Pg 7, Up & Down Wall Street: DJIA 30,000? Why not. Markets were at new highs this week on mixed domestic and global backdrop. Bearish Doug Kass thought, jokingly, that some outside force was driving the market higher. Certainly not the profits. The Fed is on hold for 2020 although it is trying to fix the liquidity issue in the money market repo market. The US recession risks have receded. The IPO and commercial real-estate market have cooled. Global economies may have started improving from all the recent stimulus.
Stock markets climbed the wall of worries to new highs. Worries include US-China on/off trade talks [latest on]; HK [and related US Bill that may pass with veto-proof majority]; DC drama; Brexit; China slowdown [and its fiscal and monetary responses].
Pg 11, Streetwise: Big techs are partnering with banks to offer banking services rather than competing with them. GOOGL announced checking accounts via C and Stanford Federal CU. APPL has a credit card via GS that has recently become controversial. FB efforts for cryptocurrency Libra are stuck. AMZN was getting into banking too but it hasn’t happened yet. Fintech and mobile banking app startups may not disrupt big banks due to complex regulations that favor existing and established players. Offering checking accounts and debit cards is the easy part but running profitable loan book isn’t.
Pg 12-13: FOMC Minutes on Wednesday.
Farm debt in the US at $416 billion is up +40% since 2012.
Disney [DIS] surged on reports of strong signups for its streaming service Disney+ [10 million on the first day].
Macy’s [M] needs a miracle but it may not get one, even from the Holidays. It is hurt by e-commerce and tariffs. Revenue and margins are declining. It lowered guidance. It reports Thursday.
Data this week: Housing market index on Monday; housing starts on Tuesday; existing home sales, LEI on Thursday; PMI, Kansas City Fed manufacturing survey, consumer sentiment on Friday.
Bullish Recommendations: Walmart [WMT; fwd P/E 23.5; beat profit expectations but missed sales expectations; provided so-so guidance; e-commerce growing at 41%; pg 16];
Medtronics [MDT; yield 2%; fwd P/E 19; pacemaker Micra may be approved for additional use; products for brain, spine, diabetes, etc; pg 17];
Broadridge Financial Solutions [BR; yield 1.8%; fwd P/E 22; debt/EBITDA 1.8; businesses include investor communications (80% revenue), back-office functions; 60% of investor communications are digital; growth by acquisition; pg 20].
Bearish Recommendations: None self-standing
Pg 18: Only 3 of top 20 active equity funds have outperformed the SP500 YTD [to 10/31/19] – growth FDGRX, dividend VDIGX, mid-cap growth RPMGX; they are also ahead for 1 and 5 years. Large funds with significant [double-digit billions] outflows include AGTHX, FCNTX, PRGFX, VWNFX, FDGRX, FLPSX.
Pg 22: Cover Story, “Retirement Savers are Turning to Dividend Stocks for Income. Here’s How to Use Them in Your Portfolio”.
Dividend Bargains for DIY: KEY, RCL, SYF, CVS, AMGN, CSCO, PRU, T.
Total Return Strategies: LBSAX
Dividend Income: MLPs, REITs, preferreds.
Dividend Funds: VDIGX, VYM, LBSAX, PRDGX, IHGIX, FDGFX, LAMAX, PMDAX, DTD, KMDVX.
Pg 28: 401k/403b/457 plans have done well for the accumulation phase but many are starting to focus on decumulation [retirement income] phase. Retirement options may include systematic withdrawals, lifetime income [annuitizations], managed accounts.
Pg 32: William Sharpe , Professor Emeritus at Stanford University. He has shifted attention from accumulation to decumulation [retirement income] strategies. Decumulation has uncertainties from investment performance and longevity/mortality. On the income side, account for Social Security, lifetime income annuity, investments, etc; estimate the expense side. Retirees may consider annual lockboxes for future. May be robo-advisors would develop decumulation and lockbox strategies. He has a free ebook, Retirement Income Scenario Matrices.
Pg 34: Food delivery apps are terrible businesses [DoorDash, Uber Eats/UBER (down sharply from IPO), Grubhub/GRUB (down sharply from IPO), Postmates].There are too many players to be profitable; the special/exclusive relationship model has broken down and now everyone is going for maximum restaurant signups. Many restaurants now offer multiple delivery services. AMZN shut its Amazon Restaurants. Companies are still able to raise money from private investors but any new IPOs in this area are unlikely.
Pg 36: Tom Huber of dividend growth PRDGX likes T, DG, BDX, MSFT.
Pg 38: With the Fed on hold for months, its next rate move is unclear [up/down?]. Consider short-term bond ETFs [BSV, ISTB, VCSH, etc] over intermediate-term ETFs [AGG, etc].
Pg 40: The Fed is evaluating its inflation goals for PCE – a 2% target vs a symmetrical 2% goal or a moving average of PCE around 2%. Inflation expectations [nominal Treasury yield – TIPS yield] remain low but future fiscal stimulus may change that. These developments may negatively impact Treasuries and there may be a selloff in Treasuries.
Pg 40: High-quality stocks have become expensive [QUAL +26.8% YTD]. Definitions of quality vary and may include corporate governance, profitability, shareholder yield, balance sheet, earnings growth and stability [there are almost 35+ quality factors]. There are quality-ETFs that focus on different subsets of quality.
Pg 42: Richard Cohen, Global Steering Group for Impact Investing; cofounder, Apax Partners. Many companies are measuring ESG impact along with financial measurements. There is also impact-weighted accounts initiative [IWAI] and GAAP-like GAIP [Generally Accepted Impact Principles] reporting is the goal.
Extras from Friday – I try to guess on Friday which features will make it in the weekend edition but the following guesses didn’t make it. Almost 75-80% of the weekend edition is now available by 9:00 PM Central on Friday. Barron’s revised website has “Interests” tabs similar to columns topics and that makes it easier to find potential items for the weekend edition. This is also the reason for earlier postings on Saturday – I do wait for my paper delivery [typically between 5:00-6:30 AM Central] to fill in some data.
Beware that huge inflows into bond funds may reverse. The IMF recently warned about liquidity issues with HY and general bond mutual funds. There is a mismatch between daily liquidity of mutual funds and illiquidity of underlying assets. [Bond ETFs have similar issues]
The US-China trade talks are stuck on when and how much ag-products China will buy and if some current tariffs will be relaxed. More tariffs may be imposed on Dec 15. China economic data have weakened and the PBOC may continue to ease. Many Chinese companies are expanding their global footprints. Several US techs [CSCO, etc] are impacted by US-China trade friction.
Amazon [AMZN] plans to challenge Pentagon’s award of big cloud-computing contract [JEDI] to Microsoft [MSFT] citing interference from White House.