Post by Admin/YBB on Apr 8, 2023 8:19:08 GMT -6
Pg 8-9. FOMC Minutes on WEDNESDAY. Q1 Earnings Season begins on FRIDAY with big banks (everyone will be looking at unrealized losses in the HTM portfolios and loan-books).
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).
The FDIC selected BlackRock/BLK to sell $114 billion in securities that it had retained from the failed Silicon Valley Bank and Signature Bank.
DATA THIS WEEK. Wholesale inventories on MONDAY; small business optimism index on TUESDAY; Treasury budget, CPI (+5.2%, core +5.6%) on WEDNESDAY; PPI (+3.1%, core +4.3%; (wholesale) PPI < CPI is good for future inflation) on THURSDAY; retail sales, capacity utilization, industrial production, business inventories, UM sentiment on FRIDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Fintech Jack Henry (JKHY; yield 1.4%; fwd P/E 28; almost no debt; market-cap $11 billion; sold off during this regional banking crisis even when those issues aren’t relevant for it; of course, if banks/credit unions/financial institutions disappeared en masse, then it would be affected; it provides IT systems for daily operations of small/mid-size banks (19% market share), credit unions (14% market share), financial institutions; its IT system subscription fees are based on complex formulas that use deposits as just one input among the many; it’s transitioning from on-premises computing to cloud-computing; competition includes FIS, FISV; pg 10);
Products-oriented social-media Pinterest (PINS; may be profitable in a few years; international growth; new CEO READY; activist Elliott Management has a stake; pg 11).
BEARISH.
Pg 12: Avian/Bird-Flu (H5N1) is spreading among the poultry, but the US farmers are hesitating on vaccinations. The US poultry producers (CALM, etc) say that the problem is contained for now. Others say that it’s endemic and regular vaccinations should be done. The US is the largest poultry exporter and an industry fear is that the exports may suffer due to US vaccinations, as happened in 2014-15. Poultry prices are high for unexplained reasons. There is also risk that the Virus may spread to humans and BIDEN administration is already considering vaccinations. Vaccine producers are ZTS, MRK, Ceva (French), Boehringer Ingelheim (German).
Pg 13, FUNDS. MUNI MONEY-MARKET funds (tax-exempt) near juicy 4% yields are attractive. This is a tiny area with $130 billion AUM only vs $500 billion AUM pre-GFC-2008, and $5 trillion AUM for taxable money-market funds. These invest in floating-rate munis (VRDNs) that reset rates weekly according to the SIFMA rates. Typically, the SIFMA rates are 40-80% of (taxable) fed fund rates, but they are elevated now due to redemptions to pay taxes (so, these high rates may not last beyond April). These funds partner with banks to provide daily and weekly liquidity guarantees. By definition, their duration is considered to be the rate reset duration regardless of the maturity of the underlying munis (so, don’t get alarmed when looking at their holdings and maturities). Mentioned are FTEXX / FTCXX, SWTXX, VMSXX, VTMXX. (Their overall structure and rate resetting process seem complicated)
Pg 20: Mohamed EL-ERIAN, Queen’s College, U Cambridge; Allianz; formerly at Pimco. The FED is catching up with its past mistakes: Too little too late x 3 (transitory inflation, slow reaction followed by fast reaction, lax banking supervisions). He is worried about an economic CONTAGION from high global DEBT that may end in a severe credit CONTRACTION. This global BANKING CRISIS is much smaller now than the GFC 2008-09, but if it spreads, its effects will be felt by banks, businesses, pension funds, CREs. The 2-yr Treasury yield, highly correlated with the Fed policy, has been acting wild. The equity, bond and commodity markets have diverged, and they seem disconnected with the Fed. The Fed now faces the dilemma of collateral damage somewhere no matter what it does. The least bad option may be to PAUSE at a high enough rate (we may be near that) and just WAIT. Fed’s +2% average inflation TARGET has turned into a joke; +3% to +4% is more realistic, and there is still a possibility that when we get there, the Fed may say, that’s all folks! The problems now are on the SUPPLY and SUPPLY-CHAIN sides caused by deglobalization, Russia-Ukraine war and an expensive energy transition. The era of high growth in CHINA is behind; it is turning inwards. Some EM countries will benefit from the global shift away from China, but they have other limitations or problems – Vietnam, Mexico, etc. Avoid INDEXING in complex or specialized areas such as HY, EM, etc; low-cost indexing works best for highly liquid areas.
Pg 23, TECH TRADER. Tech stocks have rebounded strongly. The investors may be looking beyond the expected poor Q1 EARNINGS. Several techs have made significant changes to their business and/or reporting practices – AAPL, AMZN, META, MSFT, NFLX.
Pg 24, INCOME INVESTING. Selected REITs are attractive after their recent battering. Their earnings have been cut but the SP5500 earnings remain OK (so, the REITs clients are doing fine). A FED pause will benefit the REITs, but RECESSION won’t, so it’s time only to nibble in REITs. Attractive REITs are industrial (PLD, ADC, GLPI), residential, self-storage, data-centers. Avoid REITs for offices and malls (big/regional or strip/local). Several publicly traded REITs are more attractive than private real estate (that suffer from lagging mark-to-market; negative news on monthly/quarterly redemption limits for several nontraded-REITs).
Pg 25: ECONOMY. Solid JOBS report on Good Friday may mean one more Fed RATE hike. The next CPI report will be on Wednesday. But the chances of reaching +2% average INFLTION target have become remote. The regional BANKING crisis also has the effect of some credit tightening. 2024 will be an ELECTION year.
Pg 54, OTHER VOICES. John FLAHIVE, BNY Mellon. The DEBT-CEILING issue may bubble sooner than later. The drop-dead date is assumed to be in AUGUST, but several factors can affect that including the tax receipts. The gridlock in DC has worsened. In a replay of 2011, volatility (stock VIX; the bond MOVE is already elevated) may spike almost a month ahead of the drop-dead date. While there may be a deal in the 11th hour, a prolonged fight, resolution, and resultant austerity would be negative for the US and global markets. Moody’s may also follow through now on what the S&P did in 2011 (a late downgrade). Several things are different this time – rates are high, the US debt-servicing is rising rapidly, the US recession probabilities are high, the UK sovereign debt problem of 2022 isn’t reassuring (and global efforts to find dollar alternative have picked up steam). Equity sectors that are vulnerable include defense, healthcare, IT. Strangely, in 2011, there was a flight to Treasuries, but one cannot count on it every time.
(EXTRAS from online Friday that didn’t make the weekend paper version)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
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).
The FDIC selected BlackRock/BLK to sell $114 billion in securities that it had retained from the failed Silicon Valley Bank and Signature Bank.
DATA THIS WEEK. Wholesale inventories on MONDAY; small business optimism index on TUESDAY; Treasury budget, CPI (+5.2%, core +5.6%) on WEDNESDAY; PPI (+3.1%, core +4.3%; (wholesale) PPI < CPI is good for future inflation) on THURSDAY; retail sales, capacity utilization, industrial production, business inventories, UM sentiment on FRIDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Fintech Jack Henry (JKHY; yield 1.4%; fwd P/E 28; almost no debt; market-cap $11 billion; sold off during this regional banking crisis even when those issues aren’t relevant for it; of course, if banks/credit unions/financial institutions disappeared en masse, then it would be affected; it provides IT systems for daily operations of small/mid-size banks (19% market share), credit unions (14% market share), financial institutions; its IT system subscription fees are based on complex formulas that use deposits as just one input among the many; it’s transitioning from on-premises computing to cloud-computing; competition includes FIS, FISV; pg 10);
Products-oriented social-media Pinterest (PINS; may be profitable in a few years; international growth; new CEO READY; activist Elliott Management has a stake; pg 11).
BEARISH.
Pg 12: Avian/Bird-Flu (H5N1) is spreading among the poultry, but the US farmers are hesitating on vaccinations. The US poultry producers (CALM, etc) say that the problem is contained for now. Others say that it’s endemic and regular vaccinations should be done. The US is the largest poultry exporter and an industry fear is that the exports may suffer due to US vaccinations, as happened in 2014-15. Poultry prices are high for unexplained reasons. There is also risk that the Virus may spread to humans and BIDEN administration is already considering vaccinations. Vaccine producers are ZTS, MRK, Ceva (French), Boehringer Ingelheim (German).
Pg 13, FUNDS. MUNI MONEY-MARKET funds (tax-exempt) near juicy 4% yields are attractive. This is a tiny area with $130 billion AUM only vs $500 billion AUM pre-GFC-2008, and $5 trillion AUM for taxable money-market funds. These invest in floating-rate munis (VRDNs) that reset rates weekly according to the SIFMA rates. Typically, the SIFMA rates are 40-80% of (taxable) fed fund rates, but they are elevated now due to redemptions to pay taxes (so, these high rates may not last beyond April). These funds partner with banks to provide daily and weekly liquidity guarantees. By definition, their duration is considered to be the rate reset duration regardless of the maturity of the underlying munis (so, don’t get alarmed when looking at their holdings and maturities). Mentioned are FTEXX / FTCXX, SWTXX, VMSXX, VTMXX. (Their overall structure and rate resetting process seem complicated)
Pg 20: Mohamed EL-ERIAN, Queen’s College, U Cambridge; Allianz; formerly at Pimco. The FED is catching up with its past mistakes: Too little too late x 3 (transitory inflation, slow reaction followed by fast reaction, lax banking supervisions). He is worried about an economic CONTAGION from high global DEBT that may end in a severe credit CONTRACTION. This global BANKING CRISIS is much smaller now than the GFC 2008-09, but if it spreads, its effects will be felt by banks, businesses, pension funds, CREs. The 2-yr Treasury yield, highly correlated with the Fed policy, has been acting wild. The equity, bond and commodity markets have diverged, and they seem disconnected with the Fed. The Fed now faces the dilemma of collateral damage somewhere no matter what it does. The least bad option may be to PAUSE at a high enough rate (we may be near that) and just WAIT. Fed’s +2% average inflation TARGET has turned into a joke; +3% to +4% is more realistic, and there is still a possibility that when we get there, the Fed may say, that’s all folks! The problems now are on the SUPPLY and SUPPLY-CHAIN sides caused by deglobalization, Russia-Ukraine war and an expensive energy transition. The era of high growth in CHINA is behind; it is turning inwards. Some EM countries will benefit from the global shift away from China, but they have other limitations or problems – Vietnam, Mexico, etc. Avoid INDEXING in complex or specialized areas such as HY, EM, etc; low-cost indexing works best for highly liquid areas.
Pg 23, TECH TRADER. Tech stocks have rebounded strongly. The investors may be looking beyond the expected poor Q1 EARNINGS. Several techs have made significant changes to their business and/or reporting practices – AAPL, AMZN, META, MSFT, NFLX.
Pg 24, INCOME INVESTING. Selected REITs are attractive after their recent battering. Their earnings have been cut but the SP5500 earnings remain OK (so, the REITs clients are doing fine). A FED pause will benefit the REITs, but RECESSION won’t, so it’s time only to nibble in REITs. Attractive REITs are industrial (PLD, ADC, GLPI), residential, self-storage, data-centers. Avoid REITs for offices and malls (big/regional or strip/local). Several publicly traded REITs are more attractive than private real estate (that suffer from lagging mark-to-market; negative news on monthly/quarterly redemption limits for several nontraded-REITs).
Pg 25: ECONOMY. Solid JOBS report on Good Friday may mean one more Fed RATE hike. The next CPI report will be on Wednesday. But the chances of reaching +2% average INFLTION target have become remote. The regional BANKING crisis also has the effect of some credit tightening. 2024 will be an ELECTION year.
Pg 54, OTHER VOICES. John FLAHIVE, BNY Mellon. The DEBT-CEILING issue may bubble sooner than later. The drop-dead date is assumed to be in AUGUST, but several factors can affect that including the tax receipts. The gridlock in DC has worsened. In a replay of 2011, volatility (stock VIX; the bond MOVE is already elevated) may spike almost a month ahead of the drop-dead date. While there may be a deal in the 11th hour, a prolonged fight, resolution, and resultant austerity would be negative for the US and global markets. Moody’s may also follow through now on what the S&P did in 2011 (a late downgrade). Several things are different this time – rates are high, the US debt-servicing is rising rapidly, the US recession probabilities are high, the UK sovereign debt problem of 2022 isn’t reassuring (and global efforts to find dollar alternative have picked up steam). Equity sectors that are vulnerable include defense, healthcare, IT. Strangely, in 2011, there was a flight to Treasuries, but one cannot count on it every time.
(EXTRAS from online Friday that didn’t make the weekend paper version)
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).