Post by Admin/YBB on Apr 8, 2023 5:09:17 GMT -6
Pg 27, TRADER. Investors are getting tired of waiting for the FED PIVOT, but fighting the Fed would be a mistake (the fed fund futures traders are doing just that). The SP500 fwd P/E is 18 and recession may be ahead. The LABOR market looks healthy now. Be ready for “rates a bit higher” or “higher rates for longer”. Be DEFENSIVE with stocks (value; dividend-stocks; consumer-staples, healthcare, utilities), bonds, cash (T-Bills, money-market funds). The Q1 EARNINGS season may be confusing and volatile with the announcements of cost-cutting (“efficiency”), layoffs, lowered guidance, etc. The market gains in Q1 were unexpected despite the disasters in cryptos and regional banks (and Russia-Ukraine war is still going on without an end in sight) (recall that in December, the projections were for bad H1, then good H2, so all bets are off with a good Q1)
A wave of BANK CONSOLIDATION will follow this regional banking crisis. Why does the US need 4,135 banks (although that is down from 14,431 banks in 1980) ? The notion of local community banks is unique to the US (I know of friends who are successful businessmen and politically connected who have started their own banks or became co-owners of existing banks). The UK has 311 banks and most other countries have far fewer. More REGULATION and higher scrutiny of smaller US banks may naturally lead to some consolidations. After this bank selloff, a good strategy may be to go for ACQUIRERS, not targets – MTB, NYCB, ONB, PB, TFC, etc. BIG BANKS are unlikely to get antitrust clearances (unless they go into nonbanking areas such as MS has done, see the Cover story). So, look at their EARNINGS prospects being aware that their earnings may be hit in 2023 (-8%) and 2024 (-11%). Many banks are now priced for disasters. (It was thought a while ago that higher rates were good for banks, but we see now that a rapid rise in rates can cause HTM-AWS issues for their portfolios, but why was that news to the Fed?)
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.
FOMC 5/3/23+ +25 bps (cycle peak 5.00-5.25%)
FOMC 6/14/23+ hold
FOMC 7/26/23+ cut
FOMC 9/20/23+ hold
FOMC 11/1/23+ cut
FOMC 12/13/23+ Cut
Futures were trading on Good Friday morning and the fed fund rate probabilities firmed up on as-expected jobs report.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +0.63%, SP500 -0.10%, Nasdaq Comp -1.10%, R2000 -2.66%. DJ Transports -3.27%; DJ Utilities +3.30%. (Rotating spot regional banking KRE -2.80%) US$ index (spot) -0.58%, oil/WTI futures +6.65%, gold futures +2.18%.
YTD (index changes only), DJIA +1.02%, SP500 +6.92%, Nasdaq Comp +15.49%. (Rotating spot regional banking KRE -27.43%)
SENTIMENTS (new/revised – more data with changed format)
NYSE cumulative (5-day) A/D LINE fell; ratio of winners:losers 1:1+.
AAII Bull-Bear Spread -1.7% (below average; a huge weekly improvement).
%Above 50-dMA for NYSE-listed stocks 34.44% (very low) (StockCharts $NYA50R; $SPXA50R for the SP500 is also included in the bottom panel),
stockcharts.com/h-sc/ui?s=%24NYA50R&p=D&b=5&g=0&id=p91704957718 .
Delta MSI 46.9% (low; improved significantly) (a proprietary index for %Above 75-dMA for selected 1,800 stocks. The all-cap $NYA50R is typically closer to it than the large-cap $SPXA50R.
Pg ?, EUROPEAN TRADER. None. A change coming? Instead of separate “European Trader” and “Emerging Markets”, there is a NEW column title “International Trader”, and that this week is on Saudi Arabia (see below).
Pg 30, INTERNATIONAL TRADER/EMERGING MARKETS. Despite cooling US-Saudi relations, Americana Restaurants (franchiser of the famous US brands in the Middle East: KFC, Pizza Hut, Hardee’s, TGI Fridays, Krispy Kreme, Baskin Robbins, etc) is doing well in Saudi Arabia. The MSCI global emerging market index now includes Saudi Arabia. The OPEC showed with its recent production cuts that it still mattered on the global oil scene (so, the oil prices rose sharply). But many OPEC countries are diversifying away from oil. There were record IPOs in the Middle East in 2022 (while the IPO market has been almost dead in the US).
Pg 31, OPTIONS. The US has polarizing politics, regional banking problems, and debt-ceiling that may become a battle royale. There may be volatility ahead. Recommended is a put-spread on regional bank ETF KRE.
(SP500 VIX 18.40, Nasdaq 100 VXN 23.86 (high), options SKEW 124.42, bond MOVE 147.73 (high) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg ?, COMMODITIES. Part 2 “Review” is on oil, “Preview” on gold, and that seems enough commodities this week (repeated below).
REVIEW. Crude OIL is in backwardation (i.e. the near-futures are more expensive than far-futures). This means that the spot and near-term markets for oil are more tight. For commodities, contango (i.e. the far-futures are more expensive than near-futures) is more normal as there are holding costs.
PREVIEW. GOLD bullion is hot. It’s now near the 2020 high of $2,069.40. Benefiting gold are weakening dollar, peaking rates (some bond yields have fallen), risk aversion (bad 2022, disasters in cryptos and regional banks, coming debt-ceiling fiasco, etc). More volatile gold-miners have lagged relatively (so, still far from their highs, in 2022 or 2011).
Pg 44: A flat week in EUROPE (UK +1.30%, Sweden -1.78%) and a down week in ASIA (India +1.42%, Thailand -2.44%).
TREASURY* 3-mo yield 4.91%, 1-yr 4.51%, 2-yr 3.82%, 5-yr 3.37%, 10-yr 3.30%, 30-yr 3.54%. REAL yields 5-yr 1.06%, 10-yr 1.06%, 30-yr 1.35%.
DOLLAR fell, ^DXY 102.15, -0.4% (pg 50). GOLD rose to over-$2,000, +1.1% (Handy & Harman spot, Thursday; pg 52); the gold-miners rose. (^XAU was at 138.69, +5.52% for the week)
Top FDIC insured savings deposit rates** (This feature has been discontinued)
US SAVINGS I-Bonds^, current rate 6.89% (annualized) is valid until 4/28/23 (unless change by Treasury); the fixed/base rate +0.40%. Rates change on May 1 & November 1. NOTE – With 5/6 datapoints in, the outlook for I-Bond rate on 5/1/23 is poor and it may be 3-4% only (this estimate has been creeping up); the variable rate (with all 6 data points needed) will be known on WEDNESDAY, 4/12/23.
*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 14, COVER STORY “Inside Morgan Stanley’s (MS) Success – and What’s Ahead”. CEO James GORMAN (64; may retire in 5 years) is planning for growth to $10 trillion AUM (vs $5 Trillion now) in a decade. MS has expanded beyond its traditional investment banking and trading into asset management with several acquisitions, the 2 big being E*Trade and Eaton Vance. Markets have to cooperate too, but MS has the capacity to grow via acquisitions during downturns. It has eliminated some smaller noncore businesses (commodity trading, etc). It is more like BAC now than GS. It is also benefiting from the asset shift from smaller banks to big banks during this regional banking crisis. It hasn’t bid so far for any regional banks, troubled or otherwise, but several financial advisors have moved from troubled banks to MS.
Pg 5, UP AND DOWN WALL STREET. WEALTHY are nervous about their HEDGE-fund investments. Many hedge-funds suffered huge losses and redemptions in 2022 although the 2023/Q1 rebound has recovered some of those losses. But it remains a treacherous environment for hedge-funds (and others!) – higher rates, regional banking crisis, collapsing CREs (high vacancies from continuing work-from home; troubles for leveraged players). There is lot of sorting or SHAKEOUT yet to be done in the US banking sector; there may be 186 banks with potential “runs waiting to happen” like those for the failed ones. In a report, the FHLB, NY noted that Friday, 3/10/23 started out as a quiet day, but by the early afternoon, there was a full-fledged national liquidity crisis, and the following week was even worse (that was amazing speed, like a financial tsunami).
JPM CEO Jamie DIMON has noted that the events that led to the collapse of Silicon Valley Bank wouldn’t have been prevented by any of the new regulations being talked about now; his point was to not rush into lots of new regulations. It’s hard to predict or control “animal spirits” or “irrational exuberance”. Sally KRAWCHECK (Ellevest; a former prominent banker) points fingers to equity-based COMPENSATION for bank executives that rewards excessive risk taking (and if there are problems, then the FDIC or the Fed or the Treasury come to the rescue; the so-called moral hazard). She thinks that bank executive compensation should be tied to bank bonds (not equity), and then they will act more responsibly and cautiously; this of course is unlikely to happen. It is also fair to assume that the Fed Chair POWELL (a former businessman, private-equity executive, and investment banker) was well-aware of the potential problems the banks could face with rapidly rising rates (unlike being asleep at the switch, or clueless, as some in the media who harp on “Fed mistakes” conveniently suggest). He WANTS the bank credit to tighten so that the economy can slowdown and tame inflation.
Pg 7, STREETWISE. What’s with CARS? New and used car prices remain high. There were pandemic shortages of auto CHIPS that caused production bottlenecks for new car production, and the used car prices shot up. What now? The automakers have gotten used to fat margins and profits and have shut down low-margin productions. There are supply shortages even for auto AUCTIONS. Industry INVENTORY issues may stabilize only by 2024. However, the used-car stocks have fallen sharply (KMX, etc). On the other hand, as many are keeping older cars longer, the auto-parts stocks are doing well (AZO, ORLY).
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
A wave of BANK CONSOLIDATION will follow this regional banking crisis. Why does the US need 4,135 banks (although that is down from 14,431 banks in 1980) ? The notion of local community banks is unique to the US (I know of friends who are successful businessmen and politically connected who have started their own banks or became co-owners of existing banks). The UK has 311 banks and most other countries have far fewer. More REGULATION and higher scrutiny of smaller US banks may naturally lead to some consolidations. After this bank selloff, a good strategy may be to go for ACQUIRERS, not targets – MTB, NYCB, ONB, PB, TFC, etc. BIG BANKS are unlikely to get antitrust clearances (unless they go into nonbanking areas such as MS has done, see the Cover story). So, look at their EARNINGS prospects being aware that their earnings may be hit in 2023 (-8%) and 2024 (-11%). Many banks are now priced for disasters. (It was thought a while ago that higher rates were good for banks, but we see now that a rapid rise in rates can cause HTM-AWS issues for their portfolios, but why was that news to the Fed?)
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.
FOMC 5/3/23+ +25 bps (cycle peak 5.00-5.25%)
FOMC 6/14/23+ hold
FOMC 7/26/23+ cut
FOMC 9/20/23+ hold
FOMC 11/1/23+ cut
FOMC 12/13/23+ Cut
Futures were trading on Good Friday morning and the fed fund rate probabilities firmed up on as-expected jobs report.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +0.63%, SP500 -0.10%, Nasdaq Comp -1.10%, R2000 -2.66%. DJ Transports -3.27%; DJ Utilities +3.30%. (Rotating spot regional banking KRE -2.80%) US$ index (spot) -0.58%, oil/WTI futures +6.65%, gold futures +2.18%.
YTD (index changes only), DJIA +1.02%, SP500 +6.92%, Nasdaq Comp +15.49%. (Rotating spot regional banking KRE -27.43%)
SENTIMENTS (new/revised – more data with changed format)
NYSE cumulative (5-day) A/D LINE fell; ratio of winners:losers 1:1+.
AAII Bull-Bear Spread -1.7% (below average; a huge weekly improvement).
%Above 50-dMA for NYSE-listed stocks 34.44% (very low) (StockCharts $NYA50R; $SPXA50R for the SP500 is also included in the bottom panel),
stockcharts.com/h-sc/ui?s=%24NYA50R&p=D&b=5&g=0&id=p91704957718 .
Delta MSI 46.9% (low; improved significantly) (a proprietary index for %Above 75-dMA for selected 1,800 stocks. The all-cap $NYA50R is typically closer to it than the large-cap $SPXA50R.
Pg ?, EUROPEAN TRADER. None. A change coming? Instead of separate “European Trader” and “Emerging Markets”, there is a NEW column title “International Trader”, and that this week is on Saudi Arabia (see below).
Pg 30, INTERNATIONAL TRADER/EMERGING MARKETS. Despite cooling US-Saudi relations, Americana Restaurants (franchiser of the famous US brands in the Middle East: KFC, Pizza Hut, Hardee’s, TGI Fridays, Krispy Kreme, Baskin Robbins, etc) is doing well in Saudi Arabia. The MSCI global emerging market index now includes Saudi Arabia. The OPEC showed with its recent production cuts that it still mattered on the global oil scene (so, the oil prices rose sharply). But many OPEC countries are diversifying away from oil. There were record IPOs in the Middle East in 2022 (while the IPO market has been almost dead in the US).
Pg 31, OPTIONS. The US has polarizing politics, regional banking problems, and debt-ceiling that may become a battle royale. There may be volatility ahead. Recommended is a put-spread on regional bank ETF KRE.
(SP500 VIX 18.40, Nasdaq 100 VXN 23.86 (high), options SKEW 124.42, bond MOVE 147.73 (high) (Yahoo Finance data).
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg ?, COMMODITIES. Part 2 “Review” is on oil, “Preview” on gold, and that seems enough commodities this week (repeated below).
REVIEW. Crude OIL is in backwardation (i.e. the near-futures are more expensive than far-futures). This means that the spot and near-term markets for oil are more tight. For commodities, contango (i.e. the far-futures are more expensive than near-futures) is more normal as there are holding costs.
PREVIEW. GOLD bullion is hot. It’s now near the 2020 high of $2,069.40. Benefiting gold are weakening dollar, peaking rates (some bond yields have fallen), risk aversion (bad 2022, disasters in cryptos and regional banks, coming debt-ceiling fiasco, etc). More volatile gold-miners have lagged relatively (so, still far from their highs, in 2022 or 2011).
Pg 44: A flat week in EUROPE (UK +1.30%, Sweden -1.78%) and a down week in ASIA (India +1.42%, Thailand -2.44%).
TREASURY* 3-mo yield 4.91%, 1-yr 4.51%, 2-yr 3.82%, 5-yr 3.37%, 10-yr 3.30%, 30-yr 3.54%. REAL yields 5-yr 1.06%, 10-yr 1.06%, 30-yr 1.35%.
DOLLAR fell, ^DXY 102.15, -0.4% (pg 50). GOLD rose to over-$2,000, +1.1% (Handy & Harman spot, Thursday; pg 52); the gold-miners rose. (^XAU was at 138.69, +5.52% for the week)
Top FDIC insured savings deposit rates** (This feature has been discontinued)
US SAVINGS I-Bonds^, current rate 6.89% (annualized) is valid until 4/28/23 (unless change by Treasury); the fixed/base rate +0.40%. Rates change on May 1 & November 1. NOTE – With 5/6 datapoints in, the outlook for I-Bond rate on 5/1/23 is poor and it may be 3-4% only (this estimate has been creeping up); the variable rate (with all 6 data points needed) will be known on WEDNESDAY, 4/12/23.
*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 14, COVER STORY “Inside Morgan Stanley’s (MS) Success – and What’s Ahead”. CEO James GORMAN (64; may retire in 5 years) is planning for growth to $10 trillion AUM (vs $5 Trillion now) in a decade. MS has expanded beyond its traditional investment banking and trading into asset management with several acquisitions, the 2 big being E*Trade and Eaton Vance. Markets have to cooperate too, but MS has the capacity to grow via acquisitions during downturns. It has eliminated some smaller noncore businesses (commodity trading, etc). It is more like BAC now than GS. It is also benefiting from the asset shift from smaller banks to big banks during this regional banking crisis. It hasn’t bid so far for any regional banks, troubled or otherwise, but several financial advisors have moved from troubled banks to MS.
Pg 5, UP AND DOWN WALL STREET. WEALTHY are nervous about their HEDGE-fund investments. Many hedge-funds suffered huge losses and redemptions in 2022 although the 2023/Q1 rebound has recovered some of those losses. But it remains a treacherous environment for hedge-funds (and others!) – higher rates, regional banking crisis, collapsing CREs (high vacancies from continuing work-from home; troubles for leveraged players). There is lot of sorting or SHAKEOUT yet to be done in the US banking sector; there may be 186 banks with potential “runs waiting to happen” like those for the failed ones. In a report, the FHLB, NY noted that Friday, 3/10/23 started out as a quiet day, but by the early afternoon, there was a full-fledged national liquidity crisis, and the following week was even worse (that was amazing speed, like a financial tsunami).
JPM CEO Jamie DIMON has noted that the events that led to the collapse of Silicon Valley Bank wouldn’t have been prevented by any of the new regulations being talked about now; his point was to not rush into lots of new regulations. It’s hard to predict or control “animal spirits” or “irrational exuberance”. Sally KRAWCHECK (Ellevest; a former prominent banker) points fingers to equity-based COMPENSATION for bank executives that rewards excessive risk taking (and if there are problems, then the FDIC or the Fed or the Treasury come to the rescue; the so-called moral hazard). She thinks that bank executive compensation should be tied to bank bonds (not equity), and then they will act more responsibly and cautiously; this of course is unlikely to happen. It is also fair to assume that the Fed Chair POWELL (a former businessman, private-equity executive, and investment banker) was well-aware of the potential problems the banks could face with rapidly rising rates (unlike being asleep at the switch, or clueless, as some in the media who harp on “Fed mistakes” conveniently suggest). He WANTS the bank credit to tighten so that the economy can slowdown and tame inflation.
Pg 7, STREETWISE. What’s with CARS? New and used car prices remain high. There were pandemic shortages of auto CHIPS that caused production bottlenecks for new car production, and the used car prices shot up. What now? The automakers have gotten used to fat margins and profits and have shut down low-margin productions. There are supply shortages even for auto AUCTIONS. Industry INVENTORY issues may stabilize only by 2024. However, the used-car stocks have fallen sharply (KMX, etc). On the other hand, as many are keeping older cars longer, the auto-parts stocks are doing well (AZO, ORLY).
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).