Post by Admin/YBB on Apr 20, 2024 6:53:24 GMT -6
Pg 9. PREVIEW & REVIEW (consolidated). If NATURAL GAS is so cheap in the US, why isn’t ELECTRICITY? Almost 42% of US electricity is generated from natural gas. One reason is that about half of the total price is from transmission and distribution. Another reason is that (greedy) utilities want to use extra funds for cleaner energy. (Still another reason is regulatory lag; prices went up faster, but there have been few rollbacks.)
DATA THIS WEEK. New home sales on TUESDAY; durable goods orders on WEDNESDAY; wholesale inventory, Q1 GDP growth (est +2.2% real) on THURSDAY; UM sentiment, personal income and consumption expenditures (PCE index +2.6%, core +2.7%) on FRIDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
Data This Week Link,
www.barrons.com/market-data/market-lab?mod=md_subnav#consensus-estimate
BULLISH. US Steel (X; yield 0.5%; fwd P/E 11.9; USS is #3 in the US, #27 globally; Japanese Nippon Steel’s/NPSCY (#4 globally) higher bid may be rejected and CLF may revive its under-bid; USS has pensioners that are almost 4x its current workforce; steel prices are rising; the US may raise tariffs on steel, especially from China (#1 global producer and exporter); pg 17).
BEARISH.
Pg 10: CEO compensation (salary + benefits + multiyear stock grants) are getting out of hand.
Top 10: TAN/AVGO $161.8 million, ARORA/PANW $151.4 million, NABI/COTY $149.4 million, WINFREY/CHTR $89.1 million, LANSING/FICO $66.3 million, COOK/AAPL $63.2 million, CHAUDHRY/ZS $57.8 million, MOGHADAM/PLD $50.9 million, NADELLA/MSFT $48.5 million, NARAYEN/ADBE $44.9 million; hard to miss 4/10 Indian-Americans on the list.
The median CEO pay now is 300x median company employee pay (for COTY, that is 3,769x; for LAZ, only 57x). Many CEOs with poor stock performance continue to be paid well – BOURLA/PFE, IGER/DIS, COOK/AAPL, etc. $1/yr cash-pay CEOs include ROBINS/DKNG, MOGHADAM/PLD (that’s lower than often cited $100K/yr cash-pay for BUFFETT/BRK). There are proposals to tax excess CEO compensation, say, over 50x company employee pay. Note that stock grants are popular now because they have good upside kick if the stock performs well, but also have some residual value if it doesn’t (unlike stock options).
Pg 12, FUNDS. There will be opportunities in bond funds when the interest rate decline (in 2024 or 2025).
Short-Term: VCSH, JPLD, MINT
Intermediate Core-Plus: BYLD, FBND
HY: ANGL, BHYAX, CSOAX, FAGIX (18% equity)
Floating Rate: FLOT (investment-grade), BKLN (junk)
Muni: MUB
Individual corporate bonds are also attractive (from JPM, BOA, WFC, C, PNC, USB, etc)
(Consider this list by Barron’s as a sampling only. There are many more choices in each category, e.g. Treasury FRN USFR in both Short-term/Floating Rate, Fido SPHIX as pure HY, etc.)
Pg 18, FUNDS. They may be tempting now, but don’t overstay in the MONEY-MARKET funds. Most economists and strategists think that the Fed is done tightening, and its next move(s) will be cut(s), although there are some who think that the Fed may surprise by raising rates. Rate cuts will benefit various credits and equities and it’s best to position ahead for possible fast moves.
Pg 19, FUNDS. High-quality (moat), growth-value NRAAX (ER 1.06%; no-load/NTF at Fidelity and Schwab) has a concentrated portfolio with reasonable valuations (so, no NVDA, TSLA, or META). Manager HANSON uses a barbell approach for growth and value, and focuses on customer-centric companies. Fund has “sustainability” in its name, but that is considered much more than ESG.
Pg 20, INCOME. T-Bills ETF BOXX uses options to avoid taxable income and its AUM has grown to $2.3 billion. It uses box-spreads that allow long-term holders to pay only capital gains on sale. There are no income distributions or CG distributions (exploiting ETF’s in-kind transactions). Tax experts doubt that the strategy may withstand IRS and/or SEC scrutiny because, generally, taxes must be paid on imputed income even when not distributed. There are also doubts whether complex options strategies can work in all environments. So, +1 for creativity, 0 for true investor benefits.
Pg 21, ECONOMY. FINANCIAL CONDITIONS are still loose by various measures: Chicago Fed National Financial Condition Index (and real rates < inflation, nominal rates < nominal GDP growth, etc). Many corporations and homeowners have refinanced at lower rates and are in decent shape. So, the inflation, labor and other data the Fed is looking for to ease (further) may not materialize (those looking for cuts in 2024, pay attention). There are areas of the economy where conditions are indeed tight – VC funding for startups/early-stage companies, general market liquidity due to QT and expiry of some Fed programs (and some bank lending).
Pg 22, Q&A/Interview. Imaru CASANOVA, VanEck. GOLD-bullion (GLD, GLDM, IAU, OUNZ, etc) has rallied on geopolitical tensions, but gold-miners have lagged (GDX, GDXJ, INIVX, etc). This gold rally isn’t being driven by retail, investment demand, or the ETFs, but by central banks (China, India, Turkey, etc). The Western investors are still on the sidelines but may be drawn in as the gold rally continues to $2,600 and beyond. Gold took off after the Russia-Ukraine war as several countries started diversifying away from dollar (due to the US dollar-diplomacy). The Fed is also near the tail end of monetary tightening. However, lately, the historical correlations among gold, rates and dollar have broken down. Gold-miners are lagging badly, but with their average production costs around $1,400, high gold prices will just flow into their bottom lines (earnings, free cash flows). Young investors seem to prefer cryptos over gold, but she thinks that overall, the gold and crypto investors are different. She suggests core gold-bullion and gold-mining holdings in 5-10% range. (VanEck has products for gold-bullion, gold-mining, Bitcoin, cryptos).
Pg 24, TECH TRADER. NFLX had a so-so earnings report, but the stock did well due to subscriber growth. But NFLX also made an unwise decision to not release new subscriber data in future. It wants analysts and investors to focus more on revenues, earnings and free cash flows. NFLX has cracked down on password sharing, and now has various subscription tiers, including some ad-supported. Skeptical analysts think that new subscriber growth has slowed, so NFLX would just skip that data. Investors should pay attention to this as they are paying fwd P/E of 30. AAPL did something similar in 2018 on skipping unit sales for iPhones as they were peaking.
META launched its latest chatbot Llama 3 and the updated Meta AI with text-to-images capabilities. Addendum to the AI/NVDA Cover story – AI seems to have erased boundaries among chipmakers, cloud companies, social-media and search companies – everybody seems to be into everybody else’s business.
Pg 54, OTHER VOICES. Joseph BRUSUELAS, RSM US (part of RSM International, a global accounting and tax advisory firm). Global interest RATES are high, and they have done their job to tame INFLATION. Soon will be the time for easier policies and rate cuts. Central banks globally will diverge, so Japan may be tightening (after decades of easy monetary policy), while the US, EU, UK may ease; Switzerland and Mexico have already cut rates. Higher OIL prices due to geopolitical tensions will act as a tax on consumers. Waiting for 2% average inflation data may cause risky delays.
Pg 55, RETIREMENT. Consider ROTH CONVERSIONS ahead of the expiration in 2025 of the 2018 Tax Cuts and Jobs Act. Unless extended or replaced by Congress, higher tax brackets will go up in 2026 and beyond. A sweet spot for Conversions is between early retirement (when income may be low) and age 73 when the RMDs kick in. Also take into account the impact of Medicare IRMAA at high income levels. Benefits of Roth Conversions include tax-free withdrawals in retirement (for any purpose), reduced RMDs and less tax burden for heirs.
EXTRA. Final FIDUCIARY rules for retirement accounts will be released by the DOL soon. Currently, the fees are hidden within the wrap fees or bonuses or commissions and lead to potential conflicts. Critics (IRI, etc) say that the new rules may reduce consumer access to financial advice.
NOTE. It’s very irritating that Barron’s has stopped mentioning TICKERS for most companies mentioned. I now have to look them up. Sometimes this takes time as there are similar names, especially for banks.
Accessible from PB-Big Bang, Facebook + Threads (“at”yogibearbull), Twitter (“at”YBB_Finance).
DATA THIS WEEK. New home sales on TUESDAY; durable goods orders on WEDNESDAY; wholesale inventory, Q1 GDP growth (est +2.2% real) on THURSDAY; UM sentiment, personal income and consumption expenditures (PCE index +2.6%, core +2.7%) on FRIDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
Data This Week Link,
www.barrons.com/market-data/market-lab?mod=md_subnav#consensus-estimate
BULLISH. US Steel (X; yield 0.5%; fwd P/E 11.9; USS is #3 in the US, #27 globally; Japanese Nippon Steel’s/NPSCY (#4 globally) higher bid may be rejected and CLF may revive its under-bid; USS has pensioners that are almost 4x its current workforce; steel prices are rising; the US may raise tariffs on steel, especially from China (#1 global producer and exporter); pg 17).
BEARISH.
Pg 10: CEO compensation (salary + benefits + multiyear stock grants) are getting out of hand.
Top 10: TAN/AVGO $161.8 million, ARORA/PANW $151.4 million, NABI/COTY $149.4 million, WINFREY/CHTR $89.1 million, LANSING/FICO $66.3 million, COOK/AAPL $63.2 million, CHAUDHRY/ZS $57.8 million, MOGHADAM/PLD $50.9 million, NADELLA/MSFT $48.5 million, NARAYEN/ADBE $44.9 million; hard to miss 4/10 Indian-Americans on the list.
The median CEO pay now is 300x median company employee pay (for COTY, that is 3,769x; for LAZ, only 57x). Many CEOs with poor stock performance continue to be paid well – BOURLA/PFE, IGER/DIS, COOK/AAPL, etc. $1/yr cash-pay CEOs include ROBINS/DKNG, MOGHADAM/PLD (that’s lower than often cited $100K/yr cash-pay for BUFFETT/BRK). There are proposals to tax excess CEO compensation, say, over 50x company employee pay. Note that stock grants are popular now because they have good upside kick if the stock performs well, but also have some residual value if it doesn’t (unlike stock options).
Pg 12, FUNDS. There will be opportunities in bond funds when the interest rate decline (in 2024 or 2025).
Short-Term: VCSH, JPLD, MINT
Intermediate Core-Plus: BYLD, FBND
HY: ANGL, BHYAX, CSOAX, FAGIX (18% equity)
Floating Rate: FLOT (investment-grade), BKLN (junk)
Muni: MUB
Individual corporate bonds are also attractive (from JPM, BOA, WFC, C, PNC, USB, etc)
(Consider this list by Barron’s as a sampling only. There are many more choices in each category, e.g. Treasury FRN USFR in both Short-term/Floating Rate, Fido SPHIX as pure HY, etc.)
Pg 18, FUNDS. They may be tempting now, but don’t overstay in the MONEY-MARKET funds. Most economists and strategists think that the Fed is done tightening, and its next move(s) will be cut(s), although there are some who think that the Fed may surprise by raising rates. Rate cuts will benefit various credits and equities and it’s best to position ahead for possible fast moves.
Pg 19, FUNDS. High-quality (moat), growth-value NRAAX (ER 1.06%; no-load/NTF at Fidelity and Schwab) has a concentrated portfolio with reasonable valuations (so, no NVDA, TSLA, or META). Manager HANSON uses a barbell approach for growth and value, and focuses on customer-centric companies. Fund has “sustainability” in its name, but that is considered much more than ESG.
Pg 20, INCOME. T-Bills ETF BOXX uses options to avoid taxable income and its AUM has grown to $2.3 billion. It uses box-spreads that allow long-term holders to pay only capital gains on sale. There are no income distributions or CG distributions (exploiting ETF’s in-kind transactions). Tax experts doubt that the strategy may withstand IRS and/or SEC scrutiny because, generally, taxes must be paid on imputed income even when not distributed. There are also doubts whether complex options strategies can work in all environments. So, +1 for creativity, 0 for true investor benefits.
Pg 21, ECONOMY. FINANCIAL CONDITIONS are still loose by various measures: Chicago Fed National Financial Condition Index (and real rates < inflation, nominal rates < nominal GDP growth, etc). Many corporations and homeowners have refinanced at lower rates and are in decent shape. So, the inflation, labor and other data the Fed is looking for to ease (further) may not materialize (those looking for cuts in 2024, pay attention). There are areas of the economy where conditions are indeed tight – VC funding for startups/early-stage companies, general market liquidity due to QT and expiry of some Fed programs (and some bank lending).
Pg 22, Q&A/Interview. Imaru CASANOVA, VanEck. GOLD-bullion (GLD, GLDM, IAU, OUNZ, etc) has rallied on geopolitical tensions, but gold-miners have lagged (GDX, GDXJ, INIVX, etc). This gold rally isn’t being driven by retail, investment demand, or the ETFs, but by central banks (China, India, Turkey, etc). The Western investors are still on the sidelines but may be drawn in as the gold rally continues to $2,600 and beyond. Gold took off after the Russia-Ukraine war as several countries started diversifying away from dollar (due to the US dollar-diplomacy). The Fed is also near the tail end of monetary tightening. However, lately, the historical correlations among gold, rates and dollar have broken down. Gold-miners are lagging badly, but with their average production costs around $1,400, high gold prices will just flow into their bottom lines (earnings, free cash flows). Young investors seem to prefer cryptos over gold, but she thinks that overall, the gold and crypto investors are different. She suggests core gold-bullion and gold-mining holdings in 5-10% range. (VanEck has products for gold-bullion, gold-mining, Bitcoin, cryptos).
Pg 24, TECH TRADER. NFLX had a so-so earnings report, but the stock did well due to subscriber growth. But NFLX also made an unwise decision to not release new subscriber data in future. It wants analysts and investors to focus more on revenues, earnings and free cash flows. NFLX has cracked down on password sharing, and now has various subscription tiers, including some ad-supported. Skeptical analysts think that new subscriber growth has slowed, so NFLX would just skip that data. Investors should pay attention to this as they are paying fwd P/E of 30. AAPL did something similar in 2018 on skipping unit sales for iPhones as they were peaking.
META launched its latest chatbot Llama 3 and the updated Meta AI with text-to-images capabilities. Addendum to the AI/NVDA Cover story – AI seems to have erased boundaries among chipmakers, cloud companies, social-media and search companies – everybody seems to be into everybody else’s business.
Pg 54, OTHER VOICES. Joseph BRUSUELAS, RSM US (part of RSM International, a global accounting and tax advisory firm). Global interest RATES are high, and they have done their job to tame INFLATION. Soon will be the time for easier policies and rate cuts. Central banks globally will diverge, so Japan may be tightening (after decades of easy monetary policy), while the US, EU, UK may ease; Switzerland and Mexico have already cut rates. Higher OIL prices due to geopolitical tensions will act as a tax on consumers. Waiting for 2% average inflation data may cause risky delays.
Pg 55, RETIREMENT. Consider ROTH CONVERSIONS ahead of the expiration in 2025 of the 2018 Tax Cuts and Jobs Act. Unless extended or replaced by Congress, higher tax brackets will go up in 2026 and beyond. A sweet spot for Conversions is between early retirement (when income may be low) and age 73 when the RMDs kick in. Also take into account the impact of Medicare IRMAA at high income levels. Benefits of Roth Conversions include tax-free withdrawals in retirement (for any purpose), reduced RMDs and less tax burden for heirs.
EXTRA. Final FIDUCIARY rules for retirement accounts will be released by the DOL soon. Currently, the fees are hidden within the wrap fees or bonuses or commissions and lead to potential conflicts. Critics (IRI, etc) say that the new rules may reduce consumer access to financial advice.
NOTE. It’s very irritating that Barron’s has stopped mentioning TICKERS for most companies mentioned. I now have to look them up. Sometimes this takes time as there are similar names, especially for banks.
Accessible from PB-Big Bang, Facebook + Threads (“at”yogibearbull), Twitter (“at”YBB_Finance).