Post by Admin/YBB on Jun 15, 2024 6:24:43 GMT -6
Pg 9. PREVIEW & REVIEW (consolidated). Gen Z (DOB 1997-2012) are starting to invest at ages 19+, much earlier than other age groups (for Baby Boomers, 35+). They are well familiar with computer tools and phone apps. Among all groups surveyed, while many look at financial postings in social-media, they don’t think highly of those.
DATA THIS WEEK. Retail sales, capacity utilization, industrial production, business inventories on TUESDAY; housing starts on THURSDAY; existing home sales, LEI, S&P manufacturing PMI and services PMI on FRIDAY.
CLOSED. US markets on WEDNESDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
Data This Week Link,
www.barrons.com/market-data/market-lab?mod=md_subnav#consensus-estimate
BULLISH. Starbucks (SBUX; yield 2.9%; fwd P/E 19.6; after a bad Q2, it’s ready for rebound; sales in the US (40% market share) and overseas are bottoming; online orders are growing; it’s opening smaller new stores, several with drive-throughs; growing same-store sales at existing larger stores is more difficult; it offers friendly environment for small business meetings; its customers, addicted to unique flavors, don’t go for cheaper items on the menu, but just go less or not at all; cold drinks are now 60% of drink orders; new drinks include those with pearls/jelly-balls, energy drinks (isn’t double-latte it?); there is competition from other coffee chains; some boycotts have hurt; pg 10)
Foreign AI Plays (TSM – Taiwan, Samsung Electronics – SK, Sy Hynix – SK, YTL Power – Malaysia, Asia Vital – Taiwan, HD Hyundai – SK, Alchip – Taiwan; these are foreign alternatives to dominant AI play NVDA now; pg 11);
Small-caps (lower rates will benefit small-caps and SC-value (with many small banks); there have been several false starts, but his time may be different; Russell 2000 will reconstitute in a bad way later in June; SP SC 600 is a better SC index; EXTRA).
BEARISH.
Pg 13: Private-equity has been acquiring financial advisory firms (RIAs), e.g. Carlyle, Hightower, Focus Financial, etc. The interest of private-equity is in rolling up several small firms, cutting costs by centralizing some operations, and then exiting at profit by selling or having an IPO; but it has found that it’s easy to get in, the consolidation is messy, and the exit isn’t easy. The RIAs also face conflicts because they have fiduciary duties. They find post-acquisition that in the name of centralized back-office support and efficiency, they have to use approved lists of securities and/or there are pressures to push in-house products (cross-selling) (RIA’s freedom to advise depends on point of view – theirs or firms’). Some of these mergers or stakes have unraveled because of this. Clients are also waking up to the related problems.
Pg 15, THE BACK STORY (PRINGLE). TARIFFS go back centuries. The rationale of the original Mercantilism 1.0 was to keep imports/exports in balance, and to protect domestic industries and workers from a flood of cheaper imports. Triangular trade flourished during the colonial era – get raw materials from place “A”, produce finished products at place “B”, and sell those products to place “C” (often, just “A”). There was a brief post-WWII period of globalization and free trade with the idea of winning hearts with trade. China joined WTO in 2001, Russia joined from 2012-22. When globalization didn’t work due to complicated geopolitics, now comes Mercantilism 2.0 and its punitive tariffs. So, BIDEN, a lifelong free trader, has imposed 100% tariffs on Chinese EVs, and 25-50% tariffs in many other Chinese products. Irony is that Biden supported China’s entry into the WTO, and now China is suing the US for high tariffs under WTO.
Pg 21: Is it really The Magnificent Seven (HARTNETT of BoA who coined the term in 05/2023 is a movie fan), or just Magnificent 1? The fad may have peaked with the introduction of ETF MAGS (inception 4/10/23, so the term was already in use by 05/2023; 6 portfolio managers! ER 0.29%, AUM $334 million). One-by-one, 6 of 7 have fallen off the magnificent wagon, and NVDA is the only one remaining. The rest 493 of SP500 are definitely non-magnificent. (In a related drama of tech XLK rebalancing, almost $11 billion may shift within days from AAPL to NVDA.)
Pg 22, FUNDS. Strong dollar benefits currency-hedged funds – HEFA, DDWM, DXJ, etc. Beware that currency-hedging generates CGs. When the dollar weakens, remember to switch to their regular counterparts.
Pg 23, TECH TRADER. There is a broadening AI beneficiaries – ARM, TSM, AAPL, ORCL, AVGO, and even Corning/GLW (fwd P/S 2.3). GLW is a cyclical with secular growth potential and its products include fiberoptic cables for data transmission, advanced glass for TVs, computer monitors, phones, autos (including EVs). It will benefit from the $42.5 billion federal BEAD program. The thing about materials is that they take a long time to develop and perfect, but then are discovered overnight. GLW has had a tough stretch of several years, but a turnaround may be at hand.
Pg 24, RETIREMENT. LTCI premiums are rising sharply in several states (note that state insurance commissioners have to approve rate increases). If high premiums become unaffordable, consider reducing lifetime benefits and annual benefits. Mentioned is a case with unlimited lifetime benefits and inflation-adjustments for annual benefits where premiums now are 3.6x those in 2010 (this is expensive over-insurance that is hard to find today). (Typically, 3 years of cumulative LTCI coverage should be enough. Another possibility is to skip inflation-adjustments occasionally.)
Pg 25, INCOME. With the FED on hold for now, it’s time to think beyond money-market funds paying generous yield – those yields won’t last. Attractive are FR/BL and CLOs (+150 bps spread over SOFR). Mentioned are CLO ETF JAAA (ER 0.21%), core-plus LCATX (high ER 1.19%), short-duration LALDX (ER 0.58%). (Core-plus and ST bond fund categories have many good funds)
Pg 25, ECONOMY. The Fed started raising rates in 03/2022. The economic data presents a mixed picture. The yield-curve has been inverted for quite a while. Massive fiscal stimulus (during the pandemic, then also in 2023) has created distortions. So, the opinions now vary whether there will be recession, soft landing or no landing.
Pg 26, INTERVIEW/Q&A. Savita SUBRAMANIAN, BoA. She likes large-cap value and cyclical sectors such as energy, materials, financials, AI-applications/tech. She looks for companies with good cash flows and low capex needs. Changes are happening faster now. Don’t chase large-cap growth – only 3 LC-growth stocks account for 20% of the SP500. Small-caps aren’t very attractive – some are former mid-caps. Inflation is moderating. The Fed may cut once or not at all this year. Beware of leverage with short-term debt.
Pg 54, OTHER VOICES. Paul ANDREWS, CFA Institute. Gen Z (DOB 1997-2012; ages 11-27 now) grew up in a period of climate debates, Covid and other significant geopolitical events. When they are ready to invest, their focus may be more on the short-term. They are exposed to the markets and investing early and may be more comfortable with risks. Lot of financial information is readily available, and Gen Z is tech savvy. Among all investors, buy-and-hold is the most popular strategy, closely followed by growth investing.
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. Retail sales, capacity utilization, industrial production, business inventories on TUESDAY; housing starts on THURSDAY; existing home sales, LEI, S&P manufacturing PMI and services PMI on FRIDAY.
CLOSED. US markets on WEDNESDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
Data This Week Link,
www.barrons.com/market-data/market-lab?mod=md_subnav#consensus-estimate
BULLISH. Starbucks (SBUX; yield 2.9%; fwd P/E 19.6; after a bad Q2, it’s ready for rebound; sales in the US (40% market share) and overseas are bottoming; online orders are growing; it’s opening smaller new stores, several with drive-throughs; growing same-store sales at existing larger stores is more difficult; it offers friendly environment for small business meetings; its customers, addicted to unique flavors, don’t go for cheaper items on the menu, but just go less or not at all; cold drinks are now 60% of drink orders; new drinks include those with pearls/jelly-balls, energy drinks (isn’t double-latte it?); there is competition from other coffee chains; some boycotts have hurt; pg 10)
Foreign AI Plays (TSM – Taiwan, Samsung Electronics – SK, Sy Hynix – SK, YTL Power – Malaysia, Asia Vital – Taiwan, HD Hyundai – SK, Alchip – Taiwan; these are foreign alternatives to dominant AI play NVDA now; pg 11);
Small-caps (lower rates will benefit small-caps and SC-value (with many small banks); there have been several false starts, but his time may be different; Russell 2000 will reconstitute in a bad way later in June; SP SC 600 is a better SC index; EXTRA).
BEARISH.
Pg 13: Private-equity has been acquiring financial advisory firms (RIAs), e.g. Carlyle, Hightower, Focus Financial, etc. The interest of private-equity is in rolling up several small firms, cutting costs by centralizing some operations, and then exiting at profit by selling or having an IPO; but it has found that it’s easy to get in, the consolidation is messy, and the exit isn’t easy. The RIAs also face conflicts because they have fiduciary duties. They find post-acquisition that in the name of centralized back-office support and efficiency, they have to use approved lists of securities and/or there are pressures to push in-house products (cross-selling) (RIA’s freedom to advise depends on point of view – theirs or firms’). Some of these mergers or stakes have unraveled because of this. Clients are also waking up to the related problems.
Pg 15, THE BACK STORY (PRINGLE). TARIFFS go back centuries. The rationale of the original Mercantilism 1.0 was to keep imports/exports in balance, and to protect domestic industries and workers from a flood of cheaper imports. Triangular trade flourished during the colonial era – get raw materials from place “A”, produce finished products at place “B”, and sell those products to place “C” (often, just “A”). There was a brief post-WWII period of globalization and free trade with the idea of winning hearts with trade. China joined WTO in 2001, Russia joined from 2012-22. When globalization didn’t work due to complicated geopolitics, now comes Mercantilism 2.0 and its punitive tariffs. So, BIDEN, a lifelong free trader, has imposed 100% tariffs on Chinese EVs, and 25-50% tariffs in many other Chinese products. Irony is that Biden supported China’s entry into the WTO, and now China is suing the US for high tariffs under WTO.
Pg 21: Is it really The Magnificent Seven (HARTNETT of BoA who coined the term in 05/2023 is a movie fan), or just Magnificent 1? The fad may have peaked with the introduction of ETF MAGS (inception 4/10/23, so the term was already in use by 05/2023; 6 portfolio managers! ER 0.29%, AUM $334 million). One-by-one, 6 of 7 have fallen off the magnificent wagon, and NVDA is the only one remaining. The rest 493 of SP500 are definitely non-magnificent. (In a related drama of tech XLK rebalancing, almost $11 billion may shift within days from AAPL to NVDA.)
Pg 22, FUNDS. Strong dollar benefits currency-hedged funds – HEFA, DDWM, DXJ, etc. Beware that currency-hedging generates CGs. When the dollar weakens, remember to switch to their regular counterparts.
Pg 23, TECH TRADER. There is a broadening AI beneficiaries – ARM, TSM, AAPL, ORCL, AVGO, and even Corning/GLW (fwd P/S 2.3). GLW is a cyclical with secular growth potential and its products include fiberoptic cables for data transmission, advanced glass for TVs, computer monitors, phones, autos (including EVs). It will benefit from the $42.5 billion federal BEAD program. The thing about materials is that they take a long time to develop and perfect, but then are discovered overnight. GLW has had a tough stretch of several years, but a turnaround may be at hand.
Pg 24, RETIREMENT. LTCI premiums are rising sharply in several states (note that state insurance commissioners have to approve rate increases). If high premiums become unaffordable, consider reducing lifetime benefits and annual benefits. Mentioned is a case with unlimited lifetime benefits and inflation-adjustments for annual benefits where premiums now are 3.6x those in 2010 (this is expensive over-insurance that is hard to find today). (Typically, 3 years of cumulative LTCI coverage should be enough. Another possibility is to skip inflation-adjustments occasionally.)
Pg 25, INCOME. With the FED on hold for now, it’s time to think beyond money-market funds paying generous yield – those yields won’t last. Attractive are FR/BL and CLOs (+150 bps spread over SOFR). Mentioned are CLO ETF JAAA (ER 0.21%), core-plus LCATX (high ER 1.19%), short-duration LALDX (ER 0.58%). (Core-plus and ST bond fund categories have many good funds)
Pg 25, ECONOMY. The Fed started raising rates in 03/2022. The economic data presents a mixed picture. The yield-curve has been inverted for quite a while. Massive fiscal stimulus (during the pandemic, then also in 2023) has created distortions. So, the opinions now vary whether there will be recession, soft landing or no landing.
Pg 26, INTERVIEW/Q&A. Savita SUBRAMANIAN, BoA. She likes large-cap value and cyclical sectors such as energy, materials, financials, AI-applications/tech. She looks for companies with good cash flows and low capex needs. Changes are happening faster now. Don’t chase large-cap growth – only 3 LC-growth stocks account for 20% of the SP500. Small-caps aren’t very attractive – some are former mid-caps. Inflation is moderating. The Fed may cut once or not at all this year. Beware of leverage with short-term debt.
Pg 54, OTHER VOICES. Paul ANDREWS, CFA Institute. Gen Z (DOB 1997-2012; ages 11-27 now) grew up in a period of climate debates, Covid and other significant geopolitical events. When they are ready to invest, their focus may be more on the short-term. They are exposed to the markets and investing early and may be more comfortable with risks. Lot of financial information is readily available, and Gen Z is tech savvy. Among all investors, buy-and-hold is the most popular strategy, closely followed by growth investing.
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).
