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From Barron’s, February 17, 2020 (Part 1)

 

 

[Italics-bold within the brackets are my additions/elaborations] [New M* Discussions doesn’t allow any colors for cut-and-paste from WORD]

 

Pg M1, Trader: An up week in spite of Friday decline again [4th in a row]. While coronavirus spread continues, investors don’t seem to care. TINA is in full force – look at the poor EMs; low T-Bill/cash yields; hits in energy, travel, commodities. SP500 projected earnings at $176 seem too high. Some tidbits:

Since coronavirus breakout, AAPL has been flat [1/29- ].

COST has been strong [fwd P/E 36.5 is high].

Real estate sector had its best week since 2005 as rates fell. It is now 11.5% of momentum MTUM, behind tech and utilities [an odd momentum mix].

The US and Canadian marijuana companies [CGC, ACB, TLRY, GGBX, FFFNTF, etc] are burning through cash. Their stocks have fallen sharply, and the ETF MJ is down 50% in 52 weeks. They may have to raise capital [stock issuance at depressed prices, asset sales and leasebacks, loans] and cut spending. CGC is backed by STZ and the best funded CRON is backed by MO.

 

[The CME FedWatch tool, based on current fed fund futures quotes, shows the following probabilities for 2020:

For the next hike [cut],

     0% for hike [46.1% for cut] at FOMC 6/10//20

     0% for hike [56.8% for cut] at FOMC 7/29/20

     0% for hike [68.9% for cut] at FOMC 9/16/20

     0% for hike [73.2% for cut] at FOMC 11/5//20

     0% for hike [82.1% for cut] at FOMC 12/16//20.

There are decent probabilities for second rate cut in Fall 2020, but the fed futures traders may be getting far ahead of the Fed narrative.

http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html ]

 

For the week [index changes only], DJIA +1.02%, SP500 +1.58%, Nasdaq Comp +2.21%, Russell 2000 +1.86%. DJ Transports +0.05%; DJ Utilities +2.52%. US$ +0.47%, oil/WTI +3.44%, gold +0.90%.

52-Wks [index changes only], DJIA +13.58%, SP500 +21.78%, Nasdaq Comp +30.23%.

 

Pg M4, Europe: Post-Brexit, Lloyds [LYG; yield 6%; fwd P/E 8.1] is attractive. 95% of its revenues are in the UK.

 

Pg M4, Emerging Markets: Coronavirus will peter out and #2 China will still be there catching up to #1 US; President Xi Jinping will still be there. This is just a bump and China will get over it. There are indeed some near-term problems: People staying home and some not collecting paychecks; businesses shutdown; loans continuing to accumulate interest and small businesses and property developers are vulnerable. Social media may face more restrictions due to criticism of the government being posted. Investment in healthcare may rise.

 

Pg M6, Commodities: Silver should catchup with gold. It is both industrial [50% of use] and precious metal. US is #1 consumer, China #2. [gold/silver ratio is 89.37].

 

Pg M5, Options: That was a strange and short-lived rumor about ICE interest in EBAY. Both are exchanges of different types. Bulls on ICE may pair selling puts with buying calls.

[SP500 VIX 13.68, SKEW 132.67] [10-Yr TYVIX 4.27] [Yahoo Finance data]

 

Pg M23, M28: A good week in Europe [Netherlands +2.94%, UK -0.48%] and an up week in Asia [China +2.07%, Philippines -2.71%]. The equity CEF index [data to Thursday] outperformed the DJIA and its discount was -5%.

Treasury rates 3-mo yield 1.58%, 2-yr 1.42%, 5-yr 1.42%, 10-yr 1.59%, 30-yr 2.04% [yield-curve partially inverted] [Treasury data*]. Dollar rose, DXY 99.20, +0.5% [M31]. Gold rose, $1,581, +0.6%; the gold-miners fell [M34]. [^XAU was at 102.01, +0.67% for the week]

*Treasury Yield-Curve https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=y...

Top FDIC insured savings deposit rates*: Money-market accounts 1.88%; 1-yr CDs 1.98% [below 2%]; 5-yr CDs 2.27% [M29].

*For local rates https://www.depositaccounts.com/banks/rates-map/

 

Pg 18: Cover Story, “Berkshire After Buffett”. Warren Buffett will be 90 in August. For post-Buffett BRK-A/B [fwd P/E 21; P/B 1.3] will there be a breakup? dividend? more buybacks? BRK has been lagging recently [vs SP500 over 1, 5, 10 years]; $128 billion in cash looking for elephant size acquisition(s) [airline?, package delivery? drugstore chain? grocery?] has been a drag; market-cap is $555 billion and Buffett holds 16%. It is cheap on sum-of-parts valuation. Some activists already have positions [they are quiet for now] – Ackman/Pershing, etc. Some former and current shareholders are also critical. Speculation is that son Howard will be the Chairman, and there will be a CEO [one of the 2 insiders, Abel? Combs?] and an investment chief; Combs has dual responsibilities now, running $15 billion investment portfolio and running Geico [he has no prior industry operating experience]. Buffett’s annual letter is due on February 22.

 

For #6 US company by market value, there is lack of financial transparency and little analyst coverage and Buffett has wanted it that way. Barron’s has covered BRK extensively for years, including cover stories, but has had only one interview with WB in 2003. This cover story was without WB cooperation. Barron’s has generally been positive but has offered constructive criticism and suggestions.

 

Pg 7, Up and Down Wall Street: Both stocks and bonds continue to rise. Bond fund inflows are strong – $23.6 billion inflow last week translates into $1 trillion annual rate! There are inflows into stock funds too. Twin bubble? Rational barbell strategy? Investors seem unconcerned that quarterly Chinese growth may halt or turn negative due to quarantines and business shutdowns beyond Chinese New Year. Bond ETFs use pricing services and those prices may not be true market prices. Investors are buying every dip. A danger is lurking in regulatory scrutiny of big techs. But energy and base metals are starting to rebound. Labor market is also strong.

SP500 fwd earnings yield is 5.4% [100E/P], much above the 10-yr yield of 1.59%; now broken Fed Model at one time tried to equate the two. Good dividend yields can be found in bottoming energy sector [oil majors; ETF XLE; CEF PEO] and munis [ETF BAB; CEFs NBB, BBN].

 

Pg 11, Streetwise: In its 2nd run, will Bitcoin become like TSLA [+260% in 6 months]? Bitcoins undergo halvening of outstanding every 4 years and the next is in May. Despite previous denials, Musk couldn’t resist $2 billion TSLA secondary. There are other excesses: SPCE has doubled since October and has P/S 1,000; HY spreads are at historic lows; there is Most Stuf Oreo with extra filling.

Hard/spiked seltzer [5% alcohol in fruit flavored carbonated drink] is growing fast. Players include private Mark Anthony and SAM, BUD, TAP, STZ.

 

More later….

YBB
1 Reply
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Re: From Barron’s, February 17, 2020 (Part 1)

Thanks Yogi.

Berkshire After Buffett isn't anything new or noteworthy.  But I do keep my BRK/A in a tax-deferred account because I do think that the company will be split up after he leaves.  

ctyankee

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