Post by Admin/YBB on Dec 10, 2022 13:16:05 GMT -6
Pg 10-11. House hearings on cryptos on TUESDAY. FOMC Statement and POWELL’s presser on WEDNESDAY. ECB policy decision on FRIDAY.
REVIEW. The last Boeing/BA 747 “jumbo jet” rolled out of assembly line; 1,574 were made. Launched into commercial service in 01/1970 (the 1st plane was to now defunct Pan Am, the last to Atlas for cargo), its upper deck alone had the area of an entire 737-700. Now the trend has shifted to smaller, quieter and more fuel-efficient planes. Boeing has had its own issues – 2 accidents for new 737 MAX; management changes; recent loss of attack-helicopter contract to Textron/TXT.
PREVIEW. Taiwan Semi/TSM announced ANOTHER/2nd chip fab in Arizona. TSM makes 90% of ADVANCED chips globally and is caught up in the US-China trade friction. In the TOTAL chip production, the US has 47% market share, S Korea 20%, Japan 10%, EU 10%, Taiwan 7%, China 5%.
DATA THIS WEEK. Treasury budget on MONDAY; CPI (+7.3% yoy, core +6.1%) on TUESDAY; import/export prices on WEDNESDAY; Philly Fed manufacturing activity index, retail sales, industrial production, capacity utilization, business inventories on THURSDAY.
Gap between DJIA -5.3% YTD vs SP500 -15% is the largest since 1933.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Industrial Regal Rexnord (RRX; fwd P/E 10.9; products – motors, drives, alternators; sold off due to 10/2022 acquisition of competitor AIMC (couplings, clutches, actuators, servos) with recession looming; the combined company will be better positioned for infrastructure developments under the 2022 Inflation Reduction Act; debt/EBITDA of 4 following the acquisition should come down within 2 years; considering selling industrial systems unit; pg 16).
BEARISH.
Pg 12, ETFs. Just say NO to narrow niche THEMATIC ETFs whether for AI (LRNZ), cloud-computing (WCLD), cryptos (BITO, BITS, BKCH), politics (MAGA), Korean pop (KPOP), psychedelics (PSYK; this may be problematic as related stocks hardly exist), or Cathie WOOD’s ARKK (short SARK is doing great but stay away from that too). Sponsors try to tap into the fad and hype in order to quickly grab assets, but later shutdown many quietly. Total universe of thematic ETFs has 280 ETFs with $200 AUM but that includes some broad themes and also several factor and sector ETFs; only 24 thematic ETFs have reached $1+ billion AUM (minimum-volatility USMV; energy XLE, IYE; oil/gas E&P XOP, etc).
Pg 14: TAXES and GIVING. The ESTATE exemption of $12.06/$24.12 million (single/joint) is for super-wealthy, but there are many others things that ordinary investors can do. ANNUAL gift EXEMPTION is $16K/yr/person ($17K in 2023) to avoid filing Form 709 (that is tricky but can also be done for larger gifts). Since 2018, standard deduction has been high (90% now just take standard deduction), so consider BUNCHING up charitable contributions (including large DAF contributions), Roth Conversions and other deductions for an itemizing-year. Older folks (70+) can use QCDs that also count for RMDs (72+). This has been a bad year but consider donating long-held APPRECIATED securities or those with rare profits in 2022 (energy). BEWARE that some relaxations for charitable contributions for 2020-21 have expired and don’t apply in 2022.
Pg 17, FUNDS. Nontraded-REIT Blackstone/BX BREIT (yield 4%; ER 1.25% plus 12.5% of returns over 5%, payable in-kind/stock, so not shown in AFFO or FAD as for other REITs) reached redemption LIMIT in 2022/Q4; its OPTIONAL redemption POLICY is 2% per month, 5% per quarter, and PRO-RATA redemptions when there are excess redemption requests (11/2022, 12/2022). With lots of media attention around this, the INFLOWS may drop to a trickle or just stop, and OUTFLOWS from future redemption requests may go up and remain high through 2023/Q3 even though a classic “run” wouldn’t be possible. It may sell some assets to meet (optional) redemptions after tapping credit lines. Publicly traded REITs have had a bad year (EQR, PLD, MAA; ETF VNQ); in fact, some suggest that holders may be selling well-performing BREIT to buy depressed public REITs.
Pg 23: For some older adults, COVID, early RETIREMENT and INFLATION have piled up. Their savings are being drained, credit card balances are rising, and they are delaying/postponing their travel and other plans while the health is good. Some near retirement have decided to keep working longer. Bill BENGEN says that inflation is worrisome for those withdrawing 4.0-4.7% from their portfolios. Medicare may cover less than employer group health. High mortgage rates and weakening housing market have affected planed moves nearby or out of state. For some, the time lost is gone as they age.
Pg 26, Options for CASH include bank or brokered CDs, online savings accounts, etc (also T-Bills/Notes, money-market funds, FDIC insured money-market accounts; unfortunately, in this short side blurb, M* pushes its bucket approach and not well).
Pg 28: Felix ZULAUF, Zulauf Consulting (Switzerland) and a former member of Barron’s Annual Roundtable. Big picture now includes GEOPOLITICS and politics. The world is getting polarized between a democratic block (US-led) and an autocratic block (CHINA-led). DEGLOBALIZATION is the new theme; safe and reliable supply-chains will be more important than the cheap ones (and when did you last hear about JIT deliveries?). Many critical NATURAL RESOURCES are in the autocratic block. We are at the tail end of RATE HIKE and monetary tightening/QT cycle. INFLATION will come down eventually as economies slowdown, or go into recession, with some lag. The US real M2 has declined at the fastest rate since WW II. Global inventories and sales will decline causing EARNINGS declines; unemployment will then rise. Now is a BEAR market rally from October lows, but a big washout will come before this bear market finally ends. OIL has declined sharply (even after new sanctions on December 5) confounding the “experts”. China has severe slowdown or recession. Good news is that 2023 may turn out to be a much better year (than 2022) with global recovery/turnaround – the bond market is saying as much now. (If you want only good/better news, stop here)
But he then predicts that central banks will panic, flip too early and reignite inflation that will be much worse than now. So, he is very bearish for 2024-25 for both stocks and bonds, and 60-40 portfolios. Investors will see a roller coaster market like never before (terrible 2022, good 2023, bad/terrible 2024-25). Nimble TRADERS will do well; B&H will frustrate no matter what is held. Keep in mind that RUSSIAN exposure went to zero almost overnight and there may be something else like that in the future; be careful with China, Taiwan, etc. Despite all the doom and gloom, the EUROPEAN markets have done OK; they remain very cheap; key is to buy European companies with major sales elsewhere. CURRENCIES will pose huge challenges. This dollar-centric, central bank manipulated FIAT currency system is on its last leg, especially if the bond markets also crash in 2024-25. The US made a strategic error in overplaying the DOLLAR diplomacy. Many countries are rethinking about their reserves – what, how, where? About alternatives to dollar. Commodities will play a stronger role. After a last bull-gasp, dollar will collapse. Chaos will ensue as it is unclear what new global system(s) will evolve. (Even as a Roundtable participant, Zulauf was always clear with his strong opinions, right or wrong)
Pg 30, FUNDS. Rick TAFT (52) and Rich ROSEN (64) comanage LC-value SLVAX (ER 0.80%; load 5.75% but no-load/NTF at Fido and Schwab) with high conviction (35-40 holdings), contrarian style; companies may have low expectations. They use bottom-up approach to find 15% potential TRs and look for some catalyst for change. Currently overweight in techs and utilities; some holdings are plays on the US reshoring of manufacturing.
Pg 32, INCOME. HY is attractive (spread +450 bps), especially the BB-rated; the CCC-rated may have better bounce but have higher risks of default in recession. The HY market now is in a better shape because lot of speculative stuff has moved to bank-loans and private-credit. ETFs JNK, HYG; OEFs ANHAX, BUFHX, FSAHX, RSIVX.
Pg 33, ECONOMY. Be prepared for higher RATES (beyond 5%+) and HARD LANDING. This high INFLATION will require a hard landing or a mild RECESSION. Optimists point to trends in CPI and jobs, but they overlook strength in SERVICES and consumer SPENDING; the wholesale PPI was also above expectations; the wage growth remains strong. Corporate and business earnings are being pressured. A premature FED flip will also cause inflation later. Like a full course of antibiotics for infections, this inflation will also require a full course of rate hikes.
Pg 34, TECH TRADER. Avoid the temptation to bottom fish in the tech wreck (Nasdaq Comp down -30% YTD). The fwd P/Es are still overstated. Be very selective. One attractive case is founder/Chairman Barry DILLER’s (80) media holding company IAC (CEO Joey LEVIN, 2015- ) that has gone through huge transformations. Current IAC owns 17% of MGM, 84% of ANGI, Dotdash Meredith (People, Better Homes & Gardens, Food & Wine, Ask, Investopedia, etc), etc and is selling at huge discount.
Pg 62, OTHER VOICES. Peter CRAMER, SLC Management/SLF (Canadian insurer). Expectations of an early FED PIVOT (e.g. by the fed fund futures in mid-2023) may be premature. Persistent INFLATION may cause higher rates for longer. He cites many factors: Although HOUSING prices peaked in July 2022, the rents/OERs (that go into CPI) may not peak until 2024 (known lag); despite headlines of mass-layoffs by big techs, the JOB market is strong and WAGES are rising; DEGLOBALIZATION will be inflationary; higher GEOPOLITICAL risks will cause higher DEFENSE expenditures; higher ENERGY prices, especially in Europe, will be inflationary. He suggests CAUTION with portfolios, to overweight the US and defensive sectors; lesser credit risks with more Treasuries, munis, cash. He also thinks that the Fed may eventually raise its +2% average inflation target and that will finally cause the LONG-TERM RATES to move up, and that will be the time to buy more long-term bonds and he thinks that will be good for pension funds and insurers (he should know).
(EXTRAS from online Friday that didn’t make the weekend paper version)
None
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
REVIEW. The last Boeing/BA 747 “jumbo jet” rolled out of assembly line; 1,574 were made. Launched into commercial service in 01/1970 (the 1st plane was to now defunct Pan Am, the last to Atlas for cargo), its upper deck alone had the area of an entire 737-700. Now the trend has shifted to smaller, quieter and more fuel-efficient planes. Boeing has had its own issues – 2 accidents for new 737 MAX; management changes; recent loss of attack-helicopter contract to Textron/TXT.
PREVIEW. Taiwan Semi/TSM announced ANOTHER/2nd chip fab in Arizona. TSM makes 90% of ADVANCED chips globally and is caught up in the US-China trade friction. In the TOTAL chip production, the US has 47% market share, S Korea 20%, Japan 10%, EU 10%, Taiwan 7%, China 5%.
DATA THIS WEEK. Treasury budget on MONDAY; CPI (+7.3% yoy, core +6.1%) on TUESDAY; import/export prices on WEDNESDAY; Philly Fed manufacturing activity index, retail sales, industrial production, capacity utilization, business inventories on THURSDAY.
Gap between DJIA -5.3% YTD vs SP500 -15% is the largest since 1933.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Industrial Regal Rexnord (RRX; fwd P/E 10.9; products – motors, drives, alternators; sold off due to 10/2022 acquisition of competitor AIMC (couplings, clutches, actuators, servos) with recession looming; the combined company will be better positioned for infrastructure developments under the 2022 Inflation Reduction Act; debt/EBITDA of 4 following the acquisition should come down within 2 years; considering selling industrial systems unit; pg 16).
BEARISH.
Pg 12, ETFs. Just say NO to narrow niche THEMATIC ETFs whether for AI (LRNZ), cloud-computing (WCLD), cryptos (BITO, BITS, BKCH), politics (MAGA), Korean pop (KPOP), psychedelics (PSYK; this may be problematic as related stocks hardly exist), or Cathie WOOD’s ARKK (short SARK is doing great but stay away from that too). Sponsors try to tap into the fad and hype in order to quickly grab assets, but later shutdown many quietly. Total universe of thematic ETFs has 280 ETFs with $200 AUM but that includes some broad themes and also several factor and sector ETFs; only 24 thematic ETFs have reached $1+ billion AUM (minimum-volatility USMV; energy XLE, IYE; oil/gas E&P XOP, etc).
Pg 14: TAXES and GIVING. The ESTATE exemption of $12.06/$24.12 million (single/joint) is for super-wealthy, but there are many others things that ordinary investors can do. ANNUAL gift EXEMPTION is $16K/yr/person ($17K in 2023) to avoid filing Form 709 (that is tricky but can also be done for larger gifts). Since 2018, standard deduction has been high (90% now just take standard deduction), so consider BUNCHING up charitable contributions (including large DAF contributions), Roth Conversions and other deductions for an itemizing-year. Older folks (70+) can use QCDs that also count for RMDs (72+). This has been a bad year but consider donating long-held APPRECIATED securities or those with rare profits in 2022 (energy). BEWARE that some relaxations for charitable contributions for 2020-21 have expired and don’t apply in 2022.
Pg 17, FUNDS. Nontraded-REIT Blackstone/BX BREIT (yield 4%; ER 1.25% plus 12.5% of returns over 5%, payable in-kind/stock, so not shown in AFFO or FAD as for other REITs) reached redemption LIMIT in 2022/Q4; its OPTIONAL redemption POLICY is 2% per month, 5% per quarter, and PRO-RATA redemptions when there are excess redemption requests (11/2022, 12/2022). With lots of media attention around this, the INFLOWS may drop to a trickle or just stop, and OUTFLOWS from future redemption requests may go up and remain high through 2023/Q3 even though a classic “run” wouldn’t be possible. It may sell some assets to meet (optional) redemptions after tapping credit lines. Publicly traded REITs have had a bad year (EQR, PLD, MAA; ETF VNQ); in fact, some suggest that holders may be selling well-performing BREIT to buy depressed public REITs.
Pg 23: For some older adults, COVID, early RETIREMENT and INFLATION have piled up. Their savings are being drained, credit card balances are rising, and they are delaying/postponing their travel and other plans while the health is good. Some near retirement have decided to keep working longer. Bill BENGEN says that inflation is worrisome for those withdrawing 4.0-4.7% from their portfolios. Medicare may cover less than employer group health. High mortgage rates and weakening housing market have affected planed moves nearby or out of state. For some, the time lost is gone as they age.
Pg 26, Options for CASH include bank or brokered CDs, online savings accounts, etc (also T-Bills/Notes, money-market funds, FDIC insured money-market accounts; unfortunately, in this short side blurb, M* pushes its bucket approach and not well).
Pg 28: Felix ZULAUF, Zulauf Consulting (Switzerland) and a former member of Barron’s Annual Roundtable. Big picture now includes GEOPOLITICS and politics. The world is getting polarized between a democratic block (US-led) and an autocratic block (CHINA-led). DEGLOBALIZATION is the new theme; safe and reliable supply-chains will be more important than the cheap ones (and when did you last hear about JIT deliveries?). Many critical NATURAL RESOURCES are in the autocratic block. We are at the tail end of RATE HIKE and monetary tightening/QT cycle. INFLATION will come down eventually as economies slowdown, or go into recession, with some lag. The US real M2 has declined at the fastest rate since WW II. Global inventories and sales will decline causing EARNINGS declines; unemployment will then rise. Now is a BEAR market rally from October lows, but a big washout will come before this bear market finally ends. OIL has declined sharply (even after new sanctions on December 5) confounding the “experts”. China has severe slowdown or recession. Good news is that 2023 may turn out to be a much better year (than 2022) with global recovery/turnaround – the bond market is saying as much now. (If you want only good/better news, stop here)
But he then predicts that central banks will panic, flip too early and reignite inflation that will be much worse than now. So, he is very bearish for 2024-25 for both stocks and bonds, and 60-40 portfolios. Investors will see a roller coaster market like never before (terrible 2022, good 2023, bad/terrible 2024-25). Nimble TRADERS will do well; B&H will frustrate no matter what is held. Keep in mind that RUSSIAN exposure went to zero almost overnight and there may be something else like that in the future; be careful with China, Taiwan, etc. Despite all the doom and gloom, the EUROPEAN markets have done OK; they remain very cheap; key is to buy European companies with major sales elsewhere. CURRENCIES will pose huge challenges. This dollar-centric, central bank manipulated FIAT currency system is on its last leg, especially if the bond markets also crash in 2024-25. The US made a strategic error in overplaying the DOLLAR diplomacy. Many countries are rethinking about their reserves – what, how, where? About alternatives to dollar. Commodities will play a stronger role. After a last bull-gasp, dollar will collapse. Chaos will ensue as it is unclear what new global system(s) will evolve. (Even as a Roundtable participant, Zulauf was always clear with his strong opinions, right or wrong)
Pg 30, FUNDS. Rick TAFT (52) and Rich ROSEN (64) comanage LC-value SLVAX (ER 0.80%; load 5.75% but no-load/NTF at Fido and Schwab) with high conviction (35-40 holdings), contrarian style; companies may have low expectations. They use bottom-up approach to find 15% potential TRs and look for some catalyst for change. Currently overweight in techs and utilities; some holdings are plays on the US reshoring of manufacturing.
Pg 32, INCOME. HY is attractive (spread +450 bps), especially the BB-rated; the CCC-rated may have better bounce but have higher risks of default in recession. The HY market now is in a better shape because lot of speculative stuff has moved to bank-loans and private-credit. ETFs JNK, HYG; OEFs ANHAX, BUFHX, FSAHX, RSIVX.
Pg 33, ECONOMY. Be prepared for higher RATES (beyond 5%+) and HARD LANDING. This high INFLATION will require a hard landing or a mild RECESSION. Optimists point to trends in CPI and jobs, but they overlook strength in SERVICES and consumer SPENDING; the wholesale PPI was also above expectations; the wage growth remains strong. Corporate and business earnings are being pressured. A premature FED flip will also cause inflation later. Like a full course of antibiotics for infections, this inflation will also require a full course of rate hikes.
Pg 34, TECH TRADER. Avoid the temptation to bottom fish in the tech wreck (Nasdaq Comp down -30% YTD). The fwd P/Es are still overstated. Be very selective. One attractive case is founder/Chairman Barry DILLER’s (80) media holding company IAC (CEO Joey LEVIN, 2015- ) that has gone through huge transformations. Current IAC owns 17% of MGM, 84% of ANGI, Dotdash Meredith (People, Better Homes & Gardens, Food & Wine, Ask, Investopedia, etc), etc and is selling at huge discount.
Pg 62, OTHER VOICES. Peter CRAMER, SLC Management/SLF (Canadian insurer). Expectations of an early FED PIVOT (e.g. by the fed fund futures in mid-2023) may be premature. Persistent INFLATION may cause higher rates for longer. He cites many factors: Although HOUSING prices peaked in July 2022, the rents/OERs (that go into CPI) may not peak until 2024 (known lag); despite headlines of mass-layoffs by big techs, the JOB market is strong and WAGES are rising; DEGLOBALIZATION will be inflationary; higher GEOPOLITICAL risks will cause higher DEFENSE expenditures; higher ENERGY prices, especially in Europe, will be inflationary. He suggests CAUTION with portfolios, to overweight the US and defensive sectors; lesser credit risks with more Treasuries, munis, cash. He also thinks that the Fed may eventually raise its +2% average inflation target and that will finally cause the LONG-TERM RATES to move up, and that will be the time to buy more long-term bonds and he thinks that will be good for pension funds and insurers (he should know).
(EXTRAS from online Friday that didn’t make the weekend paper version)
None
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).