yet. Analysts haven’t revised/cut their H2 ESTIMATES to account for higher inflation, interest rates, fuel costs; possible recession; continued supply-chain disruption from Russia-Ukraine war; China; volatile foreign exchange impacts. Micron/MU last week provided a glimpse of the ugly stuff to come – its report was much worse than already lowered expectations. It is hard to talk about earnings when REVENUES decline (whatever the cause). So, H2 tech EARNINGS and future GUIDANCE would be terrible. Most of the IT/tech, big and small, old and new, and semis would be hit hard. Cloud-computing may be hit the least. (Columnist SAVITZ apologized for his past optimism but is now calling it as he sees it)
Pg 29: ECONOMY. Double-digit EARNINGS growth estimates are just too high. The stock drop YTD has almost unwound the effects of Covid-19 monetary and fiscal stimulus. Going forward, further stock declines along with fwd P/E contraction are quite possible. The current profit estimates are for the optimistic scenario of high inflation quickly moderating and soft-landing (and not for probable recession), and even POWELL said recently that is unlikely. OIL is sending confusing signals – although oil prices have come down from highs, the supply remains tight (oil futures are in backwardation) and inventories are declining (the SPR drawdown is also alarming). So, expect oil prices to remain elevated for several years; oil demand destruction may be only when the US average gasoline price is above $6.60/gallon (this may be a moving target as there was no demand destruction when oil prices moved above $5, a previous such presumed level). Treasury YIELD declines from the recent highs mean that bond traders think that the Fed may be ready to pause/flip after the next FOMC, but what if it doesn’t?
Pg 30: Amy FALLS, Northwestern U CIO (05/2021- ). University endowments had a great FY 2021 but are struggling in FY2022; FY is July 1-June 30. The current CORRECTION was predictable and is healthy. RATES are getting normalized and real rates are positive. With monetary and fiscal TIGHTENING and INFLATION, there is a risk of RECESSION. LABOR market remains strong. The NWU portfolio is a mix of private equity and early-stage venture capital (34.6%), listed equities (21.4%), absolute return (14%), real assets (14); 70% is in the US, 30% foreign. She didn’t make big ALLOCATION changes but took some chips off the table (cash this year has been 10-13%). She aims for top quartile returns but also watches for the downside. With the selloff, she has been deploying some cash into cyclicals and distressed debt. Near 5% draw from endowment for university expenses is consistent, so her long-term target return is 7.5%; high inflation is a concern. There are currently 107 external managers that she would like to trim to 90. Small crypto investments are through venture-capital firms. At NWU, she also wants to teach.
(EXTRAS from online Friday that didn’t make the weekend paper version)
None
Accessible from Morningstar (M*), Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).