Post by Admin/YBB on Nov 25, 2023 5:16:33 GMT -6
From Barron’s, November 27, 2023 (Part 1, Market Week+)
Pg 30, TRADER. For stocks, a good Thanksgiving may lead to a strong Santa Claus RALLY. There is good momentum now. The FED tightening may be almost done, but the timing of rate cuts is uncertain.
IF/WHEN rate cuts come, banks (KBE, KRE) will benefit, especially, BRKL, HTBK, HFWA, PFS.
AI-centric Chinese BIDU (fwd P/E 10.6) is now better then BABA that has been hurt by Chinese regulations and rules.
EXTRA. SP500 has cleared several technical levels. Economic data have been good. Investor FOMO is back. Seasonality should provide the additional push to new highs. As both stocks and bonds have done well recently, the assumption is that rates won’t rise (much).
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 12/13/23+ hold (cycle peak 5.25-5.50%)
FOMC 1/31/24+ hold
FOMC 3/20/24+ hold
FOMC 5/1/24+ hold
FOMC 6/12/24+ cut
(Cuts in mid/late-2024) (Probabilities for some rate-ranges aren’t high, so there can be some unexpected moves.) (Powell/Fed doesn’t think that cuts would be in 2024)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +1.27%, SP500 +1.00%, Nasdaq Comp +0.89%, R2000 +0.54%. DJ Transports +1.08%; DJ Utilities +0.28%. (Rotating spot Healthcare XLV +2.25%) US$ index (spot) -0.48% (remains too strong over 100), oil/WTI futures -0.46%, gold futures +1.04%.
YTD (index changes only), DJIA +6.77%, SP500 +18.75%, Nasdaq Comp +36.16%. (Rotating spot Healthcare XLV -3.47%)
SENTIMENTS
(ALL sentiments are GOOD now. Crowds may be right sometimes. But watch for some Sentiments to reach extreme levels.)
NYSE cumulative (5-day) A/D LINE rose for a 3rd week; ratio of winners:losers 5:1.
FUND INFLOWS +/OUTFLOWS - (4-weekMA) (NEW). Stocks +, taxable bonds +, munis -, money-market funds +.
AAII Bull-Bear Spread +21.7% (above average). (Thursday-Wednesday)
%Above 50-dMA for NYSE-listed stocks 70.26% (barely overbought); (StockCharts $NYA50R for NYSE; $SPXA50R for the SP500 in the bottom panel),
stockcharts.com/h-sc/ui?s=%24NYA50R&p=D&b=5&g=0&id=p91704957718 .
Delta MSI 62.2% (positive); a proprietary index for %Above 75-dMA for selected 1,800 stocks that is published midweek but is updated by Barron’s only on late-Fridays (so, it typically LAGS). The all-cap $NYA50R is typically closer to it than the large-cap $SPXA50R.
(Common Scale: oversold < 30, negative < 50, positive > 50, overbought > 70; note that Delta MSI itself uses all in/out using 50% neutral value, but the same graduated scale is used here for both sources of %Above.)
Pg 33, INTERNATIONAL TRADER. Homeowners in the US complain about high HOME INSURANCE premiums for disaster insurance, or the difficulty in getting it in CA, FL, etc. But in much of the world, disaster insurance isn’t even available. There are disasters – fires, floods, earthquakes (typical home policies exclude these). A new type of policy, called PARAMETRIC INSURANCE (some with sovereign sponsors) may help. These pay insured amounts when certain disaster triggers/parameters are reached; homeowners are responsible for any expenses beyond the covered amounts. These quicker payments can become part of the wider disaster relief efforts. The US, UK, Germany, etc are encouraging parametric insurance in developing countries through their foreign aid. But it isn’t like the US comprehensive/replacement home coverage, and a solution here may be a mix of traditional and parametric home insurance coverages.
Pg 34, OPTIONS. Microsoft (MSFT; fwd P/E 36) near highs, and technically overbought, may be attractive from the AI angle (it owns 49% of OpenAI – that is an oversimplification in view of the complex structure of OpenAI). Although risky, recommended is pairing call-buying with put-selling for MSFT.
(SP500 VIX 12.46 (low), Nasdaq 100 VXN 16.12 (low), options SKEW 144.54 (high), bond MOVE 107.43 (Yahoo Finance data).
(Low VIX, high SKEW combo is a sign of nervous bulls)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 47: An up week in EUROPE (Spain +1.46%, Italy -0.75%) and an up week in ASIA (China +2.28%, Thailand -0.65%). (Most global markets also rallied)
TREASURY* 3-mo yield 5.54%, 1-yr 5.27%, 2-yr 4.92%, 5-yr 4.49%, 10-yr 4.47%, 30-yr 4.60%;
REAL yields 5-yr 2.28%, 10-yr 2.21%, 30-yr 2.25%;
FRNs Index** 5.34% (Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLAR fell, ^DXY 103.42, -0.5% (pg 54). GOLD rose to $1,998, +0.9% (Handy & Harman spot, Thursday; pg 52); the gold-miners rose. (^XAU was at 116.67, +3.32% for the week)
Top FDIC insured savings deposit rates*** (This feature has been discontinued but see the link below)
US SAVINGS I-Bonds**, NEW rate from November 1, 2023, is 5.27%; the fixed rate is +1.30%, the semiannual inflation is +1.97%.
(NOTE – The Social Security COLA for 2024, based on the Q3 average of CPI-W, is +3.2%)
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
**Treasury Direct (I-Bonds + T-Bills/Notes/Bonds, FRNs, TIPS)
www.treasurydirect.gov/auctions/announcements-data-results/frn-daily/
www.treasurydirect.gov/marketable-securities/
***For local rates www.depositaccounts.com/banks/rates-map/
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 16, COVER STORY. INTERNATIONAL ROUNDTABLE. Held via Zoom on 11/3/23. Panelists:
Joyce CHANG/JPM: Only comments, no specific recommendations
Louis-Vincent GAVE/Gavekal Research: BYD, Fuyao Glass (HK)
Matthew McLENNAN/First Eagle Investments: XOM, FMX, IPGP, Prosus (Netherlands), Richmont (Switzerland), SLB, WPM
Rajiv JAIN/GQG Partners: Adani (India), Bank Mandiri (Indonesia), GLNCY, PBR, TTE, Turk Hava Yollari (Turkey)
With ongoing geopolitical issues, and new interest rate regimes, there are global opportunities in Lat Am, Europe, Middle East, Asia. So far, these issues seem to be contained or de-escalating or stalemated, but caution is urged as wars can take unexpected turns, especially involving rogue players. 2021 was a generational low for interest rates and cost of capital. There is also growing anti-US or anti-Western sentiment. China sentiment is more negative than the facts on the ground. Chinese growth has slowed but is now comparable to those for mature economies; debt is very high; the property sector is weak. China-Taiwan hostilities are unlikely in the short-term. China is now #1 trading partner with 120 countries, and it has a huge trade surplus. It is also #1 or major exporter for autos, power plants, railroads, telecom, but those Chinese companies are valued at fractions of similar companies in the US. Parts of Europe are in recession; energy is a huge problem; auto sector is weak; but there can be surprises. Europe is moving towards socialization while the EMs are privatizing. The EMs are affected more by China than the US is. The EMs were affected less this time by the Fed tightening. There are big infrastructure projects almost everywhere. Global commodity prices have held up (including gold) and should play significant roles in future.
Deglobalization is a myth – only the trade patterns have shifted. For a change, future global growth may come from places other than the US or China. For foreigners, holding the US Treasuries has been a disaster. Treasuries have also failed in their role as portfolio ballasts for investors. Only energy has been negatively correlated with stocks and bonds, but it is very volatile. There are bilateral or multilateral trade deals now in local currencies. The US deficit is too high for peace time and for reserve currency. The US sanctions are also working against the dollar, although there is no near-term alternative to the dollar as reserve currency. The US banks still have significant issues of HTM and AFS portfolio losses. Regional US banks have high exposure to CREs. The energy sector will benefit from energy transition; natural gas as clean energy even in the interim is too expensive for most countries. The luxury goods market is also strong.
Pg 7, UP AND DOWN WALL STREET. Mark CARNEY has been the Governor of the BOC (Canada) and the BOE (UK), and is now with FSB/BIS (Switzerland), Brookfield Asset Management/BAM, Bloomberg, etc. He says that people are locked in with the old assumptions under the ZIRP, but the environment is now different (and just waiting for lower rates won’t help). Higher rates for longer will be for years. The FED is behind and is just catching up. The Fed’s switch to an AVERAGE inflation target of +2% was a mistake. It first caused delays in Fed actions (with inflation transitory offered as a lame excuse), and now it may have to overshoot. The US fiscal policy (easy) is also at odd with the monetary policy (just about tight). The US and Canadian banking systems are quite different, but he had a hand in avoiding banking crisis in Canada during the GFC – he went for banking liquidity while the US went for rescues. He was at the BOE (7 years) during the difficult Brexit period and the fact that he was opposed to Brexit didn’t help with changing political winds in the UK. He is committed to clean energy and net-zero carbon emission goals. He may consider running for Canada’s Prime Minister – his experiences in digitization, deglobalization, banking, and business should help. He may also consider it if he was approached to head the US Fed.
Pg 10, STREETWISE. Farm equipment maker CNH (yield 3.9%; fwd P/E 5.9 only; buybacks) is attractive. It is dropping its Milan listing, and many Europeans are selling. Brands include Case IH, New Holland. 20% of the revenues are from general construction machinery. It will benefit from precision agriculture. Recent acquisitions are Raven (precision-ag), Hemisphere GNSS (satellite navigation and connectivity). It is a product itself of M&A and has been in its current business only for 2 years.
(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.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook + Threads (“at”yogibearbull), Twitter (“at”YBB_Finance).
Pg 30, TRADER. For stocks, a good Thanksgiving may lead to a strong Santa Claus RALLY. There is good momentum now. The FED tightening may be almost done, but the timing of rate cuts is uncertain.
IF/WHEN rate cuts come, banks (KBE, KRE) will benefit, especially, BRKL, HTBK, HFWA, PFS.
AI-centric Chinese BIDU (fwd P/E 10.6) is now better then BABA that has been hurt by Chinese regulations and rules.
EXTRA. SP500 has cleared several technical levels. Economic data have been good. Investor FOMO is back. Seasonality should provide the additional push to new highs. As both stocks and bonds have done well recently, the assumption is that rates won’t rise (much).
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 12/13/23+ hold (cycle peak 5.25-5.50%)
FOMC 1/31/24+ hold
FOMC 3/20/24+ hold
FOMC 5/1/24+ hold
FOMC 6/12/24+ cut
(Cuts in mid/late-2024) (Probabilities for some rate-ranges aren’t high, so there can be some unexpected moves.) (Powell/Fed doesn’t think that cuts would be in 2024)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +1.27%, SP500 +1.00%, Nasdaq Comp +0.89%, R2000 +0.54%. DJ Transports +1.08%; DJ Utilities +0.28%. (Rotating spot Healthcare XLV +2.25%) US$ index (spot) -0.48% (remains too strong over 100), oil/WTI futures -0.46%, gold futures +1.04%.
YTD (index changes only), DJIA +6.77%, SP500 +18.75%, Nasdaq Comp +36.16%. (Rotating spot Healthcare XLV -3.47%)
SENTIMENTS
(ALL sentiments are GOOD now. Crowds may be right sometimes. But watch for some Sentiments to reach extreme levels.)
NYSE cumulative (5-day) A/D LINE rose for a 3rd week; ratio of winners:losers 5:1.
FUND INFLOWS +/OUTFLOWS - (4-weekMA) (NEW). Stocks +, taxable bonds +, munis -, money-market funds +.
AAII Bull-Bear Spread +21.7% (above average). (Thursday-Wednesday)
%Above 50-dMA for NYSE-listed stocks 70.26% (barely overbought); (StockCharts $NYA50R for NYSE; $SPXA50R for the SP500 in the bottom panel),
stockcharts.com/h-sc/ui?s=%24NYA50R&p=D&b=5&g=0&id=p91704957718 .
Delta MSI 62.2% (positive); a proprietary index for %Above 75-dMA for selected 1,800 stocks that is published midweek but is updated by Barron’s only on late-Fridays (so, it typically LAGS). The all-cap $NYA50R is typically closer to it than the large-cap $SPXA50R.
(Common Scale: oversold < 30, negative < 50, positive > 50, overbought > 70; note that Delta MSI itself uses all in/out using 50% neutral value, but the same graduated scale is used here for both sources of %Above.)
Pg 33, INTERNATIONAL TRADER. Homeowners in the US complain about high HOME INSURANCE premiums for disaster insurance, or the difficulty in getting it in CA, FL, etc. But in much of the world, disaster insurance isn’t even available. There are disasters – fires, floods, earthquakes (typical home policies exclude these). A new type of policy, called PARAMETRIC INSURANCE (some with sovereign sponsors) may help. These pay insured amounts when certain disaster triggers/parameters are reached; homeowners are responsible for any expenses beyond the covered amounts. These quicker payments can become part of the wider disaster relief efforts. The US, UK, Germany, etc are encouraging parametric insurance in developing countries through their foreign aid. But it isn’t like the US comprehensive/replacement home coverage, and a solution here may be a mix of traditional and parametric home insurance coverages.
Pg 34, OPTIONS. Microsoft (MSFT; fwd P/E 36) near highs, and technically overbought, may be attractive from the AI angle (it owns 49% of OpenAI – that is an oversimplification in view of the complex structure of OpenAI). Although risky, recommended is pairing call-buying with put-selling for MSFT.
(SP500 VIX 12.46 (low), Nasdaq 100 VXN 16.12 (low), options SKEW 144.54 (high), bond MOVE 107.43 (Yahoo Finance data).
(Low VIX, high SKEW combo is a sign of nervous bulls)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 47: An up week in EUROPE (Spain +1.46%, Italy -0.75%) and an up week in ASIA (China +2.28%, Thailand -0.65%). (Most global markets also rallied)
TREASURY* 3-mo yield 5.54%, 1-yr 5.27%, 2-yr 4.92%, 5-yr 4.49%, 10-yr 4.47%, 30-yr 4.60%;
REAL yields 5-yr 2.28%, 10-yr 2.21%, 30-yr 2.25%;
FRNs Index** 5.34% (Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLAR fell, ^DXY 103.42, -0.5% (pg 54). GOLD rose to $1,998, +0.9% (Handy & Harman spot, Thursday; pg 52); the gold-miners rose. (^XAU was at 116.67, +3.32% for the week)
Top FDIC insured savings deposit rates*** (This feature has been discontinued but see the link below)
US SAVINGS I-Bonds**, NEW rate from November 1, 2023, is 5.27%; the fixed rate is +1.30%, the semiannual inflation is +1.97%.
(NOTE – The Social Security COLA for 2024, based on the Q3 average of CPI-W, is +3.2%)
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
**Treasury Direct (I-Bonds + T-Bills/Notes/Bonds, FRNs, TIPS)
www.treasurydirect.gov/auctions/announcements-data-results/frn-daily/
www.treasurydirect.gov/marketable-securities/
***For local rates www.depositaccounts.com/banks/rates-map/
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 16, COVER STORY. INTERNATIONAL ROUNDTABLE. Held via Zoom on 11/3/23. Panelists:
Joyce CHANG/JPM: Only comments, no specific recommendations
Louis-Vincent GAVE/Gavekal Research: BYD, Fuyao Glass (HK)
Matthew McLENNAN/First Eagle Investments: XOM, FMX, IPGP, Prosus (Netherlands), Richmont (Switzerland), SLB, WPM
Rajiv JAIN/GQG Partners: Adani (India), Bank Mandiri (Indonesia), GLNCY, PBR, TTE, Turk Hava Yollari (Turkey)
With ongoing geopolitical issues, and new interest rate regimes, there are global opportunities in Lat Am, Europe, Middle East, Asia. So far, these issues seem to be contained or de-escalating or stalemated, but caution is urged as wars can take unexpected turns, especially involving rogue players. 2021 was a generational low for interest rates and cost of capital. There is also growing anti-US or anti-Western sentiment. China sentiment is more negative than the facts on the ground. Chinese growth has slowed but is now comparable to those for mature economies; debt is very high; the property sector is weak. China-Taiwan hostilities are unlikely in the short-term. China is now #1 trading partner with 120 countries, and it has a huge trade surplus. It is also #1 or major exporter for autos, power plants, railroads, telecom, but those Chinese companies are valued at fractions of similar companies in the US. Parts of Europe are in recession; energy is a huge problem; auto sector is weak; but there can be surprises. Europe is moving towards socialization while the EMs are privatizing. The EMs are affected more by China than the US is. The EMs were affected less this time by the Fed tightening. There are big infrastructure projects almost everywhere. Global commodity prices have held up (including gold) and should play significant roles in future.
Deglobalization is a myth – only the trade patterns have shifted. For a change, future global growth may come from places other than the US or China. For foreigners, holding the US Treasuries has been a disaster. Treasuries have also failed in their role as portfolio ballasts for investors. Only energy has been negatively correlated with stocks and bonds, but it is very volatile. There are bilateral or multilateral trade deals now in local currencies. The US deficit is too high for peace time and for reserve currency. The US sanctions are also working against the dollar, although there is no near-term alternative to the dollar as reserve currency. The US banks still have significant issues of HTM and AFS portfolio losses. Regional US banks have high exposure to CREs. The energy sector will benefit from energy transition; natural gas as clean energy even in the interim is too expensive for most countries. The luxury goods market is also strong.
Pg 7, UP AND DOWN WALL STREET. Mark CARNEY has been the Governor of the BOC (Canada) and the BOE (UK), and is now with FSB/BIS (Switzerland), Brookfield Asset Management/BAM, Bloomberg, etc. He says that people are locked in with the old assumptions under the ZIRP, but the environment is now different (and just waiting for lower rates won’t help). Higher rates for longer will be for years. The FED is behind and is just catching up. The Fed’s switch to an AVERAGE inflation target of +2% was a mistake. It first caused delays in Fed actions (with inflation transitory offered as a lame excuse), and now it may have to overshoot. The US fiscal policy (easy) is also at odd with the monetary policy (just about tight). The US and Canadian banking systems are quite different, but he had a hand in avoiding banking crisis in Canada during the GFC – he went for banking liquidity while the US went for rescues. He was at the BOE (7 years) during the difficult Brexit period and the fact that he was opposed to Brexit didn’t help with changing political winds in the UK. He is committed to clean energy and net-zero carbon emission goals. He may consider running for Canada’s Prime Minister – his experiences in digitization, deglobalization, banking, and business should help. He may also consider it if he was approached to head the US Fed.
Pg 10, STREETWISE. Farm equipment maker CNH (yield 3.9%; fwd P/E 5.9 only; buybacks) is attractive. It is dropping its Milan listing, and many Europeans are selling. Brands include Case IH, New Holland. 20% of the revenues are from general construction machinery. It will benefit from precision agriculture. Recent acquisitions are Raven (precision-ag), Hemisphere GNSS (satellite navigation and connectivity). It is a product itself of M&A and has been in its current business only for 2 years.
(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.
(More later….)
Accessible from Morningstar (M*), PB-Big Bang, Facebook + Threads (“at”yogibearbull), Twitter (“at”YBB_Finance).