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Valued Contributor

From Barron’s, March 09, 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: A wild and crazy week that ended up. Market made huge moves up and down and the Fed made an off-meeting cut of 50 bps that only spooked the market. Treasury yields fell to record lows. SP500 action on Friday neither retested the low nor confirmed a rebound, so volatility with potential downside may continue next week. That the market gave up 2 huge daily gains has to be bearish. Economic data this week were good but pre-coronavirus. Soon one may be able to look beyond the negative headlines from coronavirus [event cancelations, school closings, employees working from home, infections and deaths] and buy but not just yet.

REIT Seritage/SRG into which Sears/SHLDQ [“Q” for bankruptcy filing in 2018] put its real estate properties in 2015 is overvalued – it has negative earnings, negative FFO, falling revenues, no dividends; Warren Buffet has 7% personal stake. Many SRG properties and malls remain vacant. Sears/Kmart still occupy 70% but their contribution to SRG rental income is only 5%. SRG strategy is to re-lease old stores at higher rents or redevelop them into mixed use properties; without operating cash flow and limited access to credit, funding for the latter may have to come from property sales or issuing stock [diluting current shareholders].

Tidbits:

KR was up +13% and may be ahead of itself.

Strong showing by Biden on Super Tuesday boosted healthcare stocks.

CCL fell -19% [-47% YTD] and its dividend may be at risk.

 

[The CME FedWatch tool, based on current fed fund futures quotes, shows the following probabilities for 2020; presentation format changed again due to huge changes this week:

For another 50 bps cut,

     100% at FOMC 3/18//20

For yet another 25 bps cut,

     82.1% at FOMC 4/29/20

For 0-0.25% [ZRIP], probabilities are 30%+ from April FOMC and onwards.

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

 

For the week [index changes only], DJIA +1.79%, SP500 +0.61%, Nasdaq Comp +0.10%, Russell 2000 -1.84%. DJ Transports -4.60%; DJ Utilities +7.35%. US$ -2.08% (large move), oil/WTI -7.77% (huge move), gold +1.88%.

YTD [index changes only], DJIA -9.37%, SP500 -8.00%, Nasdaq Comp -4.42%.

 

Pg M4, Europe: French supermarket group Carrefour [CA.fr/CRRFY; fwd P/E 11.7] has been hurt by online retailers. In a turnaround since 2018, it has done cost-cutting and boosted its own online efforts.

 

Pg M4, Emerging Markets: Turkey is dealing with Syrian/Russian forces in the East and millions of refugees in the West. But economic growth has resumed after a recession during which sovereign yields jumped to 11.3% and stocks fell 13% [over 5 years, TUR -50%]. There may be opportunities in banks and world class companies but have an exit strategy.

 

Pg M6, Commodities: Demand for diesel and jet fuels has declined significantly as travel/leisure/transportation sector has been hurt by the spread of coronavirus. February likely had the worst contraction in oil demand since the Great Recession; Q1 decline in oil demand may be the worst in history. Oil fell -20% YTD and transportation index -18% YTD. OPEC and OPEC+ remained deadlocked on additional production cuts as of Friday when oil crashed -10% [no news as of Saturday morning].

 

Pg M5, Options: During this time of coronavirus fear, sell puts on stocks you may like to buy [T, VZ, NFLX, etc].

[SP500 VIX 41.94 (high), SKEW 126.08] [10-Yr TYVIX 9.80 (high)] [Yahoo Finance data]

 

Pg M27, M32: A bad week in Europe [Denmark +1.09%, Italy -5.83%, Greece -6.42%] and a down week in Asia [S Korea +3.02%, Australia -3.68%]. The equity CEF index [data to Thursday] outperformed the DJIA and its discount was -4.2%.

Treasury rates 3-mo yield 0.45%, 2-yr 0.49%, 5-yr 0.58%, 10-yr 0.74%, 30-yr 1.25% [yield-curve partially inverted] [Treasury data*]. Dollar fell sharply, DXY 96.09, -2.1% [M35]. Gold jumped, $1,684, +5%; the gold-miners rose sharply [M38]. [^XAU was at 103.01, +9.41% 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 1.78%; 1-yr CDs 2.04%; 5-yr CDs 2.27% [M33].

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

 

[Online] Cover 12 Dividend Stocks to Buy Amid Turmoil in the Markets”. MO, DOW, XOM, VLO, PRU, CMA, T, CVX, WFC, ABBV, STX, KMI. Dividends seem safe on payout ratio, cash flow or balance sheet strength; dividends exceed their corporate bond yields. ETFs VYM, SDY, SCHD. [For the 2nd week, Cover story is designated online only, not in the paper version]

 

Pg 9, Up and Down Wall Street: Rate cuts may not fix this market hit with black swan coronavirus. Jobs report was good but was ignored as it had pre-coronavirus data. One reason for violent market reaction is that the market and economy have become unhinged. SP500 has been up +60% over 5 years while the operating earnings have been flat; ratio of the US stock market value to the GDP was 1.85 at 2019 yearend, matching the high in 2000. Investors have come to expect low rates. The Fed made an extraordinary off-meeting cut of 50 bps and the fed fund futures market is already looking for another 50 bps cut at March 18 FOMC; 2-yr at 0.51% and 10-yr at 0.775% are well below the new 1.00-1.25% Fed target range. But more monetary stimulus may not cure the supply side problems caused first by trade friction/war and now by coronavirus. Decline in production and distribution may cause shortages which in turn may cause inflation and that may hurt buyers rushing to buy Treasuries at any yields.

Falling rates have made US Savings Bonds attractive. The EE-Bonds pay only 0.1% but are guaranteed to double in 20th year for 3.53% return [if held for 20 years + 1 day]. I-Bonds pay only 0.2% but after CPI-U adjustment pay 2.22% through April. Pros: Tax-deferral until redeemed; exempt from state and local taxes. Cons: Annual limit $10K; penalty for redemption within 5 years [so, best to compare with 5-yr CDs]; nontradable.

 

Pg 13, Streetwise: Hough took time to panic on stocks, bonds and emergency-foods [his fancy name for junk-foods]. Following stocks benefitted from sudden demand for their products/services: KR, CPB, CLX, REGN, GILD, MKTX, NEM. $3 million in 10-yr T-Notes now produces only $23K/yr. According to GS, the economy will take a hit from coronavirus [Q2 GDP growth may be 0%] but will then rebound; GS is maintaining SP500 3,400 by the yearend. Several good companies have sold off: DIS, SWK, JBLU, LOW. Some stocks are benefitting from workers being asked to stay home: ZM, NFLX. But screaming kids and barking dogs in the background will become a new business normal.

 

More later….

YBB
6 Replies
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Valued Contributor

Re: From Barron’s, March 09, 2020 (Part 1)

Thanks Yogi! 

Win
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Contributor ○○○

Re: From Barron’s, March 09, 2020 (Part 1)

"Soon one may be able to look beyond the negative headlines from coronavirus [event cancelations, school closings, employees working from home, infections and deaths] and buy but not just yet."

Sound advise for the active investors relying on their RMD. Haven't sold my funds, but have sold some stocks.

 

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Participant ○○○

Re: From Barron’s, March 09, 2020 (Part 1)

Thanks, Yogi. A weekly recap with a longer view is about all I need/want right now! 

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Explorer ○

Re: From Barron’s, March 09, 2020 (Part 1)

A story that may have been missing from Yogi's copy:

Facing Up to Recession Realities

HighTower Advisor's Pamela Rosenau has been pessimistic and held 20% cash for over a year.

"This market could down between 15% and 20% from its high.  This is a global recession."

Rosenau manages $1.2 billion for 242 client households selects opportunistic non-cyclical stocks and gold.  Currently she has a 5% position in the yellow metal.  For evidence of recession she points to 10-year and three-month Treasury yield  curve has inverted three times in less than a year.  She notes that over 30 years , inverted curves has predicted recessions 80% of the time.  And spreads between CCC- and BB-rated bonds are at a historically elevated  by 8.44%.  Rosenau believes companies used cheap money to mask their shaky health.  By buying back shares, they've propped up earnings per share.  According to her on an overall basis earnings have been contracting.  Her argument for gold is the Federal Reserve will continue printing money which will drive demand for a physical inflation hedge.  She say "We're in the early innings of a secular bull market in gold." preferring miners over physical.  This isn't the first time she has amassed a big cash positions.  "It happened prior to 2000 and 2008.  And I have the willies now like I did then.":

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Valued Contributor

Re: From Barron’s, March 09, 2020 (Part 1)

@seabrook , yes it was missing.

Barron's used to have soft advisor features in advisor supplements. Lately, the features in advisor supplements have improved significantly and it is also slipping an advisor's take in regular parts in some weeks - unclear how an advisor feature is picked. So far I am watching those but not including in summaries but I may change that in future.

YBB
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Explorer ○

Re: From Barron’s, March 09, 2020 (Part 1)

An additional paragraph from the article:

"Ultimately, this period of market turbulence will bring stock prices back into line with their fundamentals, she says.  That means reasonably priced stocks will no longer be a rarity."

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