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From Barron’s, March 30, 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 volatile week that ended as the best week since 1938 [several references in this issue to 1920s and 1930s]. Following unprecedented monetary policy steps by the Fed, there were unprecedented fiscal policy steps by the Congress [$2 trillion CARES Act represents 9% of GDP]. For some, 3-day Tu-Th +21% rally started a new bull market but others think that to be weird as that would make the bear market for only 11 days – they think that Tu-Th was a bear market bounce/rally and Fri was a big downer. Due to widespread shutdowns, we may be in recession already and much of CARES spending will be to preserve economic wellbeing of businesses and people until the coronavirus fades away. Investors should look beyond to post-coronavirus phase of the market that may favor cyclicals but avoid retailers, casinos, cruise lines. Use a barbell approach with cyclicals such as financials and consumer-discretionary on the one hand and high-quality companies on the other hand. Credit risks may pay off but don’t jump into CCC and below yet. Instead use barbell with better quality HY along with investment-grade bonds [a canned mix would be core-plus]. Don’t even pay attention to 2020 earnings but start looking for 2021 earnings estimates.

Stocks that passed the screens of positive free cash flow, low debt, growing earnings and reasonable valuations [multiple factors]: CAT, MRK, UNH, INTC, HON, BBY, GWW, DHI, QCOM, AKAM, LMT, BLK.


[The CME FedWatch tool, based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes, is totally confused by 2 large off-meeting cuts and the missed March 18 FOMC. I am keeping this portion as placeholder when tool comes back to normal] ]


For the week [index changes only], DJIA +12.84%, SP500 +10.26%, Nasdaq Comp +9.05%, Russell 2000 +11.65%. DJ Transports +12.60%; DJ Utilities +17.46%. US$ -4.39%, oil/WTI -4.10%, gold +9.43%.

YTD [index changes only], DJIA -24.18%, SP500 -21.34%, Nasdaq Comp -16.39% [inv-gr Corporates -4.32%].


Pg M4, Europe: German beauty-product giant Hankel [HENKY; fwd P/E 13.5] is now attractive. Founding family controls 60%. China is its 3rd largest market. There is a new CEO since January who plans to divest smaller brands/units. Brands include Dial, Right Guard, Loctite, Persil, Schwarzkopf.


Pg M4, Emerging Markets: Patient investors may dip their toes into Russian stocks [RSX]. Ruble may rebound making bonds also attractive. Russia can withstand oil shock with oil at/over $30 better than Saudi Arabia or the US shale oil industry.


Pg M7, Commodities: Natural-gas prices are at 25-yr low, but natural-gas has still done better than oil [at 18-yr low]. Causes include warmer weather, growing supply [but less excess supply] and lower demand due to mandated shutdowns of nonessential businesses. As natural-gas is a byproduct of oil production [especially that of shale oil], its production is also cut down but that only reduces oversupply; inventories are 12% over 5-yr average. Hopefully, 2021 may be better.


Pg M5, Options: In investing, extreme personal discomfort and incredible buying opportunities go together. Use half-and-half strategy for quality blue-chips [BLK, etc]: Buy half position now and sell puts for the other half at slightly lower strike prices [it does tie up cash and there is a risk of early or eventual assignment if the prices fall].

[SP500 VIX 65.54 (high), SKEW 117.41 (low)] [10-Yr TYVIX 8.27 (high)] [Yahoo Finance data]


Pg M23, M28: A great week in Europe [Germany +7.88%, Norway +0.65%] and a great week in Asia [Japan +14.31%, Thailand -2.19%]. The equity CEF index [data to Thursday] outperformed the DJIA and its discount was -6%.

Treasury rates 3-mo yield 0.03%, 2-yr 0.25%, 5-yr 0.41%, 10-yr 0.72%, 30-yr 1.29% [Treasury data*]. Dollar sunk, DXY 98.32, -3.9% [M31]. Gold rallied, $1,617, +8.2%; the gold-miners jumped [M34]. [^XAU was at 81.81, +16.67% for the week]

*Treasury Yield-Curve

Top FDIC insured savings deposit rates*: Money-market accounts 1.78%; 1-yr CDs 1.84%; 5-yr CDs 1.98% [under 2%] [M29].

*For local rates


Pg 12: CoverInvestors Beware: Market Could Head Lower” includes several coronavirus features.

1st feature is to scare the readers – what if the unprecedented monetary and fiscal steps aren’t enough to fight the coronavirus? What if the coronavirus doesn’t subside, or re-emerges after subsiding? What if the coronavirus never goes away and we may have to segregate two populations, those infected and those not infected? Then, we would have wasted billions/trillions in just a few months. Markets would tumble and go into free fall mode after failing a retest of the lows. Earnings estimates for SP500 are being cut and a bearish estimate is $139 [vs $165 in 2019] and use your own P/E on that.


Pg 19: Another Cover Muni Bonds Have Started to Rally. Why You Should Get On Board – And Where to Find Bargains”. State and local governments face economic downturn, yet munis, with low default rates, are rallying. The Fed will also buy investment-grade munis. 70% of $3.9 trillion muni market [almost the same for last 10 years, so munis have shrunk as % of the bond market] are held by retail investors. In the recent selloff, HY munis were hit very hard.





Pg 5, Up and Down Wall Street: Change in the US economy in weeks from the longest expansion into abyss has been stunning. Tremendous monetary and fiscal stimulus may not be effective for the public health crisis created by coronavirus. This Tu-Th +21% pop was a bear market rally, not the start of a bull market often signaled by +20% rise from the low. DJIA daily changes averaged +/- 5.2% in March beating the prior record of +/- 3.9% in November 1929. Louise Yamada sees a retest of low and that it may take a while to repair the technical damage. Dr Fauci said that the coronavirus has its own timeline.

Unprecedented Fed actions and unprecedented CARES Act [amounting to 9% of GDP] should backstop the US economic slide; and there may be more stimulus to come. But post-coronavirus after-affects may likely be higher interest rates, higher inflation and potential risk to the US sovereign rating [Fitch has already warned]. The fiscal and monetary responses may be war-like but much of the spending will be for personal compensation and economic shortfalls, not for job and income generating production. Deglobalization will also lead to higher costs for goods. There will be huge risks for bonds except for TIPS. Stocks and gold should be better investments at least in nominal terms, if not real terms.


Pg 9, Streetwise: It may be time for long-term investors to buy stocks; SP500 trailing P/E is 16 and it may be 21-24 based on upcoming depressed fwd earnings. Short-term, the market may go hugely up or down. Some strategists are playing the game of sickening near-term bottom and huge yearend rebound. Stick with asset allocation that you are comfortable with. Pay attention to latest rating changes [they can be stale in days and may be changed again]. Attractive are/will be at-home stocks [NFLX, CPB, KR, PEP, CLX] and those that may tap into CARES Act bailout funds [BA; airlines, etc].


More later….

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Explorer ○○

Re: From Barron’s, March 30, 2020 (Part 1)


Thanks for listing the two maybes groups of stock symbols.  I have INTEL, APPL, Alaska Air, DOCU, NVDA, ZOOM, Slack Teledyne,  PG, and KO on my buy the next dip list of solid (LONG TERM!!!) companies.  I have little cash left but so far the dividends have not been missed or cut.  So I am investing 1/2 of all my current and near term dividends in SDS with a plan to take the gains should we retest the lows to raise cash to buy some of those.   Not sure CAT is a very good idea vs their exposure to the oil and O&G exploration bombed out sectors.  CAT T-GEn sets are very popular on off shore rigs and product barges.  Some offsets perhaps in Gold jrs exploration industry.  Hinterland operations and exploratory drilling to find and ascertain grams per ton of ore 'Reefs" & Stopes.

Munis with low default rates may be increasingly hard to find vs the US public Pension systems being in total near $2 trillion in under funding BEFORE this economic crisis.  Some will grouse loudly as to the pathetic payouts by the US Gov't Pension guarantee Corp against private sector pension funds that have defaulted.  Only 25% of them with defined benefits  remain since ERISA was enacted in 1974.  Madame Death still lurks and her concerns of a decade or longer ago have worsened.  

The cruise lines will continue to see woe as they have what some special interests call 4200 US employees.  But they register the ships in "Flags of Convienence" nations like Panama, Liberia, Malta, and the "Marshall Islands".  this allows them to employ.  10 x 4200 in foreign third world labor to avoid US wage standards and common decency labor practices in their treatment of those.  They avoid US taxes on the vessels and most of their payrolls.  So called rhino viruses are common in passengers who are not careful to avoid the ship "potable water" by sticking to bottled water.  Same lack of USPS standards on water supplies.   Marine sewage disposal units are generally adequate at sea but in nearby coastal waters and while docked in harbors perhaps doubtful. without regular inspections.  Thousands flushing toilets every few hours.  Hey the enlightened despot "Ugly American" tourists think these people have it so good and are thrice blessed to be able to send as much as $300 a month home to their third world living families.  They often even get a few weeks off of unpaid vacation to visit their families if they can find the air fare.  You mean they don't eat the same food the passengers dine on?

We now enter the era of risk free, free of return fixed income.  James Grant has for sometime warned that ZIRP Everlasting will eventually result in "some inconveniences". Over the last 60 years gold has doubled out of every trough vs it's last previous peak.  What do the Fed and Treasury do if gold moves on or surpasses $2K ?  Palladium has flirted with $3K of late with little notice given.  Thanks Volkswagen.  Would Congress repeal the law that NOW forbids the US Gov't from confiscating all the gold? Or would they cut the cap gains rate on gold to free up supplies?  If gold goes to $2K then what do the on the verge of BKRP "C" like Ford do about Palladium hitting $3700?


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