Post by Admin/YBB on Nov 19, 2022 6:11:11 GMT -6
Pg 33, TRADER. The stock market has stopped worrying about the FED (despite many pronouncements from its many “open mouths”) and is now concerned about a RECESSION and possible retest of the lows. Some economic data indicated that a FED PIVOT early is unlikely. The YIELD-CURVE is mostly inverted (except the short end that Powell is watching, 3m-18m and/or 3m-3m18mforward spread; close is the readily available 3m-2y spread). Pay more attention to CREDIT SPREADS instead of rates; the overall HY spreads are down but the CCC-spreads are weak. Review the data again around mid-December after the next CPI report (12/13/22) and the FOMC meeting (12/14/22); markets may even rally until then.
JOBLESS CLAIMS fell a bit (but that may be changing soon) despite the announcements of layoffs by several techs. It seems that many companies hired workers in anticipation of post-pandemic recovery that never came. But job OPENINGS remain strong (for tech and other sectors). Many companies are doing more with less; some are boosting their loyalty programs to increase revenues.
Dating app company Match/MTCH (products Tinder, Match, OKCupid, Hinge, etc) is attractive after a sharp selloff. 50%+ of its sales are from overseas and strong dollar has been a headwind. Some of the product and feature rollouts have been delayed. But Q3 report was good.
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 & 2nd rate hikes of 2023, FOMC 2/1/23+ (50 bps hike possible)
3rd rate hike, FOMC 3/22/23+ 25 bps (rate 5.00-5.25%; likely cycle peak)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -0.01%, SP500 -0.69%, Nasdaq Comp -1.57%, R2000 -1.75%. DJ Transports -2.06%; DJ Utilities +1.28%. (Rotating spot LT Treasury TLT +1.79%) US$ index (spot) +0.68%, oil/WTI futures -9.98%, gold futures -0.80%.
YTD (index changes only), DJIA -7.13%, SP500 -16.80%, Nasdaq Comp -28.76%. (Rotating spot LT Treasury TLT -32.76%)
Pg 45: NYSE cumulative (5-day) A/D line fell; ratio of winners:losers 3:4.
Pg 36, EUROPE. The UK clean energy Ceres Power/CRPHY licenses technologies for fuel cells and hydrogen production to companies in Germany, S Korea, China. It is also looking for some US partners as it may benefit from the US Inflation Reduction Act. It may become profitable by 2023.
Pg 36, EMERGING MARKETS. Chinese President XI’s plan to support the PROPERTY sector has provided some temporary relief (ETF CHIR); the plan backstops large developers. But it seems that the government is more interested in arresting the decline in the property sector; restrictions on speculators, ban on 2nd mortgages, price-caps, etc remain. There are better incentives for non-property areas (stocks, bonds, lending). List of problems in the property sector is long: home sales are down by 50%; more than 50% of property HY bonds have defaulted; liquidity crunch is coming from large payments due on property offshore bonds (many are held by the US EM bond funds); people who have prepaid for apartments under construction have gone on mortgage strikes because of delays; zero Covid policy limits mobility; many positions in the property administration are unfilled.
Pg 37, OPTIONS. The FED may actually manage soft-landing. INFLATION is moderating (although still high). CHINA may be reopening. There is rotation from growth and defensive to CYCLICALS. Recommended is pairing put-selling with call-buying on broad indexes (SPY, VTI).
(SP500 VIX 23.12 (high), Nasdaq 100 VXN 29.25 (high), options SKEW 114.97 (low despite high put-call ratio), bond MOVE 129.33 (large move) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 38, COMMODITIES. OIL prices may rise temporarily after the EU sanctions on shipping of RUSSIAN OIL go into effect on December 5. There will also be PRICE-CAPS imposed by G-7. But both may be avoided by Russia by rerouting its oil to ASIA and that may replace some Middle Eastern oil there (more of which will go to Europe). Moreover, the cheap Russian oil bought under the G-7 price-caps can be imported, refined and exported legally to the Western world. So, the real issues will be related to global logistics.
Pg 50: A flat week in EUROPE (Netherlands +1.55%, Sweden -2.62%) (France now has the largest market-cap in Europe) and an up week in ASIA (China +3.75%, S Korea -1.40%).
TREASURY* 3-mo yield 4.34%, 1-yr 4.74%, 2-yr 4.51%, 5-yr 3.99%, 10-yr 3.82%, 30-yr 3.92%. REAL yields 5-yr 1.71%, 10-yr 1.57%, 30-yr 1.63%.
DOLLAR rose, ^DXY 106.97, +0.6% (pg 58). GOLD fell to $1,752, -0.4% (Handy & Harman spot, Thursday; pg 60); the gold-miners fell. (^XAU was at 113.80, -3.07% 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 18: COVER STORY, ”RETAILERS Are Expecting Unpredictable HOLIDAY Sales. These Companies Will Come Out On Top”. With high INFLATION, there won’t be real growth in holiday sales (+6% to +8% nominal) and wages (+4.7% nominal). SUPPLY-CHAIN issues are working in reverse to cause untimely and excess INVENTORIES that have to be discounted to clear out. Some sales will move FORWARD to the holidays, and that may lead to a tough 2023 (with soft-landing or recession expected). Personal SAVINGS have nosedived. Spending by the TOP 20% of the households, accounting for 40% of retail sales, should hold up. There may be BIFURCATION in retail with low- and high- ends doing better than the middle. Overall, the retail PROFITS would be under pressure. In this environment, these retailers are ATTRACTIVE (some discount/value retailers, others that can hold prices): DG (DLTR), TJX, (BURL, ROST), ULTA, WMT. AVOID GPS, KSS, M, VFC.
Pg 7, UP & DOWN WALL STREET. The CRYPTO mania/boom turned into bust with several recent collapses culminating in a spectacular collapse of FTX-Alameda empire run by wunderkinds “SBF” and “Caroline E”. The immediate cause of pain in cryptos (and also in stocks, bonds) may be the FED monetary tightening. The San Francisco Fed has estimated that the combined effect of Fed rate hikes and QT may be an effective fed fund rate of 6.34% now (vs actual 3.75-4.00%). The fed fund rate at times has been above the yields of longer-term Treasuries, an inversion that, if it lasts for a quarter, often precedes economic slowdown/recession. The fed fund futures markets are projecting a cycle PEAK of 5.00-5.25% in early/mid-2023; the St Louis Fed President BULLARD chimed in with his worst case of 7%. Corporate EARNINGS may be flat or decline and the fwd P/E may also decline with higher rates. 2023 may be a roller-coaster year for stocks.
Forget 2022, what about 2123? The 2022 selloff in bonds has been relatively more severe than in stocks (exceptions are the growth techs), so look for short-term (ST) and floating rate/bank-loans (FR/BL) bonds; use barbell approach by combining ST and LT bonds, investment-grade and HY bonds. Equities will face the headwinds of declining “Es” and stagnant or declining P/Es (current 15.5). Look at REITs, mREITs (STWB, BXMT, LADR), BDCs (GBDC, HTGC, TSLX).
Pg 11, STREETWISE. Role-playing game “Magic: The Gathering” (1993- ; under Hasbro/HAS 1999- ) is now hot and generates $1 billion in revenues and 33% of HAS profits. However, the related Magic game card prices are down from peak in 2021 due to the collapse in the crypto market. Now, a greedy HAS is issuing a limited number of new Magic game cards on November 28, the 30th anniversary of the game, and that may further depress the existing Magic game cards. Its other games include Dungeons and Dragons, Pokemon, Nerf, Transformers, My little Pony.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
JOBLESS CLAIMS fell a bit (but that may be changing soon) despite the announcements of layoffs by several techs. It seems that many companies hired workers in anticipation of post-pandemic recovery that never came. But job OPENINGS remain strong (for tech and other sectors). Many companies are doing more with less; some are boosting their loyalty programs to increase revenues.
Dating app company Match/MTCH (products Tinder, Match, OKCupid, Hinge, etc) is attractive after a sharp selloff. 50%+ of its sales are from overseas and strong dollar has been a headwind. Some of the product and feature rollouts have been delayed. But Q3 report was good.
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 & 2nd rate hikes of 2023, FOMC 2/1/23+ (50 bps hike possible)
3rd rate hike, FOMC 3/22/23+ 25 bps (rate 5.00-5.25%; likely cycle peak)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -0.01%, SP500 -0.69%, Nasdaq Comp -1.57%, R2000 -1.75%. DJ Transports -2.06%; DJ Utilities +1.28%. (Rotating spot LT Treasury TLT +1.79%) US$ index (spot) +0.68%, oil/WTI futures -9.98%, gold futures -0.80%.
YTD (index changes only), DJIA -7.13%, SP500 -16.80%, Nasdaq Comp -28.76%. (Rotating spot LT Treasury TLT -32.76%)
Pg 45: NYSE cumulative (5-day) A/D line fell; ratio of winners:losers 3:4.
Pg 36, EUROPE. The UK clean energy Ceres Power/CRPHY licenses technologies for fuel cells and hydrogen production to companies in Germany, S Korea, China. It is also looking for some US partners as it may benefit from the US Inflation Reduction Act. It may become profitable by 2023.
Pg 36, EMERGING MARKETS. Chinese President XI’s plan to support the PROPERTY sector has provided some temporary relief (ETF CHIR); the plan backstops large developers. But it seems that the government is more interested in arresting the decline in the property sector; restrictions on speculators, ban on 2nd mortgages, price-caps, etc remain. There are better incentives for non-property areas (stocks, bonds, lending). List of problems in the property sector is long: home sales are down by 50%; more than 50% of property HY bonds have defaulted; liquidity crunch is coming from large payments due on property offshore bonds (many are held by the US EM bond funds); people who have prepaid for apartments under construction have gone on mortgage strikes because of delays; zero Covid policy limits mobility; many positions in the property administration are unfilled.
Pg 37, OPTIONS. The FED may actually manage soft-landing. INFLATION is moderating (although still high). CHINA may be reopening. There is rotation from growth and defensive to CYCLICALS. Recommended is pairing put-selling with call-buying on broad indexes (SPY, VTI).
(SP500 VIX 23.12 (high), Nasdaq 100 VXN 29.25 (high), options SKEW 114.97 (low despite high put-call ratio), bond MOVE 129.33 (large move) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 38, COMMODITIES. OIL prices may rise temporarily after the EU sanctions on shipping of RUSSIAN OIL go into effect on December 5. There will also be PRICE-CAPS imposed by G-7. But both may be avoided by Russia by rerouting its oil to ASIA and that may replace some Middle Eastern oil there (more of which will go to Europe). Moreover, the cheap Russian oil bought under the G-7 price-caps can be imported, refined and exported legally to the Western world. So, the real issues will be related to global logistics.
Pg 50: A flat week in EUROPE (Netherlands +1.55%, Sweden -2.62%) (France now has the largest market-cap in Europe) and an up week in ASIA (China +3.75%, S Korea -1.40%).
TREASURY* 3-mo yield 4.34%, 1-yr 4.74%, 2-yr 4.51%, 5-yr 3.99%, 10-yr 3.82%, 30-yr 3.92%. REAL yields 5-yr 1.71%, 10-yr 1.57%, 30-yr 1.63%.
DOLLAR rose, ^DXY 106.97, +0.6% (pg 58). GOLD fell to $1,752, -0.4% (Handy & Harman spot, Thursday; pg 60); the gold-miners fell. (^XAU was at 113.80, -3.07% 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 18: COVER STORY, ”RETAILERS Are Expecting Unpredictable HOLIDAY Sales. These Companies Will Come Out On Top”. With high INFLATION, there won’t be real growth in holiday sales (+6% to +8% nominal) and wages (+4.7% nominal). SUPPLY-CHAIN issues are working in reverse to cause untimely and excess INVENTORIES that have to be discounted to clear out. Some sales will move FORWARD to the holidays, and that may lead to a tough 2023 (with soft-landing or recession expected). Personal SAVINGS have nosedived. Spending by the TOP 20% of the households, accounting for 40% of retail sales, should hold up. There may be BIFURCATION in retail with low- and high- ends doing better than the middle. Overall, the retail PROFITS would be under pressure. In this environment, these retailers are ATTRACTIVE (some discount/value retailers, others that can hold prices): DG (DLTR), TJX, (BURL, ROST), ULTA, WMT. AVOID GPS, KSS, M, VFC.
Pg 7, UP & DOWN WALL STREET. The CRYPTO mania/boom turned into bust with several recent collapses culminating in a spectacular collapse of FTX-Alameda empire run by wunderkinds “SBF” and “Caroline E”. The immediate cause of pain in cryptos (and also in stocks, bonds) may be the FED monetary tightening. The San Francisco Fed has estimated that the combined effect of Fed rate hikes and QT may be an effective fed fund rate of 6.34% now (vs actual 3.75-4.00%). The fed fund rate at times has been above the yields of longer-term Treasuries, an inversion that, if it lasts for a quarter, often precedes economic slowdown/recession. The fed fund futures markets are projecting a cycle PEAK of 5.00-5.25% in early/mid-2023; the St Louis Fed President BULLARD chimed in with his worst case of 7%. Corporate EARNINGS may be flat or decline and the fwd P/E may also decline with higher rates. 2023 may be a roller-coaster year for stocks.
Forget 2022, what about 2123? The 2022 selloff in bonds has been relatively more severe than in stocks (exceptions are the growth techs), so look for short-term (ST) and floating rate/bank-loans (FR/BL) bonds; use barbell approach by combining ST and LT bonds, investment-grade and HY bonds. Equities will face the headwinds of declining “Es” and stagnant or declining P/Es (current 15.5). Look at REITs, mREITs (STWB, BXMT, LADR), BDCs (GBDC, HTGC, TSLX).
Pg 11, STREETWISE. Role-playing game “Magic: The Gathering” (1993- ; under Hasbro/HAS 1999- ) is now hot and generates $1 billion in revenues and 33% of HAS profits. However, the related Magic game card prices are down from peak in 2021 due to the collapse in the crypto market. Now, a greedy HAS is issuing a limited number of new Magic game cards on November 28, the 30th anniversary of the game, and that may further depress the existing Magic game cards. Its other games include Dungeons and Dragons, Pokemon, Nerf, Transformers, My little Pony.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).