Post by Admin/YBB on Jul 20, 2024 6:33:39 GMT -6
Pg 8. PREVIEW & REVIEW (consolidated). The EQUAL-WEIGHT SP500 RSP has shined lately (since July 9). It has Magnificent 7, but not in mega proportions. There were heavy inflows into RSP. But the question is whether this recent outperformance will continue or fizzle out?
DATA THIS WEEK. Existing home sales on TUESDAY; new home sales on WEDNESDAY; durable goods report, Q2 GDP growth (+1.9%) on THURSDAY; UM sentiment, personal income and consumption expenditures (PCE +2.4%, core +2.5%) 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. MEXICAN Femsa (FMX; yield 0.5%; fwd P/E 19.4; buybacks; shareholder yield 7%; much more than just the “Coca Cola of Mexico/KOF” (33% of FMX); has an efficient and growing convenience store (Oxxo) business in Lat Am that may soon be in the US; these stores also serve as mini centers for various digital transactions; selling some noncore businesses – logistics, refrigeration; stock has been hurt by recent management turnover and Mexican elections; 26% discount from sum-of-the-parts valuation; pg 15);
FURNITURE stocks (leading RH, WSM; lagging ARHS, LOVE, LZB, W; digital or direct-to-consumer furniture channel has cooled – it also had low barriers for entry; sponsoring to ensure top placements in searches isn’t cheap; more sustainable will be hybrid store and online models; pg 16);
SMALL-CAPS (benefiting from broadening or rotation into the SCs; they do well with lower rates and are also an election play; stick with SCs with good fundamentals and profits (40% of R2000/IWM is unprofitable); big SC winners are PRLD, CIFR, CRBU, PACB, AEHR, MARA, CCCC, RIOT, HUT, AVAH, but don’t chase the winners; if wondering about SMCI, it isn’t a SC anymore; EXTRA):
BEARISH.
Pg 13. Thinktank Heritage Foundation’s PROJECT 25 document (900+ pages) is like a wish list of the conservatives. It hasn’t been endorsed by TRUMP or the GOP. It covers many areas. Its proposals include eliminating the dual mandate of the Fed (to focus only on inflation); eventual elimination of the Fed*; return to the gold standard; freewheeling banking, etc. (See its impacts on Medicaid and LTC in RETIREMENT)
*Note that the 12 Federal Reserve Banks are private institutions with government charters; only the Federal Reserve Board (7 members) is a pure government institution; the FOMC is mixed public-private with 7 Fed Governors and 5 Federal Reserve Bank Presidents (NY Fed + 4 rotating).
Pg 14. M&A is hot again for small and midsize BANKS (but M&A is not for big banks except when bank rescues are involved). Higher rates, rising loans, and increasing investment banking activities are good for banks (ETFs KBE, KRE). Households have spent their pandemic savings but continue to spend with credit. Risks are higher loan delinquencies (and failures of weak banks; the old problems of underwater HTM and AFS bonds).
Pg 18, FUNDS. Jim POLK runs the large-cap value fund HOVLX like a pension plan manager. He has a fundamental bottom-up process and a long-term view (of 3-5-10 years). The fund holds about 50 stocks and has only 10% turnover; it uses a barbell approach for cyclical and defensive stocks. It also avoids big sector bets (its top sectors are healthcare, financials, industrials).
Pg 19, INCOME. UTILITIES have sold off on election concerns. On the table may be the tax credits for renewables and fresh debates on renewables vs fossil fuels. However, the demand for power will continue to grow and so will the need for new generation capacity (by whatever means acceptable). Stick with good utilities such as TLN, CEG, VST; ETFs XLU, VPU, UTES.
Pg 19, ECONOMY. Post-pandemic growth in PUBLIC SECTOR employment should slow, but other sectors may not pick up the slack. As a result, the UNEMPLOYMENT RATE may continue to rise. Remote work has also changed the demand in many sectors (education, some service areas, etc).
Pg 20, Interview/Q&A. Alison SHIMADA, Allspring EMGAX / EMGNX. The Fed rate cuts and weakening dollar will benefit the EMs; she likes China, India, Turkey, Brazil. She looks for companies with strong balance sheets and cash flows that are in improving EM economies. Corporate governance has improved in several EMs. China has issues now, a lot will depend on government policies, and there are the US-China frictions, but it’s a good long-term play. India is a positive long-term story and it’s important to get the sectors and companies right. The Prime Minister MODI had to form a coalition government, so he will have to scale down his ambitious plans. Indian stocks remain expensive. Brazilian government lacks fiscal discipline, and reforms are slow, but privatizations are attractive. Turkey is controversial but is moving in the right direction. Japan was a rich and developed country, so it could manage decades of economic troubles. (Allspring, 2021- was formed from the sale of the old WFC asset management unit)
Pg 22, TECH TRADER. Microsoft/MSFT network outage (blamed on 3rd party cybersecurity firm CrowdStrike/CRWD) caused havoc in many operations around the world (some have called it bigger than Y2K that didn’t happen). Worries about Taiwan also grew. After the AI hype, some companies are pulling back from AI capex. The tech earnings are ahead, and any disappointments will be BAD.
Pg 54, OTHER VOICES. Charles BLAHOUS, George Mason U and Hoover/Stanford. Both right and left are wrong about SOCIAL SECURITY. The solution to underfunding is simple intellectually but difficult politically. The payroll tax receipts, and the benefit payments need to be aligned. Generous COLA that started in 1970s was expensive. As the situation is now, there has to be a substantial jump in the payroll tax receipts (by increasing the tax rate and/or the salary cap) or there will be sudden and substantial cuts in benefits around 2035 (when the Treasury IOU runs out and the payroll receipts and benefit payments must equalize). Politicians should quit finger pointing and the blame game and deal with this looming problem in just about 10 years.
Pg 55, RETIREMENT. There are lots of political and economic crosscurrents. Retirees should stick to basics, control risks with rebalancing, shift some money from outperforming to lagging areas, and not make big sector bets. “Cash” (T-Bills, money-market funds, short-term CDs) remains attractive (count it in your fixed-income allocation).
EXTRA. The conservatives’ PROJECT 25 (almost 900 pages) will slash MEDICAID funding for long term care (LTC). Note that Medicare doesn’t cover LTC, but Medicaid covers it for those lacking financial means, and there are strict tests about eligibility (there are also 5-yr lookbacks for any assets transfers). Both federal and state funds are involved in this coverage. Currently, about 61% of the total LTC spending is from these federal and state programs, and the rest 39% is from private LTC insurance (LTCI) or self-pay. If implemented, these changes will have a huge impact on the shrinking LTCI market.
Supplement TOP 100 WOMEN ADVISORS has a feature on the outlook for women in the corporate world, profiles of some advisors, and those are followed by a list of Top 100 Women Advisors. The selections were based on assets, revenues and the quality of practice; the top 100 were selected from 1,094 submissions and their data were verified to the extent possible.
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. Existing home sales on TUESDAY; new home sales on WEDNESDAY; durable goods report, Q2 GDP growth (+1.9%) on THURSDAY; UM sentiment, personal income and consumption expenditures (PCE +2.4%, core +2.5%) 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. MEXICAN Femsa (FMX; yield 0.5%; fwd P/E 19.4; buybacks; shareholder yield 7%; much more than just the “Coca Cola of Mexico/KOF” (33% of FMX); has an efficient and growing convenience store (Oxxo) business in Lat Am that may soon be in the US; these stores also serve as mini centers for various digital transactions; selling some noncore businesses – logistics, refrigeration; stock has been hurt by recent management turnover and Mexican elections; 26% discount from sum-of-the-parts valuation; pg 15);
FURNITURE stocks (leading RH, WSM; lagging ARHS, LOVE, LZB, W; digital or direct-to-consumer furniture channel has cooled – it also had low barriers for entry; sponsoring to ensure top placements in searches isn’t cheap; more sustainable will be hybrid store and online models; pg 16);
SMALL-CAPS (benefiting from broadening or rotation into the SCs; they do well with lower rates and are also an election play; stick with SCs with good fundamentals and profits (40% of R2000/IWM is unprofitable); big SC winners are PRLD, CIFR, CRBU, PACB, AEHR, MARA, CCCC, RIOT, HUT, AVAH, but don’t chase the winners; if wondering about SMCI, it isn’t a SC anymore; EXTRA):
BEARISH.
Pg 13. Thinktank Heritage Foundation’s PROJECT 25 document (900+ pages) is like a wish list of the conservatives. It hasn’t been endorsed by TRUMP or the GOP. It covers many areas. Its proposals include eliminating the dual mandate of the Fed (to focus only on inflation); eventual elimination of the Fed*; return to the gold standard; freewheeling banking, etc. (See its impacts on Medicaid and LTC in RETIREMENT)
*Note that the 12 Federal Reserve Banks are private institutions with government charters; only the Federal Reserve Board (7 members) is a pure government institution; the FOMC is mixed public-private with 7 Fed Governors and 5 Federal Reserve Bank Presidents (NY Fed + 4 rotating).
Pg 14. M&A is hot again for small and midsize BANKS (but M&A is not for big banks except when bank rescues are involved). Higher rates, rising loans, and increasing investment banking activities are good for banks (ETFs KBE, KRE). Households have spent their pandemic savings but continue to spend with credit. Risks are higher loan delinquencies (and failures of weak banks; the old problems of underwater HTM and AFS bonds).
Pg 18, FUNDS. Jim POLK runs the large-cap value fund HOVLX like a pension plan manager. He has a fundamental bottom-up process and a long-term view (of 3-5-10 years). The fund holds about 50 stocks and has only 10% turnover; it uses a barbell approach for cyclical and defensive stocks. It also avoids big sector bets (its top sectors are healthcare, financials, industrials).
Pg 19, INCOME. UTILITIES have sold off on election concerns. On the table may be the tax credits for renewables and fresh debates on renewables vs fossil fuels. However, the demand for power will continue to grow and so will the need for new generation capacity (by whatever means acceptable). Stick with good utilities such as TLN, CEG, VST; ETFs XLU, VPU, UTES.
Pg 19, ECONOMY. Post-pandemic growth in PUBLIC SECTOR employment should slow, but other sectors may not pick up the slack. As a result, the UNEMPLOYMENT RATE may continue to rise. Remote work has also changed the demand in many sectors (education, some service areas, etc).
Pg 20, Interview/Q&A. Alison SHIMADA, Allspring EMGAX / EMGNX. The Fed rate cuts and weakening dollar will benefit the EMs; she likes China, India, Turkey, Brazil. She looks for companies with strong balance sheets and cash flows that are in improving EM economies. Corporate governance has improved in several EMs. China has issues now, a lot will depend on government policies, and there are the US-China frictions, but it’s a good long-term play. India is a positive long-term story and it’s important to get the sectors and companies right. The Prime Minister MODI had to form a coalition government, so he will have to scale down his ambitious plans. Indian stocks remain expensive. Brazilian government lacks fiscal discipline, and reforms are slow, but privatizations are attractive. Turkey is controversial but is moving in the right direction. Japan was a rich and developed country, so it could manage decades of economic troubles. (Allspring, 2021- was formed from the sale of the old WFC asset management unit)
Pg 22, TECH TRADER. Microsoft/MSFT network outage (blamed on 3rd party cybersecurity firm CrowdStrike/CRWD) caused havoc in many operations around the world (some have called it bigger than Y2K that didn’t happen). Worries about Taiwan also grew. After the AI hype, some companies are pulling back from AI capex. The tech earnings are ahead, and any disappointments will be BAD.
Pg 54, OTHER VOICES. Charles BLAHOUS, George Mason U and Hoover/Stanford. Both right and left are wrong about SOCIAL SECURITY. The solution to underfunding is simple intellectually but difficult politically. The payroll tax receipts, and the benefit payments need to be aligned. Generous COLA that started in 1970s was expensive. As the situation is now, there has to be a substantial jump in the payroll tax receipts (by increasing the tax rate and/or the salary cap) or there will be sudden and substantial cuts in benefits around 2035 (when the Treasury IOU runs out and the payroll receipts and benefit payments must equalize). Politicians should quit finger pointing and the blame game and deal with this looming problem in just about 10 years.
Pg 55, RETIREMENT. There are lots of political and economic crosscurrents. Retirees should stick to basics, control risks with rebalancing, shift some money from outperforming to lagging areas, and not make big sector bets. “Cash” (T-Bills, money-market funds, short-term CDs) remains attractive (count it in your fixed-income allocation).
EXTRA. The conservatives’ PROJECT 25 (almost 900 pages) will slash MEDICAID funding for long term care (LTC). Note that Medicare doesn’t cover LTC, but Medicaid covers it for those lacking financial means, and there are strict tests about eligibility (there are also 5-yr lookbacks for any assets transfers). Both federal and state funds are involved in this coverage. Currently, about 61% of the total LTC spending is from these federal and state programs, and the rest 39% is from private LTC insurance (LTCI) or self-pay. If implemented, these changes will have a huge impact on the shrinking LTCI market.
Supplement TOP 100 WOMEN ADVISORS has a feature on the outlook for women in the corporate world, profiles of some advisors, and those are followed by a list of Top 100 Women Advisors. The selections were based on assets, revenues and the quality of practice; the top 100 were selected from 1,094 submissions and their data were verified to the extent possible.
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).
