Post by Admin/YBB on Oct 15, 2022 5:28:13 GMT -6
Pg 36, TRADER. Bottom picking is fruitless or dangerous as shown by the strange market actions of Thursday and Friday. Stocks fell sharply (-2.3SD) and then ran up hugely (+2.3SD) on the same day on hot INFLATION news (didn’t make any sense other than massive short-covering or fixing some wrong institutional positioning) and then fell sharply on Friday. The UM Sentiment was poor (and so also continued the AAII Sentiment); bond YIELDS rose; major indexes ended the week near their LOWS (in September or October, now that the June lows were in the rearview mirror; Nasdaq Comp was at a new low). Investors now seemed resigned to the eventuality of fed fund RATE of 4.5% by the yearend, and possibly 5.5% by mid-2023. Assuming that is as bad it gets, the markets are trying to form a bottom/base. The violent moves of Thursday and Friday are more likely near bottoms (remember, rolling tops, violent bottoms). Markets look oversold but may remain so for a while. The worst may be behind, and we are certainly more than halfway into this bear decline (read that again). So, while more pain is still ahead (or, it may look darkest before the dawn), it’s also time to selectively start nibbling.
SHORTAGES have turned into untimely GLUTS due to supply-chains opening up and that is bad for producers and retailers (MU, HPQ, STX, NKE, GM, F; TGT, ANF, GPS, BBY). Deals/discounts are back to clear bloated inventories. But several companies have better balance of orders and inventories (CNH, DE, CARR, JCI, TT), and discounters/off-price-retailers (TJX, ROST, BURL) will benefit from the misery of other retailers.
URANIUM miner Cameco/CCO is attractive. It was rebounding nicely from July low, but then fell on the news of a misunderstood 49-51 joint-venture (JV) with BEP to buy Westinghouse Electric, a servicer of nuclear power plants. CCO will issue $650 million in stock to partially fund its portion of the deal. For some investors, CCO is no longer a uranium pure play and they just sold. But this JV will provide upstream-downstream integration for the uranium fuel cycle at a time when Russian Rosatom is leaving a vacuum in the nuclear servicing business in Eastern Europe and elsewhere.
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes (+/- 0.25%). In the list below, more than 50% probability is used to indicate rate hike; “+” is shown after the FOMC date to indicate that rate hike can be at that or a later FOMC.
13th , 14th & 15th rate hikes, FOMC 11/2/22+ (75 bps hike possible)
16th , 17th & 18th rate hike, FOMC 12/14/22+ (75 bps hike possible) (rate 4.50-4.75%)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
(I haven’t started including 2023 meetings, but a big change THIS week is that peak rate shown in mid-2023 now is 5.25-5.50%. I am sure that something(s) will BREAK by then.)
FOR THE WEEK (index changes only), DJIA +1.15%, SP500 -1.55%, Nasdaq Comp -3.11%, R2000 -1.16%. DJ Transports +0.21%; DJ Utilities -1.89%. (Rotating spot bank KBE +1.40%) US$ index (spot) +0.50%, oil/WTI futures -7.45%, gold futures -3.46%.
YTD (index changes only), DJIA -18.45%, SP500 -24.82%, Nasdaq Comp -34.03%. (Rotating spot bank KBE -15.32%)
Pg 48: NYSE cumulative (5-day) A/D line fell for the 5th week; ratio of winners:losers 1:2. (Thursday was 80.1% up-volume day with a huge intraday reversal; Friday was 86.6% downside-volume day.)
Pg 39, EUROPE. The UK Chancellor of the Exchequer was recalled from the IMF meeting in the DC and dramatically fired just weeks into his new job. He took the fall for the new UK Government’s untimely tax policies. Risks to the UK pound and bond/gilt markets haven’t gone away, and the contagion may spread globally, even to the US. The actions of the BOE (temporary QE) provided support for these UK markets. The new UK PM TRUSS faces humiliating prospects of turning back on her party-election promises. (Central banks and investors) Beware of rapid hikes in rates.
Pg 39, EMERGING MARKETS. The US ban on the sale of ADVANCED CHIPS to China may be a nonevent. Taiwan Semi/TSM manufactures 50% of global chips and other important players are S Korean Samsung Electronics, SK Hynix; and US MU (some companies such as INTC make their own chips). But most of the chips imported by China are not advanced chips, and China has already made some adjustments following the US actions against Huawei. The US is also pushing for a “Chip 4 Alliance” with partners Japan, Taiwan, S Korea.
Pg 40, OPTIONS. The market sentiment is very negative, and contrarians have disappeared. But someone is buying huge amounts of far-OTM VIX calls (120-150) in the expectation of some black swan event (Russia-Ukraine war widening? use of tactical nuclear weapons? etc); the buyer(s) may benefit just from those scares even though those VIX levels may not be realized.
(SP500 VIX 32.02 (high), Nasdaq 100 VXN 37.75 (high), options SKEW 119.30, bond MOVE 152.89 (high) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 41, COMMODITIES. Americans face significantly higher HEATING COSTS this Winter (October-March). There are plenty of supplies of natural gas and heating oil, but prices are high. The US LNG exports are limited by the US LNG facility capacity.
Pg 53: A flat week in EUROPE (Greece +2.43%; Denmark +1.71%, Netherlands -4.36%) and a bad week in ASIA (Japan -0.45%, HK -5.96%) (China & HK sold off ahead of Party Congress on Sunday, Oct 16).
TREASURY* 3-mo yield 3.81%, 1-yr 4.50%, 2-yr 4.48%, 5-yr 4.25%, 10-yr 4.00%, 30-yr 3.99%. REAL yields 5-yr 1.81%, 10-yr 1.59%, 30-yr 1.66%.
DOLLAR rose, ^DXY 113.30, +0.45% (Japanese yen at 32-yr low; pg 58). GOLD sank to $1,649, -2.8% (Handy & Harman spot, Thursday) (pg 60); the gold-miners sank too. (^XAU was at 103.31, -6.67% for the week)
Top FDIC insured savings deposit rates** (This feature has been discontinued)
US SAVINGS I-Bonds^, current rate 9.62% (annualized). Rates change on May 1 & November 1 (Nov 1 estimates 6.47-8.02% based on fixed rates of 0-1.5%).
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
**For local rates www.depositaccounts.com/banks/rates-map/
^Treasury Direct (I-Bonds + T-Bills/Notes/Bonds, FRNs, TIPS) www.treasurydirect.gov/marketable-securities/
(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, ”CALIFORNIA is Pushing a Major Progressive Agenda. Will It Work?” Positives are many: Great weather (when there are no fires, earthquakes, or landslides); high-tech innovations; great education and R&D; economic growth in top 4 among the US states; etc. Negatives are many too: High taxes; high costs; progressive state policies (climate, women rights, family rights, worker rights, privacy, ESG, ban on new ICE by 2035, taxes to pay EV subsidies, etc). Some thought that CA would do some wild stuff and then stop, but it goes on and on. Many people are moving out (inflows 5.8 million, outflows 7.5 million). Companies that have left CA include HPE, MKC, ORCL, SCHW, TSLA, etc. CA has more than its share of wealthy but about 33% of CA population is on Medicaid. CA is hyperactive in AUTO regulations: 0% new ICE, 100% new EVs by 2035; taxes to pay EV subsidies; toughest emission rules. CA leads in worker rights and raising minimum-wages (soon to be $22/hr) and that has spurred moves to AUTIMATION/ROBOTICS. Affordable HOUSING ($300K+ in CA) is a big problem; total construction costs are high.
Pg 7, UP & DOWN WALL STREET. Weird Thursday and Friday on hot INFLATION news. FED FUND futures market expectations changed drastically to 75-75 bps hikes at November and December FOMC, and the CME FedWatch showed peak fed fund rate of 5.25-5.50% by mid-2023. Lagging housing OERs are catching up fast and inflation is spreading to many categories (beyond food and energy). RISKS of financial accident(s) are growing. In the UK, the Chancellor the Exchequer (similar to the US Secretary of Treasury) was fired just weeks into his job in the aftermath of botched tax policy announcement and resulting chaotic actions in the UK pound and bonds/gilts. The US Secretary YELLEN was now concerned about disruptions in the Treasury market (after recently stating that things were just fine). The US financial STRESS indicator was at March 2020 level. However, the US BANKS are healthy. CONSUMER finances are less robust.
Did Ben BERNANKE, the architect of the QEs, deserve the Nobel Prize for his academic work on the role of BANKS in financial crises? The current Chair POWELL is unwinding the massive Fed balance sheet that grew and grew under Bernanke, Yellen, Powell (early years). While the QEs had positive effects in rescuing the economy and jobs, they also had negative effects – lower money-velocity; moral hazards of Fed-puts; rates and inflation not rising when expected but inflation is out of control now; wasted money on buybacks, M&A, financial engineering. Remember 2017 when Dr Yellen, an economist and then Fed Chair, said that there won’t be a financial crisis in our lifetime; why award Nobels for such dismal science. (On the other hand, Nobels recognize significant works of great societal impacts that were done decades ago, and should people’s subsequent works or positions or views make them ineligible?)
Pg 9, STREETWISE. Times have been bad for AIRLINES (industry P/E 5) – pandemic followed by Russia-Ukraine war. Fuel costs are high; there are shortages of planes, pilots (a new retirement wave is coming) and flight instructors. Boeing/BA is operating at half capacity. BUSINESS travel is recovering. LEISURE travel is holding up even with high airfares and entertainment costs. There is more mixing of business and leisure travel and Wall Street has a new term for it, BLEISURE. Bright spots are DAL, UAL, ALK, SNCY.
EXTRA. The FED will keep at it until something breaks or there is some US or global disaster. Eyes are on Swiss CS; the UK bonds/gilts/pension funds; the US stocks, housing, autos, etc. The Fed watches the core PCE that is +4.9% now and the target is +2%. Investors would be wise to just wait for the break happening and not panic ahead.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
SHORTAGES have turned into untimely GLUTS due to supply-chains opening up and that is bad for producers and retailers (MU, HPQ, STX, NKE, GM, F; TGT, ANF, GPS, BBY). Deals/discounts are back to clear bloated inventories. But several companies have better balance of orders and inventories (CNH, DE, CARR, JCI, TT), and discounters/off-price-retailers (TJX, ROST, BURL) will benefit from the misery of other retailers.
URANIUM miner Cameco/CCO is attractive. It was rebounding nicely from July low, but then fell on the news of a misunderstood 49-51 joint-venture (JV) with BEP to buy Westinghouse Electric, a servicer of nuclear power plants. CCO will issue $650 million in stock to partially fund its portion of the deal. For some investors, CCO is no longer a uranium pure play and they just sold. But this JV will provide upstream-downstream integration for the uranium fuel cycle at a time when Russian Rosatom is leaving a vacuum in the nuclear servicing business in Eastern Europe and elsewhere.
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes (+/- 0.25%). In the list below, more than 50% probability is used to indicate rate hike; “+” is shown after the FOMC date to indicate that rate hike can be at that or a later FOMC.
13th , 14th & 15th rate hikes, FOMC 11/2/22+ (75 bps hike possible)
16th , 17th & 18th rate hike, FOMC 12/14/22+ (75 bps hike possible) (rate 4.50-4.75%)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
(I haven’t started including 2023 meetings, but a big change THIS week is that peak rate shown in mid-2023 now is 5.25-5.50%. I am sure that something(s) will BREAK by then.)
FOR THE WEEK (index changes only), DJIA +1.15%, SP500 -1.55%, Nasdaq Comp -3.11%, R2000 -1.16%. DJ Transports +0.21%; DJ Utilities -1.89%. (Rotating spot bank KBE +1.40%) US$ index (spot) +0.50%, oil/WTI futures -7.45%, gold futures -3.46%.
YTD (index changes only), DJIA -18.45%, SP500 -24.82%, Nasdaq Comp -34.03%. (Rotating spot bank KBE -15.32%)
Pg 48: NYSE cumulative (5-day) A/D line fell for the 5th week; ratio of winners:losers 1:2. (Thursday was 80.1% up-volume day with a huge intraday reversal; Friday was 86.6% downside-volume day.)
Pg 39, EUROPE. The UK Chancellor of the Exchequer was recalled from the IMF meeting in the DC and dramatically fired just weeks into his new job. He took the fall for the new UK Government’s untimely tax policies. Risks to the UK pound and bond/gilt markets haven’t gone away, and the contagion may spread globally, even to the US. The actions of the BOE (temporary QE) provided support for these UK markets. The new UK PM TRUSS faces humiliating prospects of turning back on her party-election promises. (Central banks and investors) Beware of rapid hikes in rates.
Pg 39, EMERGING MARKETS. The US ban on the sale of ADVANCED CHIPS to China may be a nonevent. Taiwan Semi/TSM manufactures 50% of global chips and other important players are S Korean Samsung Electronics, SK Hynix; and US MU (some companies such as INTC make their own chips). But most of the chips imported by China are not advanced chips, and China has already made some adjustments following the US actions against Huawei. The US is also pushing for a “Chip 4 Alliance” with partners Japan, Taiwan, S Korea.
Pg 40, OPTIONS. The market sentiment is very negative, and contrarians have disappeared. But someone is buying huge amounts of far-OTM VIX calls (120-150) in the expectation of some black swan event (Russia-Ukraine war widening? use of tactical nuclear weapons? etc); the buyer(s) may benefit just from those scares even though those VIX levels may not be realized.
(SP500 VIX 32.02 (high), Nasdaq 100 VXN 37.75 (high), options SKEW 119.30, bond MOVE 152.89 (high) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 41, COMMODITIES. Americans face significantly higher HEATING COSTS this Winter (October-March). There are plenty of supplies of natural gas and heating oil, but prices are high. The US LNG exports are limited by the US LNG facility capacity.
Pg 53: A flat week in EUROPE (Greece +2.43%; Denmark +1.71%, Netherlands -4.36%) and a bad week in ASIA (Japan -0.45%, HK -5.96%) (China & HK sold off ahead of Party Congress on Sunday, Oct 16).
TREASURY* 3-mo yield 3.81%, 1-yr 4.50%, 2-yr 4.48%, 5-yr 4.25%, 10-yr 4.00%, 30-yr 3.99%. REAL yields 5-yr 1.81%, 10-yr 1.59%, 30-yr 1.66%.
DOLLAR rose, ^DXY 113.30, +0.45% (Japanese yen at 32-yr low; pg 58). GOLD sank to $1,649, -2.8% (Handy & Harman spot, Thursday) (pg 60); the gold-miners sank too. (^XAU was at 103.31, -6.67% for the week)
Top FDIC insured savings deposit rates** (This feature has been discontinued)
US SAVINGS I-Bonds^, current rate 9.62% (annualized). Rates change on May 1 & November 1 (Nov 1 estimates 6.47-8.02% based on fixed rates of 0-1.5%).
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
**For local rates www.depositaccounts.com/banks/rates-map/
^Treasury Direct (I-Bonds + T-Bills/Notes/Bonds, FRNs, TIPS) www.treasurydirect.gov/marketable-securities/
(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, ”CALIFORNIA is Pushing a Major Progressive Agenda. Will It Work?” Positives are many: Great weather (when there are no fires, earthquakes, or landslides); high-tech innovations; great education and R&D; economic growth in top 4 among the US states; etc. Negatives are many too: High taxes; high costs; progressive state policies (climate, women rights, family rights, worker rights, privacy, ESG, ban on new ICE by 2035, taxes to pay EV subsidies, etc). Some thought that CA would do some wild stuff and then stop, but it goes on and on. Many people are moving out (inflows 5.8 million, outflows 7.5 million). Companies that have left CA include HPE, MKC, ORCL, SCHW, TSLA, etc. CA has more than its share of wealthy but about 33% of CA population is on Medicaid. CA is hyperactive in AUTO regulations: 0% new ICE, 100% new EVs by 2035; taxes to pay EV subsidies; toughest emission rules. CA leads in worker rights and raising minimum-wages (soon to be $22/hr) and that has spurred moves to AUTIMATION/ROBOTICS. Affordable HOUSING ($300K+ in CA) is a big problem; total construction costs are high.
Pg 7, UP & DOWN WALL STREET. Weird Thursday and Friday on hot INFLATION news. FED FUND futures market expectations changed drastically to 75-75 bps hikes at November and December FOMC, and the CME FedWatch showed peak fed fund rate of 5.25-5.50% by mid-2023. Lagging housing OERs are catching up fast and inflation is spreading to many categories (beyond food and energy). RISKS of financial accident(s) are growing. In the UK, the Chancellor the Exchequer (similar to the US Secretary of Treasury) was fired just weeks into his job in the aftermath of botched tax policy announcement and resulting chaotic actions in the UK pound and bonds/gilts. The US Secretary YELLEN was now concerned about disruptions in the Treasury market (after recently stating that things were just fine). The US financial STRESS indicator was at March 2020 level. However, the US BANKS are healthy. CONSUMER finances are less robust.
Did Ben BERNANKE, the architect of the QEs, deserve the Nobel Prize for his academic work on the role of BANKS in financial crises? The current Chair POWELL is unwinding the massive Fed balance sheet that grew and grew under Bernanke, Yellen, Powell (early years). While the QEs had positive effects in rescuing the economy and jobs, they also had negative effects – lower money-velocity; moral hazards of Fed-puts; rates and inflation not rising when expected but inflation is out of control now; wasted money on buybacks, M&A, financial engineering. Remember 2017 when Dr Yellen, an economist and then Fed Chair, said that there won’t be a financial crisis in our lifetime; why award Nobels for such dismal science. (On the other hand, Nobels recognize significant works of great societal impacts that were done decades ago, and should people’s subsequent works or positions or views make them ineligible?)
Pg 9, STREETWISE. Times have been bad for AIRLINES (industry P/E 5) – pandemic followed by Russia-Ukraine war. Fuel costs are high; there are shortages of planes, pilots (a new retirement wave is coming) and flight instructors. Boeing/BA is operating at half capacity. BUSINESS travel is recovering. LEISURE travel is holding up even with high airfares and entertainment costs. There is more mixing of business and leisure travel and Wall Street has a new term for it, BLEISURE. Bright spots are DAL, UAL, ALK, SNCY.
EXTRA. The FED will keep at it until something breaks or there is some US or global disaster. Eyes are on Swiss CS; the UK bonds/gilts/pension funds; the US stocks, housing, autos, etc. The Fed watches the core PCE that is +4.9% now and the target is +2%. Investors would be wise to just wait for the break happening and not panic ahead.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).