Post by Admin/YBB on Mar 11, 2023 10:33:17 GMT -6
Pg 10-11.
REVIEW. ACTIVE STOCK funds underperformed passive funds in 2022 (51% LC, 63% MC, 57% SC); some had said that this would be different in down markets. Both stocks and bonds were down in 2022. Situation was indeed much better for ACTIVE BOND funds that generally outperformed passive funds (79% inv-gr, 66% ST/IT inv-gr, 94% core-plus).
PREVIEW. Facebook/META is moving beyond its original purpose of connecting families and friends. It will have more 3rd party content and ad- focus requiring greater content moderation. It has also expanded into Reels, short videos to compete with TikTok.
DATA THIS WEEK. Small business optimism index, CPI (6.0% yoy; core 5.5%) on TUESDAY; retail sales, housing market index, business inventories, PPI (5.4% yoy; core 5.3%) on WEDNESDAY; housing starts on THURSDAY; UM sentiment, capacity utilization, industrial production, LEI on FRIDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. GE (recent spinoff of healthcare GEHC; under CULP’s plan, the final spinoff of Power/Vernova will be in 2024; (JPM also moved perpetually bearish Tusa off the GE beat); pg 13);
Foreign stocks (Richemont/CFRUY, Samsung Electronics, Schneider/SBGSY, Siemens/SIEGY, Kose/KSRYY; MSCI EAFE fwd P/E 13 only; many global companies have huge operations beyond their home countries; pg 18).
BEARISH. Norfolk Southern (NSC; years of neglecting repairs, maintenance and safety inspections are finally catching up; recent industry trends of precision-schedules-railroading (PSR) leave less room for maintenance and the savings have gone to dividends and buybacks; both the railroad workers and shippers have complained about cuts in services; NSC just cited its $1 billion related expenditures without mentioning per-mile figures; NTSB has started an investigation after 3 recent NSC accidents in Ohio; there is a proposed legislation on railroad safety that NSC supports partially; a previous legislation to require (expensive) electronic braking technology also stalled/failed (the industry association AAR opposed it); pg 15).
Pg 12: All BANKS/FINANCIALS sold off last week (KRE, KBE, XLF). But most differ from SVB Financial/SIVB (and Silvergate/SI). The problem with SIVB was a large loss on huge forced-sale of available-for-sale (AFS, market-to-market) Treasuries, and its efforts for raising capital failed (and the Fed or the FHLB didn’t step in for the rescue). Most large banks have diversified businesses, are well capitalized and can tap multiple sources of funding. While rising RATES are generally good for banks, some overleveraged banks with poor quality loan-books get squeezed. DEPOSITS are also moving from banks into higher-rate Treasuries and money-market funds. SIVB was really a bank for venture-capitalists (VCs) who are sophisticated investors that can move large amounts of money (its sudden closure during the business hours may have been to limit that flight). In better times, SIVB just parked excess deposits into Treasuries that it had to sell suddenly at depressed prices (due to higher rates now). All banks now have large unrealized losses that may be hidden within their hold-to-maturity (HTM, not marked-to-market) portfolios – really, a permissible accounting trick. (In a bank run, the distinction between HTM and AFS basically disappears) Large banks also have tougher regulations and undergo annual stress-tests by the Fed. So, this general selloff offers opportunities in banks now – FITB, HBAN, JPM, KEY, MTB, PNC, RF, USB, etc.
Pg 14: There are several interesting SPINOFFS coming from JNJ, K, BWA, CR, etc (there is a separate feature on GE spinoffs). 2022 was a record year for spinoffs. Many companies are refocusing on their core or most profitable businesses (reversing years of growth-by-acquisitions). Spinoffs initially underperform because the holders of parent companies tend to just sell the newly received spinoff shares, but there are exceptions.
Pg 23: The cost-benefit analysis of EVs shows that they may take 5-10 years for payoff. The $7,500 federal tax credit isn’t available for all EVs (they must be assembled in North America, must be priced $55K (cars)-80K (SUVs); more restrictions related to EV batteries are coming); states also have varying incentives. Home-charging of EVs costs equivalent of about $1/gallon; high-speed charging has installations costs ($600-6,000). Insurance costs are higher for EVs. But the maintenance costs of EVs are lower and most have generous warrantees. Many EV buyers don’t pay attention to economics and are buying EVs to make personal statements.
Pg 24, ECONOMY. We don’t have WAGE-PRICE spiral like in the 1970s. Institutional mechanisms exist now that are self-dampening. So, POWELL’s Fed can relax. Rise in WAGES is offset partially by any rise in PRODUCTIVITY. LABOR is only 80% of the cost of goods and services. The CPI consists of many things that require varying degrees of labor; only 60% of items in the CPI are labor intensive; the CPI is mostly a service-price index. There are no COLAs (in industries) and most workers are at-will employees; labor UNIONS are weak. The REAL WAGES are falling globally; the nominal wages don’t have 1:1 effect on prices. When prices do rise now, it is because DEMAND exceeds supply, but that is a different issue (that was exacerbated recently by Covid and war related supply-chain disruptions). (By Carl Weinberger, High Frequency Economics)
Pg 25, TECH TRADER. DELL (yield 3.8%; EV/revenue 0.5; buybacks) is a cheap tech. The PCs are in a slump as the pandemic rush for the PCs is long gone, the corporate capex on IT is down sharply. But PCs have a short replacement cycle of 3 years, and many old PCs would have to be replaced soon. Dell has leading positions in its various markets – PCs, servers, storage, etc.
Pg 26, INCOME INVESTING. Companies are raising dividends to be competitive with bonds. This despite the news of some companies slashing dividends (INTC, NEM, VFC, HBI, etc). Pay attention to payout ratios and free cash flows. Mentioned for income are AVGO, BBY, CMCSA, DRI, F, JNJ, MCHP, MS, TXN.
Pg 28, FUNDS. These volatile and uncertain markets may be good times to buy ALLOCATION/ BALANCED funds. Investors are poor market-timers as Morningstar studies on investor-returns vs fund-returns show. The sector funds (tech, energy, etc) have the worst gaps; even the bond funds have notable gaps. The allocation/ balanced funds have the smallest gaps, and a reason may be that more investors can stick with them. (By MFO @lewisbraham)
Pg30: Adam SEESSEL, Gravity Capital. In 2014, Seessel switched from traditional old -economy value stocks to techs that focused on digital-transformations – AMZN, GOOGL, ADBE, INTU, TXN, etc. He refuses a growth-label and calls this VALUE 3.0 (Graham was Value 1.0, Buffett Value 2.0). While these companies benefitted from low rates, that wasn’t the only factor in their tremendous growth. He looks at business growth, margins, earning power. The GAAP accounting is skewed towards old-economy companies – e.g. why aren’t the R&D and ad/marketing expenses capitalized instead of expensed? Besides the techs, he likes EADSY, etc. Book, Where the Money Is: Value Investing in the Digital Age, 05/2022.
Pg 62, OTHER VOICES. Laura HALTZEL, Century Foundation, a NYC-based think tank. Some changes to SOCIAL SECURITY may be part of a DEBT-CEILING compromise – raising the full retirement age (FRA), adjusting the benefits formula, establishing a US sovereign wealth fund, etc. But higher longevity (on average) doesn’t mean retiring later (for most). Longevity has gone up for higher income people who are least dependent on Social Security. On the other hand, the Social Security payroll tax of 12.4% on capped-earnings is applied uniformly. Author suggests removing the earnings-cap and also adjusting the progressive benefits formula.
SUPPLEMENT America’s Top 1,200 Financial Advisors (by states) has features on portfolio construction for a new high inflation and rates era – less growth, more cyclicals and dividend-payors, more bonds; features on several advisors.
(EXTRAS from online Friday that didn’t make the weekend paper version)
FUNDS. BOND ETFs have faced difficulties with spreads (premium/discount), creation/redemption mechanisms (authorized participants may just withdraw during selloffs), tracking-errors as they use a smaller universe of large, liquid bonds. Bond market is fragmented and can be illiquid. Retail investors aren’t aware of these issues.
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
REVIEW. ACTIVE STOCK funds underperformed passive funds in 2022 (51% LC, 63% MC, 57% SC); some had said that this would be different in down markets. Both stocks and bonds were down in 2022. Situation was indeed much better for ACTIVE BOND funds that generally outperformed passive funds (79% inv-gr, 66% ST/IT inv-gr, 94% core-plus).
PREVIEW. Facebook/META is moving beyond its original purpose of connecting families and friends. It will have more 3rd party content and ad- focus requiring greater content moderation. It has also expanded into Reels, short videos to compete with TikTok.
DATA THIS WEEK. Small business optimism index, CPI (6.0% yoy; core 5.5%) on TUESDAY; retail sales, housing market index, business inventories, PPI (5.4% yoy; core 5.3%) on WEDNESDAY; housing starts on THURSDAY; UM sentiment, capacity utilization, industrial production, LEI on FRIDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. GE (recent spinoff of healthcare GEHC; under CULP’s plan, the final spinoff of Power/Vernova will be in 2024; (JPM also moved perpetually bearish Tusa off the GE beat); pg 13);
Foreign stocks (Richemont/CFRUY, Samsung Electronics, Schneider/SBGSY, Siemens/SIEGY, Kose/KSRYY; MSCI EAFE fwd P/E 13 only; many global companies have huge operations beyond their home countries; pg 18).
BEARISH. Norfolk Southern (NSC; years of neglecting repairs, maintenance and safety inspections are finally catching up; recent industry trends of precision-schedules-railroading (PSR) leave less room for maintenance and the savings have gone to dividends and buybacks; both the railroad workers and shippers have complained about cuts in services; NSC just cited its $1 billion related expenditures without mentioning per-mile figures; NTSB has started an investigation after 3 recent NSC accidents in Ohio; there is a proposed legislation on railroad safety that NSC supports partially; a previous legislation to require (expensive) electronic braking technology also stalled/failed (the industry association AAR opposed it); pg 15).
Pg 12: All BANKS/FINANCIALS sold off last week (KRE, KBE, XLF). But most differ from SVB Financial/SIVB (and Silvergate/SI). The problem with SIVB was a large loss on huge forced-sale of available-for-sale (AFS, market-to-market) Treasuries, and its efforts for raising capital failed (and the Fed or the FHLB didn’t step in for the rescue). Most large banks have diversified businesses, are well capitalized and can tap multiple sources of funding. While rising RATES are generally good for banks, some overleveraged banks with poor quality loan-books get squeezed. DEPOSITS are also moving from banks into higher-rate Treasuries and money-market funds. SIVB was really a bank for venture-capitalists (VCs) who are sophisticated investors that can move large amounts of money (its sudden closure during the business hours may have been to limit that flight). In better times, SIVB just parked excess deposits into Treasuries that it had to sell suddenly at depressed prices (due to higher rates now). All banks now have large unrealized losses that may be hidden within their hold-to-maturity (HTM, not marked-to-market) portfolios – really, a permissible accounting trick. (In a bank run, the distinction between HTM and AFS basically disappears) Large banks also have tougher regulations and undergo annual stress-tests by the Fed. So, this general selloff offers opportunities in banks now – FITB, HBAN, JPM, KEY, MTB, PNC, RF, USB, etc.
Pg 14: There are several interesting SPINOFFS coming from JNJ, K, BWA, CR, etc (there is a separate feature on GE spinoffs). 2022 was a record year for spinoffs. Many companies are refocusing on their core or most profitable businesses (reversing years of growth-by-acquisitions). Spinoffs initially underperform because the holders of parent companies tend to just sell the newly received spinoff shares, but there are exceptions.
Pg 23: The cost-benefit analysis of EVs shows that they may take 5-10 years for payoff. The $7,500 federal tax credit isn’t available for all EVs (they must be assembled in North America, must be priced $55K (cars)-80K (SUVs); more restrictions related to EV batteries are coming); states also have varying incentives. Home-charging of EVs costs equivalent of about $1/gallon; high-speed charging has installations costs ($600-6,000). Insurance costs are higher for EVs. But the maintenance costs of EVs are lower and most have generous warrantees. Many EV buyers don’t pay attention to economics and are buying EVs to make personal statements.
Pg 24, ECONOMY. We don’t have WAGE-PRICE spiral like in the 1970s. Institutional mechanisms exist now that are self-dampening. So, POWELL’s Fed can relax. Rise in WAGES is offset partially by any rise in PRODUCTIVITY. LABOR is only 80% of the cost of goods and services. The CPI consists of many things that require varying degrees of labor; only 60% of items in the CPI are labor intensive; the CPI is mostly a service-price index. There are no COLAs (in industries) and most workers are at-will employees; labor UNIONS are weak. The REAL WAGES are falling globally; the nominal wages don’t have 1:1 effect on prices. When prices do rise now, it is because DEMAND exceeds supply, but that is a different issue (that was exacerbated recently by Covid and war related supply-chain disruptions). (By Carl Weinberger, High Frequency Economics)
Pg 25, TECH TRADER. DELL (yield 3.8%; EV/revenue 0.5; buybacks) is a cheap tech. The PCs are in a slump as the pandemic rush for the PCs is long gone, the corporate capex on IT is down sharply. But PCs have a short replacement cycle of 3 years, and many old PCs would have to be replaced soon. Dell has leading positions in its various markets – PCs, servers, storage, etc.
Pg 26, INCOME INVESTING. Companies are raising dividends to be competitive with bonds. This despite the news of some companies slashing dividends (INTC, NEM, VFC, HBI, etc). Pay attention to payout ratios and free cash flows. Mentioned for income are AVGO, BBY, CMCSA, DRI, F, JNJ, MCHP, MS, TXN.
Pg 28, FUNDS. These volatile and uncertain markets may be good times to buy ALLOCATION/ BALANCED funds. Investors are poor market-timers as Morningstar studies on investor-returns vs fund-returns show. The sector funds (tech, energy, etc) have the worst gaps; even the bond funds have notable gaps. The allocation/ balanced funds have the smallest gaps, and a reason may be that more investors can stick with them. (By MFO @lewisbraham)
Pg30: Adam SEESSEL, Gravity Capital. In 2014, Seessel switched from traditional old -economy value stocks to techs that focused on digital-transformations – AMZN, GOOGL, ADBE, INTU, TXN, etc. He refuses a growth-label and calls this VALUE 3.0 (Graham was Value 1.0, Buffett Value 2.0). While these companies benefitted from low rates, that wasn’t the only factor in their tremendous growth. He looks at business growth, margins, earning power. The GAAP accounting is skewed towards old-economy companies – e.g. why aren’t the R&D and ad/marketing expenses capitalized instead of expensed? Besides the techs, he likes EADSY, etc. Book, Where the Money Is: Value Investing in the Digital Age, 05/2022.
Pg 62, OTHER VOICES. Laura HALTZEL, Century Foundation, a NYC-based think tank. Some changes to SOCIAL SECURITY may be part of a DEBT-CEILING compromise – raising the full retirement age (FRA), adjusting the benefits formula, establishing a US sovereign wealth fund, etc. But higher longevity (on average) doesn’t mean retiring later (for most). Longevity has gone up for higher income people who are least dependent on Social Security. On the other hand, the Social Security payroll tax of 12.4% on capped-earnings is applied uniformly. Author suggests removing the earnings-cap and also adjusting the progressive benefits formula.
SUPPLEMENT America’s Top 1,200 Financial Advisors (by states) has features on portfolio construction for a new high inflation and rates era – less growth, more cyclicals and dividend-payors, more bonds; features on several advisors.
(EXTRAS from online Friday that didn’t make the weekend paper version)
FUNDS. BOND ETFs have faced difficulties with spreads (premium/discount), creation/redemption mechanisms (authorized participants may just withdraw during selloffs), tracking-errors as they use a smaller universe of large, liquid bonds. Bond market is fragmented and can be illiquid. Retail investors aren’t aware of these issues.
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).