Post by Admin/YBB on Nov 12, 2022 6:40:47 GMT -6
Pg 27, TRADER. Who would’ve thunk that a slightly better than expected CPI (+7.7% vs 7.9-8.0% expected) would lead to a monster rally on Thursday. Analysts/strategists were mixed – some calling it a turn in the market (from bear to bull) but others were still looking for low-test(s). Election was a nonevent for the markets (except for techs, see Tech Trader in Part 2).
OIL prices may go up after December 5 when the EU bans the shipments of Russian crude oil and also imposes PRICE CAPS. A ban on Russian DIESEL may be in early-2023. The EU is counting on shippers and insurers to make the enforcements possible. NATURAL GAS should also benefit. ENERGY stocks, including the US shale producers, have good outlooks.
There are too many EV companies wanting to be the next Tesla/TSLA, but not all will survive (ARVL, FFIE, SEV, GOEV, FSR, NKLA, RIDE, LCID, RIVN, etc). The FED tightening has hurt most startups (in fund raising and valuations).
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.
16th & 17th rate hikes, FOMC 12/14/22+ (50 bps hike possible) (rate 4.25-4.50%)
Good riddance, 2022
1st rate hike of 2023, FOMC 2/1/23+ 25 bps
2nd rate hike, FOMC 3/22/23+ 25 bps (rate 4.75-5.00%; cycle peak?)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +4.15%, SP500 +5.90%, Nasdaq Comp +8.10%, R2000 +4.60%. DJ Transports +8.02%; DJ Utilities +1.58%. (Rotating spot energy XLE +1.87%) US$ index (spot) -4.03% (large move), oil/WTI futures -3.94%, gold futures +5.59%.
YTD (index changes only), DJIA -7.13%, SP500 -16.22%, Nasdaq Comp -27.62%. (Rotating spot energy XLE +67.80%)
Pg 45: NYSE cumulative (5-day) A/D line rose; ratio of winners:losers 7:2. (Wednesday was 91% downside-volume day; Thursday was (only) 87% upside-volume day – disappointing for such a huge day on the CPI report; Friday was only 77% upside-volume day; over all, the volume was low)
Pg 36, EUROPE. The new ITALIAN government of Prime Minister Giorgia MELONI is trying to deal with its huge DEBT (150.8% of GDP in 2021). Rising rates and QT by the ECB are creating debt servicing problems. The Euro-zone economies may have shallow recessions, but it could be different for Italy; inflation is +12.8%. AVOID Italian stocks.
Pg 36, EMERGING MARKETS. COAL power plants are huge sources of greenhouse gases. But a $100 billion/yr program proposed in 2008 by the developed countries to wean off the developing countries from coal never materialized. Instead, there are now much smaller bi/multi-lateral JETPs (Just Energy Transition Partnerships) focusing on reducing reliance on coal (in South Africa, India, Vietnam, etc). The COP27 (November 6-18, Egypt) and G20 (November 15-16, Indonesia) are also focusing on the JETPs. But in many cases, the JETP assistance is through loans, not grants, and several EMs are complaining about this (they already have high debt).
Pg 37, OPTIONS. The US ELECTIONS are over but the results for the Congress won’t be clear for a while. A gridlock seems assured. Focus now on EARNINGS and the FED (the next FOMC meeting is on December 14). Consider stock-replacement strategy – sell profitable stocks (e.g. XLE) and replace with calls. Deploy profits into battered blue-chips. What about taxes? Just pay them.
(SP500 VIX 22.52 (high), Nasdaq 100 VXN 28.97 (high), options SKEW 114.09, bond MOVE 111.69 (volatility fell across the board) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 38, COMMODITIES. Even with falling demand and prices, there are global shortages of COPPER (and what will happen when the global economies pick up?). Long-term copper users may lock in the low priced today. The global copper supply DEFICIT may last 10-15 years. It takes 15+ years to bring a new copper mine on line and the industry capex are low. Dr Copper is critical for ENERGY TRANSITION and economic RECOVERY. CHINA’s Covid lockdowns and property sector collapse have hurt the global copper demand (70% from China). There may also be sanctions on Russian copper. The copper story is short-term bearish/neutral, long-term bullish.
Pg 51: A good week in EUROPE (Netherlands +9.06%, Norway -0.91%) and an up week in ASIA (Taiwan +3.78%, New Zealand -2.32%).
TREASURY* 3-mo yield 4.28%, 1-yr 4.59%, 2-yr 4.34%, 5-yr 3.95%, 10-yr 3.82%, 30-yr 4.03%. REAL yields 5-yr 1.48%, 10-yr 1.43%, 30-yr 1.58%.
DOLLAR fell sharply, ^DXY 106.42, -4% (trend change? pg 58). GOLD jumped to $1,759, +5% (Handy & Harman spot, Thursday; pg 60); the gold-miners were up strongly. (^XAU was at 117.40, +10.44% for the week)
Top FDIC insured savings deposit rates** (This feature has been discontinued)
US SAVINGS I-Bonds^, current rate 6.89% (annualized); fixed/base rate +0.40%. Rates change on May 1 & November 1.
*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 20: COVER STORY, ”A User-Car Dealer Raised Millions from ESG Investors. The Customer Complaints Continued”. Private fintech Tricolor Auto Group (2007- ; Daniel CHU owns 30%) in TX, CA AZ, NM (soon to be in IL) is focusing on ESG and selling affordable cars to the Hispanic community, including undocumented migrants with limited records. It offers full range of services in-house – used-cars, limited warranties, financing, insurance; however, outside repair shops are used for the warranty work. It taps the federal CDFI program for underserved communities that allows it to sell subprime auto loans securitized as “social bonds” (a rarity for auto loans). Its backers/investors include BCS, BLK, JHG, JPM, Pimco. There have been customer complaints about its higher used-car prices, mechanical unreliability of the cars sold, limited short-term warranties, emphasis on biweekly payments over 5-6 years vs sale prices during buying, high loan defaults and repossessions (that are recycled), temporary license plates and delayed titles (as with Carvana/CVNA), etc. Some of the complaints defy the ESG goals but its backers/investors don’t dig deep into the consumer issues.
Pg 7, UP & DOWN WALL STREET. Higher RATES took the hot air out of speculative areas (growth stocks, cryptos). Investors are now splitting their bets among profitable growth and cyclicals. Voters too did the same and the predicted Red-wave never materialized. Both investors and voters are looking into details/”MICRO” rather than big pictures/themes/”MACRO”. There is more DISPERSION than correlation (that is still high). Even within the industries, companies are doing quite differently (UBER vs LYFT, PINS vs SNAP, etc). But issues remain – inflation, supply-chain disruptions, Fed tightening, etc. But the new emphasis on fundamentals is benefitting boring stocks such as BAC, PRU, CARR, PNR, GM, etc.
HOUSING is weak due to higher mortgage rates (more than doubled in a year), lower housing affordability, declining sales and starts. The economy may not be in recession yet, but housing is already in one. Housing stocks (ITB, XHB) have been miserable in 2022; the monster rally on Thursday didn’t change their outlook. Beware that the housing stocks only look cheap, so wait for the mortgage rates to turn before considering them.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
OIL prices may go up after December 5 when the EU bans the shipments of Russian crude oil and also imposes PRICE CAPS. A ban on Russian DIESEL may be in early-2023. The EU is counting on shippers and insurers to make the enforcements possible. NATURAL GAS should also benefit. ENERGY stocks, including the US shale producers, have good outlooks.
There are too many EV companies wanting to be the next Tesla/TSLA, but not all will survive (ARVL, FFIE, SEV, GOEV, FSR, NKLA, RIDE, LCID, RIVN, etc). The FED tightening has hurt most startups (in fund raising and valuations).
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.
16th & 17th rate hikes, FOMC 12/14/22+ (50 bps hike possible) (rate 4.25-4.50%)
Good riddance, 2022
1st rate hike of 2023, FOMC 2/1/23+ 25 bps
2nd rate hike, FOMC 3/22/23+ 25 bps (rate 4.75-5.00%; cycle peak?)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +4.15%, SP500 +5.90%, Nasdaq Comp +8.10%, R2000 +4.60%. DJ Transports +8.02%; DJ Utilities +1.58%. (Rotating spot energy XLE +1.87%) US$ index (spot) -4.03% (large move), oil/WTI futures -3.94%, gold futures +5.59%.
YTD (index changes only), DJIA -7.13%, SP500 -16.22%, Nasdaq Comp -27.62%. (Rotating spot energy XLE +67.80%)
Pg 45: NYSE cumulative (5-day) A/D line rose; ratio of winners:losers 7:2. (Wednesday was 91% downside-volume day; Thursday was (only) 87% upside-volume day – disappointing for such a huge day on the CPI report; Friday was only 77% upside-volume day; over all, the volume was low)
Pg 36, EUROPE. The new ITALIAN government of Prime Minister Giorgia MELONI is trying to deal with its huge DEBT (150.8% of GDP in 2021). Rising rates and QT by the ECB are creating debt servicing problems. The Euro-zone economies may have shallow recessions, but it could be different for Italy; inflation is +12.8%. AVOID Italian stocks.
Pg 36, EMERGING MARKETS. COAL power plants are huge sources of greenhouse gases. But a $100 billion/yr program proposed in 2008 by the developed countries to wean off the developing countries from coal never materialized. Instead, there are now much smaller bi/multi-lateral JETPs (Just Energy Transition Partnerships) focusing on reducing reliance on coal (in South Africa, India, Vietnam, etc). The COP27 (November 6-18, Egypt) and G20 (November 15-16, Indonesia) are also focusing on the JETPs. But in many cases, the JETP assistance is through loans, not grants, and several EMs are complaining about this (they already have high debt).
Pg 37, OPTIONS. The US ELECTIONS are over but the results for the Congress won’t be clear for a while. A gridlock seems assured. Focus now on EARNINGS and the FED (the next FOMC meeting is on December 14). Consider stock-replacement strategy – sell profitable stocks (e.g. XLE) and replace with calls. Deploy profits into battered blue-chips. What about taxes? Just pay them.
(SP500 VIX 22.52 (high), Nasdaq 100 VXN 28.97 (high), options SKEW 114.09, bond MOVE 111.69 (volatility fell across the board) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 38, COMMODITIES. Even with falling demand and prices, there are global shortages of COPPER (and what will happen when the global economies pick up?). Long-term copper users may lock in the low priced today. The global copper supply DEFICIT may last 10-15 years. It takes 15+ years to bring a new copper mine on line and the industry capex are low. Dr Copper is critical for ENERGY TRANSITION and economic RECOVERY. CHINA’s Covid lockdowns and property sector collapse have hurt the global copper demand (70% from China). There may also be sanctions on Russian copper. The copper story is short-term bearish/neutral, long-term bullish.
Pg 51: A good week in EUROPE (Netherlands +9.06%, Norway -0.91%) and an up week in ASIA (Taiwan +3.78%, New Zealand -2.32%).
TREASURY* 3-mo yield 4.28%, 1-yr 4.59%, 2-yr 4.34%, 5-yr 3.95%, 10-yr 3.82%, 30-yr 4.03%. REAL yields 5-yr 1.48%, 10-yr 1.43%, 30-yr 1.58%.
DOLLAR fell sharply, ^DXY 106.42, -4% (trend change? pg 58). GOLD jumped to $1,759, +5% (Handy & Harman spot, Thursday; pg 60); the gold-miners were up strongly. (^XAU was at 117.40, +10.44% for the week)
Top FDIC insured savings deposit rates** (This feature has been discontinued)
US SAVINGS I-Bonds^, current rate 6.89% (annualized); fixed/base rate +0.40%. Rates change on May 1 & November 1.
*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 20: COVER STORY, ”A User-Car Dealer Raised Millions from ESG Investors. The Customer Complaints Continued”. Private fintech Tricolor Auto Group (2007- ; Daniel CHU owns 30%) in TX, CA AZ, NM (soon to be in IL) is focusing on ESG and selling affordable cars to the Hispanic community, including undocumented migrants with limited records. It offers full range of services in-house – used-cars, limited warranties, financing, insurance; however, outside repair shops are used for the warranty work. It taps the federal CDFI program for underserved communities that allows it to sell subprime auto loans securitized as “social bonds” (a rarity for auto loans). Its backers/investors include BCS, BLK, JHG, JPM, Pimco. There have been customer complaints about its higher used-car prices, mechanical unreliability of the cars sold, limited short-term warranties, emphasis on biweekly payments over 5-6 years vs sale prices during buying, high loan defaults and repossessions (that are recycled), temporary license plates and delayed titles (as with Carvana/CVNA), etc. Some of the complaints defy the ESG goals but its backers/investors don’t dig deep into the consumer issues.
Pg 7, UP & DOWN WALL STREET. Higher RATES took the hot air out of speculative areas (growth stocks, cryptos). Investors are now splitting their bets among profitable growth and cyclicals. Voters too did the same and the predicted Red-wave never materialized. Both investors and voters are looking into details/”MICRO” rather than big pictures/themes/”MACRO”. There is more DISPERSION than correlation (that is still high). Even within the industries, companies are doing quite differently (UBER vs LYFT, PINS vs SNAP, etc). But issues remain – inflation, supply-chain disruptions, Fed tightening, etc. But the new emphasis on fundamentals is benefitting boring stocks such as BAC, PRU, CARR, PNR, GM, etc.
HOUSING is weak due to higher mortgage rates (more than doubled in a year), lower housing affordability, declining sales and starts. The economy may not be in recession yet, but housing is already in one. Housing stocks (ITB, XHB) have been miserable in 2022; the monster rally on Thursday didn’t change their outlook. Beware that the housing stocks only look cheap, so wait for the mortgage rates to turn before considering them.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).