[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: A bad week and it may get worse. Market is starting to pay attention to rising Covid-19 cases in TX, FL, AZ, etc and rising %positivity results on testing. Then there were sour bank stress-test results – really fine for most big banks, but none can raise dividend at least until Q3 or start buybacks [which they stopped voluntarily]; banks sold off [GS, WFC, BAC, MS; KBE]. Techs are 27% of SP500 and that is approaching the high reached during dot.com era. Many lagging stocks offer attractive values [financials, materials, industrials] but the Covid-19 related concerns are also high for those.
What would a Biden-portfolio look like? Andy Laperriere [Cornerstone Macro] suggests,
Overweight: 20% green energy [TSLA, FSLR, etc]; 15% infrastructure [VMC, GVA, MLM, etc]; 5% MJ [expectations of lax rules for marijuana]; some VXX for higher SP500 volatility.
Underweight: Big oil; drug stocks [PFE, GILD, IBB, etc; concerns about price controls]; big techs [AMZN, FB, etc; fears of more regulations]; consumer-stocks [MCD, UBER, etc; may be hurt by higher minimum wage]; private prisons [GEO], for-profit colleges [STRA], student lenders [NAVI].
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.
ZIRP [0-0.25% fed fund rate] through March 2021 FOMC meeting.
For the week [index changes only], DJIA -3.31%, SP500 -2.86%, Nasdaq Comp -1.90%, Russell 2000 -2.81%. DJ Transports -3%; DJ Utilities -2.75%. [bank KBE -9.73%]. US$ index (spot) -0.13%, oil/WTI futures -3.17%, gold futures +1.52%.
YTD [index changes only], DJIA -12.34%, SP500 -6.86%, Nasdaq Comp +8.74%. [bank KBE -37.22%]
Pg M4, Europe: European airport stocks Zurich Airport [FHZN.sw/FLGZY] and Aeroports de Paris [ADP.fr/ARRPY] are attractive as tourist travel rebounds. FLGZY gets 40% of revenue from airport hotels, offices, shopping mall. ARRPY owns and operates Charles de Gaulle and Orly airports; French government owns 51% and private Vinci Airports owns 8%. ARRPY owns 49% of private Indian GMR Airports [Delhi, Hyderabad, Goa; Mactan Cebu – Philippines, Crete – Greece].
Pg M4, Emerging Markets: EM healthcare stocks are hot [YTD: MATFX +25%; KMED +25%] but expect volatility [remember 2018?].
Pg M6, Commodities: Silver [10-yr low on March 18] and Dr Copper [3.5-yr low on March 23] showed resilience during the pandemic and have rebounded strongly from their lows. Lower demand was offset by lower supply due to shutdown of mines. As demand returns with economies reopening, the production won’t come back quickly. Silver [and gold] also benefited from global stimulus and liquidity. Risk is second wave of Covid-19 reinfections.
Pg M5, Options: Blue-chips and techs have done well. Bullish investors may sell puts on stocks they want to buy on pullback.
[SP500 VIX 34.73, SKEW 137.47] [Yahoo Finance data]
[10-Yr T-Note futures-options based TYVIX has been discontinued; last quote 5/15/20. A new TLT-options-based TICKER? will replace it in Fall]
Pg M26, M32: A bad week in Europe [Sweden -0.18%, Spain -3.01%, Greece -4.61%] and a flat week in Asia [India +1.74%, Thailand –3.16%]. The equity CEF index [data to Thursday] underperformed the DJIA and its discount was -8% [wide fluctuations between -4% to -16% over the last few weeks].
Treasury rates 3-mo yield 0.14%, 2-yr 0.17%, 5-yr 0.30%, 10-yr 0.64%, 30-yr 1.37% [Treasury data*]. Dollar was up, DXY 97.50 [M35]. Gold [Handy & Harman spot, Thursday] rose to $1,748, +0.7%; the gold-miners rose [M38]. [^XAU was at 122.91, +5.28% for the week]
Top FDIC insured savings deposit rates*: Money-market accounts 1.29%; 3-mo Jumbo CD 0.50%, 1-yr CDs 1.13%; 5-yr CDs 1.49% [M33].
*For local rates https://www.depositaccounts.com/banks/rates-map/
Pg 18: Cover Story, “Meet Barron’s Top CEOs of 2020”. Companies ECL, GM, AMZN, AAPL, GE, JPM, LOW, BLK, MRK, NDAQ, PGR, NFLX, NVDA, COST, SHOP, WMT, CVS, BAC, TSLA, MSFT, CMG, GILD, REGN, ZM, FB.
Supplement on ESG.
Pg 6, Up and Down Wall Street: Nobody could see Covid-19 coming, and nobody can see it going away. Recovery fueled by unprecedented monetary and fiscal stimulus is being challenged by rising Covid-19 infections after gradual reopening. As some of the previous stimulus expires, Congress may pass another $1.5 trillion stimulus in July. There are also election uncertainties.
After a great Q2, and with retail speculation growing [strangely in bankrupt companies like HTZ, GNC], consider hedging with short-term options to protect from potential selloff. Sell/write calls on holdings, or use put-collar/spread [buy ATM put and sell OTM put].
Pg 8, Streetwise: Nvidia [NVDA] is no longer just making chips for videogames; it is now making chips for AI and cars [autonomous driving, etc].
The highest yielding Capital One 360 account now pays 1%. Until the stress tests came out i did not know Capital One is in a financially worse shape among the national banks. Their customer service also has been sub par for at least the past year. My last call to them was sent to a call center outside the country where the reps did not know what they are doing (not trained) but had access to my account. Capital One continues to display in my accounts the 6 transactions per month limit - that should have been a hint for me.
How many of you are still keeping deposits at banks in an amount exceeding 6 months of your living expenses vs investing in bond funds or bonds? I am thinking may be I should move the excess to bond funds.
COF .. Financially worst shape as compered to what? Between the stress tests and the new rules pertaining to max payout ratios how are any of these TBTF bigger than ever Wall Street banks any riskier than investment grade (???) corporate bonds with yields of 1/3rd to 1/4th the dividend rates of COF (not my favorite Common) or any of the other usual suspects . Dividends that are tax advantaged vs interest NOT tax advantaged ? Why would you be so paranoid of US bank deposits insured by the FDIC for $1 on "THE $BUCK" vs Money market funds where it is possible a ZIRP everlasting morphing into NIRP could likely break the Buck on as much as 10% of the cash sitting in them, despite SIPIC.
Last week Barrons suggested one of COF's preferreds THE J. It traded down below the Barrons quote of last week on Friday. One of the most prevalent behavioral changes in our society since Covid has been consumers eschewing the use of or wanting to touch bank notes or loose change and adopting a policy of using the CC to pay for everything. AS you point out customer service IS terrible at COF and they are one of the most prolific credit card companies out there in the use of nasty tactics to collect on the defaulted credit card charges AND their most pernicious in the industry late fees and interest rates.
In my mind last week made our CURRENT common dividends on TBTF BANK common shares more secure and made it more likely as in extremes like WFC ,reductions in Dividends on common will not show up as we saw at PACW. 60 cents a quarter down to 25cents. WFC may get away with as little as a 20% reduction on it's common dividend not +50%. But now that the dividend yield at PACW is @ near 5%, maybe that is quite sustainable and maybe offers a buying OPP. But these actions from the Fed only make the dividends on the TBTF bank preferred shares even more sturdy. To cancel as preferred dividends are hardly never just reduced, the preferred dividend requires that the common dividend be COMPLETELY ended first.
I added 20 COF-J on Friday for a tranche of that 5.6% fairly safe yield. A yield that is fairly safe from inflation and interest rate risk and is call protected for nearly 5 years. The last time the WFC-L mentioned several times in Barrons dipped below $1300 I added a share. I am watching for the next chance to add on the same valuations. $427 worth of COF-J is not the whole world, but that 5.6% is biasing my avg yield on preferreds just a little bit higher.
A few years ago Lloyd got called in on the carpet of Congress and was grilled about how he shamelessly worked on behalf of the shareholders and bond holders in the 2008-09 fiscal crisis. GS was wounded and took the TARP but they did not join the other gangsters Fuld and Cayne etc. Shamelessly GS conically ramped a few customers in that melt down and ALSO stayed reasonably solvent. I am sorry if you do not like the service at COF but it is me the share holder in COF-G COF-I and now COF-J that the management has the second most priority to serve after the safety of it's employees. These days the price on a common share of C looks pretty good until you factor in the 1 for 10 reverse stock split. OUCH! Our daughter had so much trouble with the COF credit card that she obtained a new one from BAC. She still keeps her COF card but rarely uses their service. It seems as a customer she is not the only one who is not thrilled with COF.
My solution of late is to rely on ultrashort-term bonds [ETF ICSH; FCONX without frequent trading restrictions at Fido] and short-term bond funds [no frequent trading restrictions at Vanguard; limited restrictions at Schwab for its own]. I am willing to accept their small occasional volatility so long as I can access them at will.
In the past, I used T-Bills, m-mkt funds and short-term brokered CDs. They are all bad now.
Opening new bank accounts all over, especially Trust accounts via mail, isn't a solution for me. So, I do have a small legacy COF 360 Trust a/c [terrible, but...] that I supplemented recently with a personal a/c [little better] that I could open online. But these a/c are for online money transfers only, not for holding any significant amounts. I recently realized the value of existing bank accounts when my credit union a/c was suddenly no longer eligible for some money transfers.
BofA still keeps the Regulation D (limit of 6) as well, when they wrongly informed me that they removed it when the change occurred.
I keep all my cash in a number of Reward Checking Accounts (RCAs) at (4%, $25K); still have a few unfunded ones. The APY have not changed for the last 15 years.
My Ally 1% bonus offer will be realized on 7/1/20, then the fund goes toward paying back my 2.5% HELOC at BofA.
I moved from COF the amounts in excess of FDIC limit into VUSFX. I noticed that at current yield (June 30 distribution annualized), VUSFX is yielding only 1.5%. The additional yield of VUSFX, after paying taxes, over an FDIC insured bank deposit yield of 1% is not hugely attractive. Interestingly, VBIRX is yielding only about 30 basis points more than VUSFX for an additional 2 year duration, but VBIRX has a much higher quality portfolio. VBIRX lost the same amount as VUSFX in March lows but recovered way faster and is much higher now. I can see why VBIRX/ VSB is more popular on these boards than VUSFX. Credit quality vs duration bet - for the next three and six months which is the right bet?
Do you need to choose duration vs credit quality over the next year or two? Since the chances of an increase in the Fed interest rates is almost zero in that time frame, the duration risk is also almost zero. Credit risk, on the other hand remains real. I've personally chosen the duration risk by going with IT rather than ST bonds (VBILX/BIV).