Post by Admin/YBB on May 27, 2023 6:52:17 GMT -6
Pg 12-13.
(Monday is an obvious 529 Day)
REVIEW. Summer heatwave in 2022 in Spain has caused damage to the OLIVE crop. The olive oil prices have soared by +46% in 12 months. Spain produces 40% of global olive oil. It has asked the EU for help for its farmers.
PREVIEW. Chevron/CVX is buying Denver, CO based midsize oil/gas producer PDC Energy/PDCE for $6.3 billion. If this deal goes through, it may put into play other small/mid-size oil/gas companies – CIVI, CPE, MTDR, PR, etc.
DATA THIS WEEK. Home price index, consumer confidence on TUESDAY; JOLTS report, ISM Chicago business barometer on WEDNESDAY; ADP national employment report, ISM manufacturing PMI, construction spending on THURSDAY; jobs report (+200,000), unemployment rate 3.5%, hourly wages +4.3% y-o-y on FRIDAY.
CLOSED. The US stock and bond markets are closed on MONDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Wynn Resorts (WYNN; dividends to resume next month at 1%; improving LV and Macau businesses; Covid headwinds remain in China; also expanding in UAE, etc; pg 20);
Estee Lauder (EL; fwd P/E 30.5; its problems due to slow global recovery may be behind; prior Barron’s recommendation in 07/2022 was premature; activist PELTZ/Trian wants it to cut costs and improve margins; pg 21).
BEARISH. Semi-chip maker Nvidia (NVDA; fwd P/E 47.4; unlikely that the current explosive AI-related move to near $1 trillion market-cap (a curse when hit the 1st time?) can be sustained; pg 19);
Biotech Illumina (ILMN; its 08/2021 merger with Grail (expensive $949 multicancer tests not yet covered by Medicare and many private insurers; FDA approval is pending) may have to be undone if it loses fights with the FTC/US and EC/Europe (strangely, Grail has no business in Europe and ILMN argues that the EC lacks jurisdiction); the US case may eventually go to the US Supremes; investors also hate the merger deal and the Board Chair lost his seat to activist Icahn’s nominee; competitors include EXAS, GH; historically, Grail used to be part of ILMN, then was spun off, but after some indications of success, ILMN decided to buy it again and went ahead betting that regulators would approve, but it is now a huge mess; pg 26).
Pg 14, FUNDS. T-Bills are hot, and so are the related ETFs BIL, SHV, SGOV, GBIL, etc. The debt-ceiling fiasco has created risks and opportunities.
Pg 16: 3 ways to fix SOCIAL SECURITY:
a) Incremental approach: Raise payroll tax (FICA) income limit to $400K (vs $160.2K now), raise FICA rate to 13.4% (vs 12.4% now), raise full retirement age to 68 (vs 67 now for those born in 1960 or later);
b) Expand coverage to all by gradually eliminating the income-limit and also including the investment income;
c) Use means testing to adjust benefits and include new 3% contributions to employer-plans or a government-plan to supplement Social Security.
Most likely is (a). The other options are more drastic and depend on who is in control in the DC.
Pg 18: Sheila BAIR, Center for Financial Stability (nonprofit think tank); formerly, the FDIC Chair 2006-11 (that included the GFC 2008-09). She thinks that there are too many complex banking RULES. People have become complacent – that financial asset values fall when rates rise shouldn’t be a surprise to anyone. In this era of SOCIAL-MEDIA and MOBILE banking, deposits aren’t stable and are subject to unexpected bank runs. There should be a separate deposit insurance for 0% interest transactional checking accounts (as there was during 2008-12); Japan has similar unlimited insurance for business accounts. Banks should issue more unsecured debt. Now, the banks can get secured loans from the FHLB system and the FED Discount Window, but in case of trouble, or bank runs, that may cause more issues as those loans may be called or the collateral just sold. Some tensions exist between the Federal Reserve and the FDIC as the monetary actions of the former often cause issues for the banks, and headaches for the FDIC. Then the Fed wants to help in the rescue by offering secured loans from its Discount Window (interestingly, she wasn’t seen as a team player during the GFC). The recently failed REGIONAL BANKS were outliers. The US has 4,000+ FDIC insured banks, and some say that is too many. But she thinks that small regional or community banks play important roles. Many are well-run. Overall, the regional banks did fine during the GFC. They continue to operate and support local businesses and communities during crises when big banks just tend to pull away from many areas. This was seen during the GFC, the Covid pandemic, and other crises. She also writes money- and business- related books and fiction for kids; she thinks that those should be required reading for many bank executives today.
Pg 27, FUNDS. There are several ways to get into good mutual funds that have been closed – PRWCX, ARTKX, FDGRX, etc. The firms may have special programs for wealthy investors (Summit at Price, etc); advisory channels; soft closes that allow the existing investors to add money; active ETF clones (some exist, and several are forthcoming). (By MFO @lewisbraham)
Pg 28: Torsten SLOK, Apollo Global Management; formerly at the IMF. He turned bearish on the US after this regional BANKING CRISIS. Hard landing or recession may result from high interest RATES, sticky INFLATION and tight CREDIT CONDITIONS. Post-pandemic JOBS have increased, and with slowing economy, the WAGE growth may be tamed. Despite 4,500 US banks, the US banking sector is very top heavy with JPM and BAC having 26% of the US banking assets, and the top 13 US banks having 60%. So, credit tightening will start from big banks. MOBILE BANKING now accounts for 66% of banking and that has increased the risks of deposit flights and bank runs. Banks also have underwater Treasuries, MBS, CREs and some aren’t even marked-to-market by the US accounting rules (HTM vs AFS); REGULATORS will now pay more attention to these liquidity aspects. The large regional bank that failed so far did so when the economy wasn’t even bad. Some PRIVATE LENDING has replaced bank landing but that has also slowed. Inflation decreased quickly from +9% to +5%, but it would be much harder to move it to +2%. The FED may have to keep rates higher for longer and that would impact interest sensitive sectors. Stock valuations are high, and earnings projections are too optimistic if there is a recession. The CREs have strong (industrials, warehouses) and weak (office, malls) areas. Consumer SPENDING on travel, entertainment, restaurants will decrease when the SAVINGS are exhausted. The jobs data may not show highly paid workers who are laid off but may not file for unemployment benefits. JAPAN will soon raise rates and tighten, and lot of Japanese money would flow back to Japan from the US and Europe. Japan is now the largest holder of the US Treasuries ($1+ trillion).
Pg 30, INCOME INVESTING. The rush into generative AI (ChatGPT/ OPenAI/ MSFT, Bard/ GOOGL, NVDA, etc) is starving the dividend-oriented stocks (DVY, NOBL, etc). But high interest rates now make these income funds attractive.
Pg 31: ECONOMY. GREECE has recovered economically after a series of crises starting in 2008. Its economy is growing, inflation and unemployment are declining, sovereign debt may soon become investment-grade. Center-right Mitsotakis may return as Prime Minister after a runoff election. The debt/GDP is still high at 171% but the IMF debt has been paid off early. There may be some lessons for the US from this Greek recovery.
Pg 32, TECH TRADER. Netflix/NFLX password crackdown may be good for the company, but bad for many families. It would limit sharing to one household only with exceptions for mobile devices used on the go. It is introducing “paid sharing” that is already in effect in Lat Am, Canada, New Zealand, Spain, Portugal. Some may switch to cheaper ad-supported plans.
Pg 62, OTHER VOICES. William OVERHOLT, Harvard. Days of high CHINESE growth are over. The Chinese model (driven by centralized infrastructure spending to promote exports) has reached its limit. Eventually, high debt and political and social discontent will create issues. People would also want better lives with improved services, but the government may want more control. China will still have strong SECTORS – green energy, EVs, batteries, transportation, biogenetics. It would still be among the largest world economies. So, it should be seen as a competitor, not as a villain or an enemy. Growth in countries around China may be higher. The future China may be quite different from the past China.
Edit/Add, Pg 63: Missed a tribute to late Sam ZELL by Oscar SCHAFER, Rivulet Capital (2012- ). Sam passed away at 81 on 5/18/23. He was fun loving, fiercely independent, generous, loyal, courageous, and a mentor. In investing, he liked distressed situations and complex structures; he could take control of bad businesses, restructure and grow them and then sell them. He didn’t take himself too seriously, dressed nonconformally, sometimes even writing email poems during business negotiations. (He was a real estate tycoon and was a tough business negotiator – he was called “the grave-dancer” for good reasons) He threw big parties and could talk dirty too. He loved motorcycles (because they were fun, fast, dangerous) and had annual bike tours with friends who called themselves Zell’s Angels.
Schafer provides the personal side in Barron’s Op-Ed. More formal information can be found on the Wiki.
www.barrons.com/articles/sam-zell-markets-real-estate-life-lessons-8b6fa7d6?mod=past_editions
en.wikipedia.org/wiki/Sam_Zell
(EXTRAS from online Friday that didn’t make the weekend paper version)
See Column Topics. It seems some consolidation/rearrangement of Columns is going on.
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).
(Monday is an obvious 529 Day)
REVIEW. Summer heatwave in 2022 in Spain has caused damage to the OLIVE crop. The olive oil prices have soared by +46% in 12 months. Spain produces 40% of global olive oil. It has asked the EU for help for its farmers.
PREVIEW. Chevron/CVX is buying Denver, CO based midsize oil/gas producer PDC Energy/PDCE for $6.3 billion. If this deal goes through, it may put into play other small/mid-size oil/gas companies – CIVI, CPE, MTDR, PR, etc.
DATA THIS WEEK. Home price index, consumer confidence on TUESDAY; JOLTS report, ISM Chicago business barometer on WEDNESDAY; ADP national employment report, ISM manufacturing PMI, construction spending on THURSDAY; jobs report (+200,000), unemployment rate 3.5%, hourly wages +4.3% y-o-y on FRIDAY.
CLOSED. The US stock and bond markets are closed on MONDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
BULLISH. Wynn Resorts (WYNN; dividends to resume next month at 1%; improving LV and Macau businesses; Covid headwinds remain in China; also expanding in UAE, etc; pg 20);
Estee Lauder (EL; fwd P/E 30.5; its problems due to slow global recovery may be behind; prior Barron’s recommendation in 07/2022 was premature; activist PELTZ/Trian wants it to cut costs and improve margins; pg 21).
BEARISH. Semi-chip maker Nvidia (NVDA; fwd P/E 47.4; unlikely that the current explosive AI-related move to near $1 trillion market-cap (a curse when hit the 1st time?) can be sustained; pg 19);
Biotech Illumina (ILMN; its 08/2021 merger with Grail (expensive $949 multicancer tests not yet covered by Medicare and many private insurers; FDA approval is pending) may have to be undone if it loses fights with the FTC/US and EC/Europe (strangely, Grail has no business in Europe and ILMN argues that the EC lacks jurisdiction); the US case may eventually go to the US Supremes; investors also hate the merger deal and the Board Chair lost his seat to activist Icahn’s nominee; competitors include EXAS, GH; historically, Grail used to be part of ILMN, then was spun off, but after some indications of success, ILMN decided to buy it again and went ahead betting that regulators would approve, but it is now a huge mess; pg 26).
Pg 14, FUNDS. T-Bills are hot, and so are the related ETFs BIL, SHV, SGOV, GBIL, etc. The debt-ceiling fiasco has created risks and opportunities.
Pg 16: 3 ways to fix SOCIAL SECURITY:
a) Incremental approach: Raise payroll tax (FICA) income limit to $400K (vs $160.2K now), raise FICA rate to 13.4% (vs 12.4% now), raise full retirement age to 68 (vs 67 now for those born in 1960 or later);
b) Expand coverage to all by gradually eliminating the income-limit and also including the investment income;
c) Use means testing to adjust benefits and include new 3% contributions to employer-plans or a government-plan to supplement Social Security.
Most likely is (a). The other options are more drastic and depend on who is in control in the DC.
Pg 18: Sheila BAIR, Center for Financial Stability (nonprofit think tank); formerly, the FDIC Chair 2006-11 (that included the GFC 2008-09). She thinks that there are too many complex banking RULES. People have become complacent – that financial asset values fall when rates rise shouldn’t be a surprise to anyone. In this era of SOCIAL-MEDIA and MOBILE banking, deposits aren’t stable and are subject to unexpected bank runs. There should be a separate deposit insurance for 0% interest transactional checking accounts (as there was during 2008-12); Japan has similar unlimited insurance for business accounts. Banks should issue more unsecured debt. Now, the banks can get secured loans from the FHLB system and the FED Discount Window, but in case of trouble, or bank runs, that may cause more issues as those loans may be called or the collateral just sold. Some tensions exist between the Federal Reserve and the FDIC as the monetary actions of the former often cause issues for the banks, and headaches for the FDIC. Then the Fed wants to help in the rescue by offering secured loans from its Discount Window (interestingly, she wasn’t seen as a team player during the GFC). The recently failed REGIONAL BANKS were outliers. The US has 4,000+ FDIC insured banks, and some say that is too many. But she thinks that small regional or community banks play important roles. Many are well-run. Overall, the regional banks did fine during the GFC. They continue to operate and support local businesses and communities during crises when big banks just tend to pull away from many areas. This was seen during the GFC, the Covid pandemic, and other crises. She also writes money- and business- related books and fiction for kids; she thinks that those should be required reading for many bank executives today.
Pg 27, FUNDS. There are several ways to get into good mutual funds that have been closed – PRWCX, ARTKX, FDGRX, etc. The firms may have special programs for wealthy investors (Summit at Price, etc); advisory channels; soft closes that allow the existing investors to add money; active ETF clones (some exist, and several are forthcoming). (By MFO @lewisbraham)
Pg 28: Torsten SLOK, Apollo Global Management; formerly at the IMF. He turned bearish on the US after this regional BANKING CRISIS. Hard landing or recession may result from high interest RATES, sticky INFLATION and tight CREDIT CONDITIONS. Post-pandemic JOBS have increased, and with slowing economy, the WAGE growth may be tamed. Despite 4,500 US banks, the US banking sector is very top heavy with JPM and BAC having 26% of the US banking assets, and the top 13 US banks having 60%. So, credit tightening will start from big banks. MOBILE BANKING now accounts for 66% of banking and that has increased the risks of deposit flights and bank runs. Banks also have underwater Treasuries, MBS, CREs and some aren’t even marked-to-market by the US accounting rules (HTM vs AFS); REGULATORS will now pay more attention to these liquidity aspects. The large regional bank that failed so far did so when the economy wasn’t even bad. Some PRIVATE LENDING has replaced bank landing but that has also slowed. Inflation decreased quickly from +9% to +5%, but it would be much harder to move it to +2%. The FED may have to keep rates higher for longer and that would impact interest sensitive sectors. Stock valuations are high, and earnings projections are too optimistic if there is a recession. The CREs have strong (industrials, warehouses) and weak (office, malls) areas. Consumer SPENDING on travel, entertainment, restaurants will decrease when the SAVINGS are exhausted. The jobs data may not show highly paid workers who are laid off but may not file for unemployment benefits. JAPAN will soon raise rates and tighten, and lot of Japanese money would flow back to Japan from the US and Europe. Japan is now the largest holder of the US Treasuries ($1+ trillion).
Pg 30, INCOME INVESTING. The rush into generative AI (ChatGPT/ OPenAI/ MSFT, Bard/ GOOGL, NVDA, etc) is starving the dividend-oriented stocks (DVY, NOBL, etc). But high interest rates now make these income funds attractive.
Pg 31: ECONOMY. GREECE has recovered economically after a series of crises starting in 2008. Its economy is growing, inflation and unemployment are declining, sovereign debt may soon become investment-grade. Center-right Mitsotakis may return as Prime Minister after a runoff election. The debt/GDP is still high at 171% but the IMF debt has been paid off early. There may be some lessons for the US from this Greek recovery.
Pg 32, TECH TRADER. Netflix/NFLX password crackdown may be good for the company, but bad for many families. It would limit sharing to one household only with exceptions for mobile devices used on the go. It is introducing “paid sharing” that is already in effect in Lat Am, Canada, New Zealand, Spain, Portugal. Some may switch to cheaper ad-supported plans.
Pg 62, OTHER VOICES. William OVERHOLT, Harvard. Days of high CHINESE growth are over. The Chinese model (driven by centralized infrastructure spending to promote exports) has reached its limit. Eventually, high debt and political and social discontent will create issues. People would also want better lives with improved services, but the government may want more control. China will still have strong SECTORS – green energy, EVs, batteries, transportation, biogenetics. It would still be among the largest world economies. So, it should be seen as a competitor, not as a villain or an enemy. Growth in countries around China may be higher. The future China may be quite different from the past China.
Edit/Add, Pg 63: Missed a tribute to late Sam ZELL by Oscar SCHAFER, Rivulet Capital (2012- ). Sam passed away at 81 on 5/18/23. He was fun loving, fiercely independent, generous, loyal, courageous, and a mentor. In investing, he liked distressed situations and complex structures; he could take control of bad businesses, restructure and grow them and then sell them. He didn’t take himself too seriously, dressed nonconformally, sometimes even writing email poems during business negotiations. (He was a real estate tycoon and was a tough business negotiator – he was called “the grave-dancer” for good reasons) He threw big parties and could talk dirty too. He loved motorcycles (because they were fun, fast, dangerous) and had annual bike tours with friends who called themselves Zell’s Angels.
Schafer provides the personal side in Barron’s Op-Ed. More formal information can be found on the Wiki.
www.barrons.com/articles/sam-zell-markets-real-estate-life-lessons-8b6fa7d6?mod=past_editions
en.wikipedia.org/wiki/Sam_Zell
(EXTRAS from online Friday that didn’t make the weekend paper version)
See Column Topics. It seems some consolidation/rearrangement of Columns is going on.
Accessible from Morningstar (M*), PB-Big Bang, Facebook (“at”yogibearbull), Twitter (“at”YBB_Finance).