Post by Admin/YBB on Sept 10, 2022 9:54:29 GMT -6
Pg 10-11.
REVIEW. T-Mobile (TMUS; +22% YTD) now has bigger market cap than Verizon (VZ; -18% YTD) and AT&T (-17% YTD). TMUS has been flying high since the 2020 acquisition of Sprint. ( It gained valuable midband spectrum that offers the best combo of 5G speed and range). It has announced buybacks.
PREVIEW. UNIONS are gaining strength and are making noises about wages lagging inflation. Several companies will be facing labor contract negotiations soon (UPS, GM, F, STLA, etc).
DATA THIS WEEK. CPI, small business optimism index, Treasury budget on TUESDAY; PPI ( > CPI) on WEDNESDAY; NY Fed Empire State manufacturing survey, retail sales, industrial production, business inventories on THURSDAY; UM consumer sentiment index on FRIDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Porsche IPO (from VWAPY (yield 5.3%; fwd P/E 4.2; brands VW, Audi, Bentley, Lamborghini, Porsche); pushing EVs; complex corporate structure; Porsche and Piech families have controlling interests (they own 50% of POAHY that owns 53% of VWAPY, so they would continue to hold large stakes in Porsche post-IPO); pg 13);
POOL (-37% YTD; fwd P/E 18; Q2 report was below expectations; swimming season is over, but swimming pools require continuing maintenance; pg 16);
Illumina (ILMN; European regulators barred its 2021 acquisition of Grail (multicancer blood screening); ILMN had closed the Grail acquisition knowing the concerns from European and US regulators; issues with the US FTC are also continuing; pg 17).
BEARISH. See other stories.
Pg 14: Russian cut off of NATURAL GAS flows from Nord Stream 1 pipeline has made the bad energy situation in EUROPE worse. ALTERNATIVE sources of energy aren’t there yet, and nature isn’t cooperating as droughts have impacted small HYDROELECTRIC power production; the European policy on NUCLEAR power is muddled. The European energy markets are in a crisis and some companies may face financial disaster without government BAILOUTS. The LNG imports have been used to fill inventories to 82% ahead of Winter. Consumer bills for energy have soared and some countries are considering BILLING-CAPS and SUBSIDIES for consumers and RATIONS for industrial uses. Some industries have cut or shut production due to high energy prices; some plant closures may become permanent. The EU is also considering PRICE CAPS on Russian energy and the impact of that is unclear. Europe is on the verge of RECESSION, maybe it has one already, and the worst is yet to come. European STOCKS have more downside (another -15% with -14% YTD) as earnings will take hits; the MSCI Europe fwd P/E may go down from the current 11.5 to 10. At some point, European quality stocks will become attractive. The ECB has a difficult balancing job as it is raising rates to control inflation.
Pg 23: SOCIAL SECURITY trust fund may be depleted by 2034. There are 66 million beneficiaries now. Congress has to act before drastic benefit cuts kick in (by 23% in 2034, 26% in 2095). Proposals include higher FICA taxes, modifying salary caps, benefit reforms (increase full retirement age; phase in changes), legislative funding (loan or one-time transfer), fully tax benefits, etc. But there is a small risk of legislative failure if the DC gridlock continues; Social Security cannot be addressed through the budget reconciliation process and a genuine compromise will be needed. Retirees may also plan ahead by increasing their retirement income streams through higher savings, delaying retirements, annuities, etc. Some financial planners are now making plans without Social Security.
Pg 24: A discussion on when to start Social Security, early at 62 vs late at 70. For most people, the breakeven is at ages 78-83. Risk for delaying benefits is premature death. Note that life-expectancy also changes with age. Couples have more options; it may be beneficial for the younger, lower-pay spouse to start early but the older, higher-pay spouse to start later. Worry about trust fund depletion shouldn’t factor much into this (i.e. focus only on what YOU control).
Pg 27: FUNDS. ESG sector funds are volatile. A declining sentiment for ESG hasn’t helped. The ETF and sector fund investors are not patient, long-term or with convictions on ESG. Mentioned are BIAWX, BOSOX, CDHAX, CSXAX, NEXTX; ETF QCLN.
Pg 28: INCOME. FR/BL (-1.3% YTD) have done fine during the bond selloff (-11% YTD). They yield 3.2% LIBOR plus 3.0-5.5% variable. Beware of their credit risks as they are a category within HY/junk; defaults are rising from a low base (but rise dramatically during recession). Mentioned are PRFRX, EIFAX; ETF FLOT.
Pg 29, TECH TRADER. Videogame company Electronic Arts (EA; fwd P/E 16) is attractive. Many of its games are huge hits. Videogames are complex and the best execution often wins over the best idea. EA game creator Vince ZAMPELLA has Midas touch. There is also a new videogame-console cycle coming that will benefit gamers such as EA. It may also become M&A target.
Pg 30, ECONOMY. Joseph WANG, former Fed open market desk trader. The FED now owns 33% of Treasuries and MBS; the Fed balance sheet at $9 trillion is 40% of the US GDP. The QT will reach full level after 9/15/22 (-$60 billion/mo Treasuries; -$35 billion/mo MBS (and that cannot be done by roll offs alone)). RATES are also rising rapidly. The US Government DEBT funding needs are high. The BOND market has yet to fully price these events that will cause excess supply. The demand is shifting from government and institutional buyers to retail buyers only and that would cause supply-demand imbalances. Some of this is unfamiliar territory for the Fed too. If the QT lasts for 2.0-2.5 years, that will reduce the Fed balance sheet by -$2.5 trillion, but don’t overlook the related collateral damage. JW book, Central Banking 101, 01/2021.
Pg 32, ECONOMY. The US won’t be immune to European ENERGY SHOCKS; the US multinationals will be impacted first. The EU + UK GDP of $20 trillion is about 25% of the global GDP. The ECB is raising rates, Europe may soon be in RECESSION and a financial/debt crisis may emerge. European natural gas prices are extremely high (8x-10x those in the US) and energy inflation is severe. Price caps, subsidies and rationing will have other adverse effects. German economy may be hit hard due to its past reliance on cheap Russian energy. It is no longer enough just to worry about shaky European countries. But investment opportunities will eventually develop in Europe as fwd P/E crumble further. It would be a mistake for the US investors to tune out European/global issues and to just focus on the US issues (Fed, etc).
Pg 62: OTHER VOICES. Stephan MIRAN, Amberwave Partners, formerly at US Treasury (2020-21). The most important speech at Jackson Hole wasn’t from the Fed Chair POWELL, but from the BIS Head CARSTENS. He noted that the long ERA of low volatility (despite some temporary flareups) from 1990s-2010s has come to an end. That era was driven by globalization, cheap overseas labor, strange concepts such as just-in-time (JIT) supplies/manufacturing, demographics, generally friendly central bankers, Fed/other-PUTS, legislative supports, etc. Many of these are now disappearing. The US Inflation Reduction Act may have been the wrong thing at a wrong time. The Congress, DOJ, FTC are more concerned about antitrust issues and regulations. Various geopolitical risks have emerged that are affecting businesses and trade. Supply-chains may have to be rebuilt. Instead of JIT, the new buzzword is just-in-case (JIC). Reshoring and localization are replacing globalization. All these will be inflationary and will contribute to higher volatility. Markets will have more cyclicality. The risk premiums will go up. Investors should be aware of these massive shifts.
(EXTRAS from online Friday that didn’t make the weekend paper version)
None
PENTA supplement has features on rapidly changing MUSIC business; Veronica Beard FASHIONS; ultracontemporary ARTWORK; wooden SPEEDBOATS; Scottish WHISKY (and themed trips); WINE frauds; AUTO-TOURING sponsored by luxury automakers; investments in OPPORTUNITY ZONES; ESG sector funds (similar to Pg 27 story above but by another author); private ISLANDS; WATCHES (I don’t remember a Penta issue without watches), etc. There is also a selected listing of Top RIA firms from Barron’s Top 100 RIA firms.
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
REVIEW. T-Mobile (TMUS; +22% YTD) now has bigger market cap than Verizon (VZ; -18% YTD) and AT&T (-17% YTD). TMUS has been flying high since the 2020 acquisition of Sprint. ( It gained valuable midband spectrum that offers the best combo of 5G speed and range). It has announced buybacks.
PREVIEW. UNIONS are gaining strength and are making noises about wages lagging inflation. Several companies will be facing labor contract negotiations soon (UPS, GM, F, STLA, etc).
DATA THIS WEEK. CPI, small business optimism index, Treasury budget on TUESDAY; PPI ( > CPI) on WEDNESDAY; NY Fed Empire State manufacturing survey, retail sales, industrial production, business inventories on THURSDAY; UM consumer sentiment index on FRIDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Porsche IPO (from VWAPY (yield 5.3%; fwd P/E 4.2; brands VW, Audi, Bentley, Lamborghini, Porsche); pushing EVs; complex corporate structure; Porsche and Piech families have controlling interests (they own 50% of POAHY that owns 53% of VWAPY, so they would continue to hold large stakes in Porsche post-IPO); pg 13);
POOL (-37% YTD; fwd P/E 18; Q2 report was below expectations; swimming season is over, but swimming pools require continuing maintenance; pg 16);
Illumina (ILMN; European regulators barred its 2021 acquisition of Grail (multicancer blood screening); ILMN had closed the Grail acquisition knowing the concerns from European and US regulators; issues with the US FTC are also continuing; pg 17).
BEARISH. See other stories.
Pg 14: Russian cut off of NATURAL GAS flows from Nord Stream 1 pipeline has made the bad energy situation in EUROPE worse. ALTERNATIVE sources of energy aren’t there yet, and nature isn’t cooperating as droughts have impacted small HYDROELECTRIC power production; the European policy on NUCLEAR power is muddled. The European energy markets are in a crisis and some companies may face financial disaster without government BAILOUTS. The LNG imports have been used to fill inventories to 82% ahead of Winter. Consumer bills for energy have soared and some countries are considering BILLING-CAPS and SUBSIDIES for consumers and RATIONS for industrial uses. Some industries have cut or shut production due to high energy prices; some plant closures may become permanent. The EU is also considering PRICE CAPS on Russian energy and the impact of that is unclear. Europe is on the verge of RECESSION, maybe it has one already, and the worst is yet to come. European STOCKS have more downside (another -15% with -14% YTD) as earnings will take hits; the MSCI Europe fwd P/E may go down from the current 11.5 to 10. At some point, European quality stocks will become attractive. The ECB has a difficult balancing job as it is raising rates to control inflation.
Pg 23: SOCIAL SECURITY trust fund may be depleted by 2034. There are 66 million beneficiaries now. Congress has to act before drastic benefit cuts kick in (by 23% in 2034, 26% in 2095). Proposals include higher FICA taxes, modifying salary caps, benefit reforms (increase full retirement age; phase in changes), legislative funding (loan or one-time transfer), fully tax benefits, etc. But there is a small risk of legislative failure if the DC gridlock continues; Social Security cannot be addressed through the budget reconciliation process and a genuine compromise will be needed. Retirees may also plan ahead by increasing their retirement income streams through higher savings, delaying retirements, annuities, etc. Some financial planners are now making plans without Social Security.
Pg 24: A discussion on when to start Social Security, early at 62 vs late at 70. For most people, the breakeven is at ages 78-83. Risk for delaying benefits is premature death. Note that life-expectancy also changes with age. Couples have more options; it may be beneficial for the younger, lower-pay spouse to start early but the older, higher-pay spouse to start later. Worry about trust fund depletion shouldn’t factor much into this (i.e. focus only on what YOU control).
Pg 27: FUNDS. ESG sector funds are volatile. A declining sentiment for ESG hasn’t helped. The ETF and sector fund investors are not patient, long-term or with convictions on ESG. Mentioned are BIAWX, BOSOX, CDHAX, CSXAX, NEXTX; ETF QCLN.
Pg 28: INCOME. FR/BL (-1.3% YTD) have done fine during the bond selloff (-11% YTD). They yield 3.2% LIBOR plus 3.0-5.5% variable. Beware of their credit risks as they are a category within HY/junk; defaults are rising from a low base (but rise dramatically during recession). Mentioned are PRFRX, EIFAX; ETF FLOT.
Pg 29, TECH TRADER. Videogame company Electronic Arts (EA; fwd P/E 16) is attractive. Many of its games are huge hits. Videogames are complex and the best execution often wins over the best idea. EA game creator Vince ZAMPELLA has Midas touch. There is also a new videogame-console cycle coming that will benefit gamers such as EA. It may also become M&A target.
Pg 30, ECONOMY. Joseph WANG, former Fed open market desk trader. The FED now owns 33% of Treasuries and MBS; the Fed balance sheet at $9 trillion is 40% of the US GDP. The QT will reach full level after 9/15/22 (-$60 billion/mo Treasuries; -$35 billion/mo MBS (and that cannot be done by roll offs alone)). RATES are also rising rapidly. The US Government DEBT funding needs are high. The BOND market has yet to fully price these events that will cause excess supply. The demand is shifting from government and institutional buyers to retail buyers only and that would cause supply-demand imbalances. Some of this is unfamiliar territory for the Fed too. If the QT lasts for 2.0-2.5 years, that will reduce the Fed balance sheet by -$2.5 trillion, but don’t overlook the related collateral damage. JW book, Central Banking 101, 01/2021.
Pg 32, ECONOMY. The US won’t be immune to European ENERGY SHOCKS; the US multinationals will be impacted first. The EU + UK GDP of $20 trillion is about 25% of the global GDP. The ECB is raising rates, Europe may soon be in RECESSION and a financial/debt crisis may emerge. European natural gas prices are extremely high (8x-10x those in the US) and energy inflation is severe. Price caps, subsidies and rationing will have other adverse effects. German economy may be hit hard due to its past reliance on cheap Russian energy. It is no longer enough just to worry about shaky European countries. But investment opportunities will eventually develop in Europe as fwd P/E crumble further. It would be a mistake for the US investors to tune out European/global issues and to just focus on the US issues (Fed, etc).
Pg 62: OTHER VOICES. Stephan MIRAN, Amberwave Partners, formerly at US Treasury (2020-21). The most important speech at Jackson Hole wasn’t from the Fed Chair POWELL, but from the BIS Head CARSTENS. He noted that the long ERA of low volatility (despite some temporary flareups) from 1990s-2010s has come to an end. That era was driven by globalization, cheap overseas labor, strange concepts such as just-in-time (JIT) supplies/manufacturing, demographics, generally friendly central bankers, Fed/other-PUTS, legislative supports, etc. Many of these are now disappearing. The US Inflation Reduction Act may have been the wrong thing at a wrong time. The Congress, DOJ, FTC are more concerned about antitrust issues and regulations. Various geopolitical risks have emerged that are affecting businesses and trade. Supply-chains may have to be rebuilt. Instead of JIT, the new buzzword is just-in-case (JIC). Reshoring and localization are replacing globalization. All these will be inflationary and will contribute to higher volatility. Markets will have more cyclicality. The risk premiums will go up. Investors should be aware of these massive shifts.
(EXTRAS from online Friday that didn’t make the weekend paper version)
None
PENTA supplement has features on rapidly changing MUSIC business; Veronica Beard FASHIONS; ultracontemporary ARTWORK; wooden SPEEDBOATS; Scottish WHISKY (and themed trips); WINE frauds; AUTO-TOURING sponsored by luxury automakers; investments in OPPORTUNITY ZONES; ESG sector funds (similar to Pg 27 story above but by another author); private ISLANDS; WATCHES (I don’t remember a Penta issue without watches), etc. There is also a selected listing of Top RIA firms from Barron’s Top 100 RIA firms.
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).