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From Barron’s, September 14, 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: Whatever happens this year [Covid-19, stimulus, elections, US-China], the next year will be rocky. First year of 4-yr presidential cycle is typically also the worst. Investors may act by adjusting portfolio allocation and set maximum and minimum % for stocks. Be prepared for rotation from growth to cyclicals. The current divergence between growth and value is historic with growth-P/E 28 vs value-P/E 16. Be selective as only industrials and banks may benefit, but not so much the consumer-staples and utilities [they are already expensive]. Current fwd P/E 2021 are 28 for Nasdaq Comp, 20 for SP500, 19 for DJIA. Take some money off the table from techs to deploy in future.

Nikola [NKLA], recent SPAC with only a concept, got EV truck design and manufacturing capability via GM in exchange for its highflying stock. For now, existing battery technologies will be used with LG Chem as supplier [the futuristic battery technology that NKLA hyped? Well, it remains in the future]. GM also has majority stake in autonomous driving company Cruise that accounts for 44% of GM market-cap. If GM is seen as EV and autonomous driving industry supplier, its valuation may improve – eventually, GM may spinoff these aspects of its business.

 

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.

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

 

For the week [index changes only], DJIA -1.66%, SP500 -2.51%, Nasdaq Comp -4.06%, Russell 2000 -2.48%. DJ Transports +0.51%; DJ Utilities -0.47%. [R1000 Value -1.51%]. US$ index (spot) +0.57%, oil/WTI futures -6.14%, gold futures +0.72%.

YTD [index changes only], DJIA -3.06%, SP500 +3.41%, Nasdaq Comp +20.96%. [R1000 Value -12.74%]

 

Pg M4, Europe: Uncertainties related to Covid-19, global recovery and the US elections are clouding prospects for European stocks. But the rally may continue.

 

Pg M4, Emerging Markets: EM rally may have run its course. Causes include Covid-19 uncertainties, soaring debt, structural issues, weak currencies. Bargains are in Brazil, India, etc. EM yields and valuations are attractive. China has risks but some EMs are benefitting from Chinese growth and problems. Remember that stocks and economies don’t always move together.

 

Pg M6, Commodities: Commodity prices [oil, lumber, gold, etc] will remain volatile due to uncertain global recovery and US elections. Selloffs may be opportunities.

 

Pg M5, Options: After the selloff, selling puts are recommended for blue-chips that one would like to own [AMZN, AAPL, MSFT, etc]. Note that if stock rises, the put-seller keeps the premium, but is obligated to buy if the stock falls.

[SP500 VIX 26.87, SKEW 125.42 ] [Yahoo Finance data]

 

Pg M27, M32: A good week in Europe [UK +3.50%, Spain -0.37%] and a flat week in Asia [Philippines +3.02%, Indonesia -5.99%]. The equity CEF index [data to Thursday] outperformed the DJIA and its discount was -8.5% [wide fluctuations between -4% to -16% over the last few weeks].

Treasury rates 3-mo yield 0.11%, 2-yr 0.13%, 5-yr 0.26%, 10-yr 0.67%, 30-yr 1.42% [Treasury data*]. Dollar rose, DXY 93.25, +0.6% [M35]. Gold [Handy & Harman spot, Thursday] rose to $1,947, +1.1%; the gold-miners rose [M38]. [^XAU was at 150.34, +0.51% 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 0.90%; 3-mo Jumbo CD 0.40%, 1-yr CDs 1.00%; 5-yr CDs 1.19% [M33].

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

 

Pg 17: Cover Story, “Yes, It’s a Stock Market Bubble. That Doesn’t Mean Trouble for Investors Just Yet”. The tech bubble may get bigger. Covid-19 forced the economy to shutdown and that with unprecedented Fed monetary easing [ZIRP; QE with buying Treasuries, MBS, corporates, HY, munis] has created a situation where a few tech companies have done quite well. Several companies that have come to the market via IPOs and SPACs have no earnings or revenues or even products. There was a swift correction in Nasdaq Comp in early September. But the tech bubble may continue to inflate until everyone buys into the new paradigm. Ratio of Nasdaq 100 to SP500 at 3.4 is now above its 2000 dot.com bubble peak. With many people stuck at home with little to do or watch, retail trading in stocks and options has gone up sharply [44% of volume]; many are speculating in highflyers and companies in or near bankruptcy [note that there is no middle; low/no-cost and fractional trading are also contributing]. Top 5 companies in SP500 [AAPL, AMZN, MSFT, GOOGL, FB] account for 25% of the market-cap of SP500; IT XLK, consumer-discretionary XLY and communication services XLC are quite top heavy. Some former small companies are now huge [TSLA, ZM, PTON, etc]. Fwd P/Es of highflyers are quite rich. Don’t count on the Fed to take away the punch bowl soon. Risks include worsening Covid-19, faltering economy [without timely assist from DC], election uncertainties. The best hopeful case may be gradual rotation into economically sensitive cyclicals and reopening trades but beware of a bumpy transition.

 

Supplement1, 2020 Top Independent Advisors.

Supplement2, PENTA.

 

Pg 9, Up and Down Wall Street: NFL games are coming back with limited number of fans. This may draw some people away from trading stocks and options from home. But betting on sports and elections will be popular. Markets are volatile ahead of close elections. Delayed or contested elections would be negative for the market. That and high unemployment due to Covid-19 may lead to unrests. Congress has failed to agree on the next stimulus and the effects will be seen soon. Commodities [oil, lumber (limit-down days)] are sending warning signs. Fear gauge VIX has a hump around elections.

After the FOMC meeting this week, the Fed Chair Powell may explain more about the already announced average inflation target of 2%. Current CPI and core CPI are low y-o-y but rising; however, sequential inflation [e.g. for the last few months annualized] is rising at much faster rate. Surprising contributors to inflation are used-car prices [city dwellers may get around with 0-1 car, but suburbanites need at least 2 cars; when offices reopen, workers may initially drive instead of taking public transportation] and food prices [more cooking and eating at home but there are supply disruptions and purchase limits on many items]. Inflation has many moving components, but deflation is not seen as initially feared.

Republican skinny stimulus bill died in the Senate. Talks are also stalled between Democrats and WH. But delayed/failed stimulus bill will soon have negative impact on economic data. Politicians may just be waiting for [or need] the market shoe to drop.

 

Pg 13, Streetwise: EV truck company without a product, Nikola [NKLA] had a wild ride on production deal with GM and technology overhype accusations from a short-seller Hindenburg Research. Investors may want to be on the sidelines until the smoke clears. Netflix [NFLX] cofounder Reed Hastings [with coauthor INSEAD Professor Erin Meyer] has a new book, No Rules Rules: Netflix and the Culture of Reinvention. Tidbits from interview: NFLX has no interest in releasing movies in theaters; promotional products related to its movies/shows are coming; HBO Max is more comparable to NFLX than Disney+; NFLX is willing to pay up for talent; NFLX shorts have made the mistake of viewing it, an Internet entity, with traditional financial metrics.

 

More later….

YBB
11 Replies
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Re: From Barron’s, September 14, 2020 (Part 1)

Excellent insights!

Gabe

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Re: From Barron’s, September 14, 2020 (Part 1)

Thanks Yogi...

Maybe I just enjoy NOT agreeing 100% with Barrons' Outlooks. IM(H?)O there is not YET going to be much "ROTATION".  Going forward out of this current correction the leaders will once again be the techs, communications, health care and consumer discretionary.   But particularly a big push higher for Tech to be the main driver of a plus 3500 S&P by Year end.  Industrials may be strong participants especially in AGs vs the China situations improving on trade at least.  Much of the US Export AGs  and LNG productions are somewhat fungible and may find their way to the places with the most demand via surrogate conduits.  The big beneficiaries in Industrials will be in the Materials sectors with Compressed gas stocks,  aggregates, and other high tech infrastructure upgrades solutions benefiting.  Banks and utilities are now strongly complementary .  There are some UTEs out there now that may be becoming strong bargains?  At FE heads will have to roll as well as a politician or two going to jail.  It's generally frowned upon, the bribing of public officials.  OUT WEST the State of Oregon thinks it can hammer POR for wild fire liabilities.  And POR is getting a double whammy as it is revealed that the company has taken an outsized loss in energy trading to MORE THAN hedge it's fuel costs and has lost a big $127million when energy collapsed. The virtually bankrupt state of Connecticut is also looking to claw, capture and eat ES for some similar monkey see monkey do desperate measures out of TS Iasias ancillary damage and fallout.  So they have to get money somewhere and they really are desperate given the levels of insolvency they face.  Just cook up something and maybe ES will settle to save legal costs?  CA thought they could go cold Turkey from Fossil fuel including the bridging fuel LNG and putting peaking plants out of service, to get to a100% green grid in just a couple years.  So now people are dying as A/C shuts down in  brown outs and power failures vs the predictable increases in load on a grid with ever fewer gigs being generated.  CanadianUtes should continue to prosper and we can expect a lot more of their generations to be imported to the US to meet green Gig statutory requirements.  Another great W/E to go out and picket, occupy, and protest your latest proposed local neighborhood green generating solution  for being a hazard to life, wildlife, life style, and an ugly eyesore that ruins the view sheds and off shore will cause cancer, other mutations to the marine life and do irreparable harm to THE sacred Whales and their migrations.  

Troubled utes provide stronger dividends as their share prices fall.  This can be somewhat self limiting as long as they are not forced into bankruptcy and instead become targets of private equity who come in and clean up Dodge sending some of the Good 'ole boys of failed management to the showers.  In the meantime the Banks that can just hold on to most of or some major part of their dividends will continue to support their preferreds payouts. .  The WFC-L continuing to hold well above $1300.  Greenspan was on CNBC last week professing a fete acompli merger between THE Fed and the US TREASURY now collecting our quarterly estimated tax checks.  Greenspan a champion of the Plutocracy with many books explaining HIS 2008 financial meltdown as not his fault, proclaimed a serious inflation threat already upon us.  At plus 90 there is probably not a lot of "MODERN" Monetary Theory in his brief case these days.  Any who thought they under stood his remarks this last week must surely have misinterpreted his meaning. .  

Banks and UTES will work going forward as utes will continue to pay their dividends and some will occasionally increase them.  And if inflation or interest rate risks do start to assert those bank shares are going 20% higher on the .TNX just approaching 1.0%.  If and as utes fall the prices of the bank preferrds will fall back too, but continue to see 90% of them still getting called creating a bond ladder effect opportunity.  I recently added to the AHL-C BELOW par. So there are only 7 or 8 payouts left, more if it is not called.  But if it is called I get the coupon PLUS with a par $25 redemption.  

Gold and silver took a little breather last week but that pesky palladium has just kept on rising.  

So M5 lists the stocks you might like to own going forward but the examples given are all TECHs. I like the less exotic approach of buying the PRMTX and FDEQX to avg down in those FAANGMTs choosing ALB over TESLA and adding 2 shares last week of NFLX as it was knocked back with the rest.  NFLX next horizon may likely be a penetration into the video game sector.

"Skinny Stimulus" must fail as it does not provide bailouts for the worst ten State and City  actuarially failed pension systems and it is just not right to make them stop the profligacy because as every public employee knows ..."you can't do that and here's why..."  That is you can not address benefit decompression, you can not cap pensions so as to stop the millionaires from raiding the current contributions of the 80% of the would be annuitants that will end up in the bottom 25% of pension size awards. A zero rate bound bond market where the .tnx pays sub 0.7% will certainly sustain these fiascos'  Plus 7% anticipated actuarial rates of return . So the money not earned but promise to be earned by political hacks 20 to 15 years ago is still owed to pensioners and pension applicants.  IT is so clear that the only solution is a "Morbidly Obese" stimulus that bails out these obligations at 100% Surely WITHOUT any pension reforms whatsoever.  You would cap pensions starting in the  second fiscal year of a reform  to $180K a year?  How crazy is that.  Someone might have to give up a beach house or ski lodge, second and third home?  Just unthinkable..... The Federal bailout of these public pension frauds is just the only solution and those tax payers in the less profligate states or those who work or worked in the private sector have a sacred obligation to these  people and their status of continuing to count themselves among the wealthiest 20% .  

We did after all bail out all those financials and their BOND obligations without a single penny in  haircuts in 2008.  Prince, Fuld, Cayne, Mozillo, Thompson  Killinger and a host of others were often victimized when they lost either their beach house in the Hamptons or the townhouse in Vail or Aspen. Where is the empathy for the less than  20% of the public pensioners taking more than 50% of their pension trust's annual total gross distribution amounts ?  It should be illegal when it is so unfair that a surviving spouse of a public pensioner can be excluded from getting COLAs on the 100% survivor pension benefit of their deceased spouse.  Such a draconian measure to help shore up the system, just deplorable!

 

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Re: From Barron’s, September 14, 2020 (Part 1)


@NomasDOZ wrote:

Thanks Yogi...

Maybe I just enjoy NOT agreeing 100% with Barrons' Outlooks. IM(H?)O there is not yet going to be much "ROTATION".  Going forward out of this current correction will once again be the techs, communications, health care and consumer discretionary.   But particularly a big push higher for Tech to be the main driver of a plus 3500 S&P by Year end.  Industrials may be strong participants especially in AG vs the China situations improving on trade at least.  Much of the US Export Gas production is somewhat fungible and may find it's way to the places with the most demand via surrogate conduits.  The big beneficiaries inIndustrials will be in the Materials sectors with Compressed gas stocks,  aggregates, and other high tech infrastructure up made solutions benefiting.  Banks and utilities are now strongly complementary .  There are some UTEs out there now that maybe strong bargains?  At FE heads will have to roll as well as a politician or two going to jail.  It's generally frowned upon, the bribing of public officials.  OUT WEST the State of Oregon thinks it can hammer POR for wild fire liabilities.  And POR is getting double whammy as it is revealed that the company has taken an outsized loss innerly trading to MORE THAN hedge it's fuel costs and lost a big $127million when energy collapsed. The virtually bankrupt state of Connecticut is also looking to claw, capture and eat ES for some similar monkey see monkey do desperate measures out of TS Iasias ancillary damage and fallout.  So they have to get money somewhere and they really are desperate given the levels of insolvency they face.  Just cook up something and maybe ES will settle to save legal costs?  CA thought they could go cold Turkey from Fossil and peaking plants to a100% green grid in just a couple years.  So now people are dying as A/C shuts downing brown outs and power failures vs the predictable increases in load on a grid with ever fewer gigs being generated.  CanadianUtes should continue to prosper and we can expect a lot more of their generations to be imported to the US to meet green Gig statutory requirements.  Another great W/e to go out and picket, occupy, and protest your latest proposed local neighborhood green generating solution  for being a hazard to life, wildlife, life style, and an ugly eyesore that ruins the view sheds and off shore will cause cancer and other mutations to the marine life. 

Troubled utes provide stronger dividends as their share prices fall.  This can be somewhat self limiting s long as they are not forced into bankruptcy and instead become targets of private equity who come in and clean up Dodge sending some of the Good 'ole boys of failed management to the showers.  In the meantime the Banks that can just hold on to most or some major part of their dividends continue to support their preferreds.  The WFC-L continuing to hold well above $1300.  Greenspan was on CNBC last week professing a fete acompli merger between THE Fed and the US TREASURY now collecting our quarterly estimated tax checks.  Greenspan a champion of the Plutocracy with many books explaining HIS 2008 financial meltdown as not his fault, proclaimed a serious inflation threat already upon us.  At plus 90 there is probably not a lot of "MODERN" Monetary Theory in his brief case these days.  Any who thought they under stood his remarks this last week must surely have misunderstood his pronouncements.  

Banks and UTES will work going forward as utes will continue to pay their dividends and some will occasionally increase them.  And if inflation or interest rate risks do start to assert those bank shares are going 20% higher on the .TNX just approaching 1.0%.  If and as utes fall the prices of the bank prefers will fall back too but continue to see 90% of them still getting called creating a bond ladder effect opportunity.  I recently adde to the AHL-C BELOW par. So there are only 7 or 8 payouts left but more if it is not called.  But if it is called I get the coupon PLUS with a par $25 redemption.  

Gold and silver took a little breather last week but that pesky palladium has just kept on rising.  

So M5 lists the stocks you might like to own going forward but the examples given are all TECHs. I like the less exotic approach of buying the PRMTX and FDEQX to avg down in those FAANGMTs choosing ALB over TESLA and adding 2 shares last week of NFLX as it was knocked back with the rest.  NFLX next horizon may likely be a penetration into the video game sector.  

 


I am going to stay with FAANGMs, recovery stocks, large cap US growth funds, QQQ and high dividend stocks Which have best chance of increasing in value as economy recovers.  May buy CVX if it gets into mid 70s and wait for eventual global economic recovery. NFLX is attractive below 450.

Dirty little beltway secret is that Greenspan was aware of the mortgage bubble in 2006 but declined to do anything about it because he was afraid raising mortgage interest rates would cause economy to decline which was not what WH wanted so soon after recovery from 2000-2003 dot com crash.

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Re: From Barron’s, September 14, 2020 (Part 1)

Greenspan gave a speech in Sept of 2005 citing FOUR 4 major threats to the US housing markets and morgage industry.  He enumerated all four expounded on them and then disavowed them as not significant vs the stored up wealth Americans had in the STOCK Market, Exotic mortgage products not being all that prevalent as a percentage of total mortgage debt, the equity longer term home owners ostensibly had in their homes, and how any downturn in US housing would most certainly only be felt in a few regional areas.  So as to confirm his aura of aloofness he ended that speech saying that, We may need to reexamine should any of these adverse trends continue and become more widespread.  That is if you interpret my forward looking assessment as being more worrisome , you have misinterpreted my remarks.  That is he wanted America to ignore the problems of the exotic no doc, neg amortization , and over leveraged HELOC  loans that were growing by leaps and bounds.  From his bully pulpit at the FED Greenspan waged a tireless and never ending campaign against the American worker, their standard of living, and their overly generous wages and benefits , that made it impossible for US labor to compete with Chinese labor.  A real PO5 !

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Re: From Barron’s, September 14, 2020 (Part 1)

"Current fwd P/E 2021 are 28 for Nasdaq Comp, 20 for SP500, 19 for DJIA. Take some money off the table from techs to deploy in future."

That statement made me look at VIG / VDADX, which Vanguard reports has a 27 P/E or using M* forward P/E (for apples to apples comparison) it is 24.  Is not everything expensive then?  Should not we take money off of all large cap equities? 

M* says DIA P/E is 22.4 and SPY P/E is 24.3, which are different from Barron's.

 

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Re: From Barron’s, September 14, 2020 (Part 1)

"Ratio of Nasdaq 100 to SP500 at 3.4 is now above its 2000 dot.com bubble peak." 

Could you please provide more color on this please?  May be this is talking about the absolute index levels.  

This may be of interest -

https://www.youtube.com/watch?v=uWE_U7eTzQQ

Is there a Yahoo symbol for Nasdaq 100 like `IXIC for Nasdaq?

Thanks.

The Nasdaq has its worst week since March. Cornerstone Macro's Carter Worth on what's next for tech. With CNBC's Melissa Lee and the Fast Money traders, Tim ...
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Re: From Barron’s, September 14, 2020 (Part 1)

@Anitya , P/E may vary due to definitions [trailing, forward] and source. Forward estimates will vary by source also. Those Barron's fwd P/E are for 2021 when 2020 is still not done yet. For earnings, many consider 2020 to be useless. Vanguard is probably using trailing P/E and M* may be using trailing P/E also or for 2020. It is not a good idea to compare P/Es from different sources.

There is a chart of the ratio [Nasdaq 100/SP500] from 1998 that shows the dot.com bubble spike that was much sharper [up and down] than now [up phase only], but the up-move has picked up speed in the last few months after a long and steady ascent; see screenshot below. You can think of this chart as relative strength of Nasdaq 100 with respect to SP500 [this is NOT RSI]. I was also able to almost reproduce the chart as ratio $NDX:$SPX at Stockcharts,   https://stockcharts.com/h-sc/ui?s=%24NDX%3A%24SPX&p=D&st=1998-10-01&id=p61697901844

Screenshot 2020-09-12 16.14.43.png

YBB
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Re: From Barron’s, September 14, 2020 (Part 1)


@Anitya wrote:

"Current fwd P/E 2021 are 28 for Nasdaq Comp, 20 for SP500, 19 for DJIA. Take some money off the table from techs to deploy in future."

That statement made me look at VIG / VDADX, which Vanguard reports has a 27 P/E or using M* forward P/E (for apples to apples comparison) it is 24.  Is not everything expensive then?  Should not we take money off of all large cap equities? 

M* says DIA P/E is 22.4 and SPY P/E is 24.3, which are different from Barron's.

 


So what Are the PEs of the Stocks That are driving the markets?


AAPL PE 34

MSFT PE 36

AMZN PE  122

GOOG PE 34

Even CVX has a 27 PE

XOM 24.6

want a low PE : JPM 13.46

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Re: From Barron’s, September 14, 2020 (Part 1)

Thanks, Yogi.

M* P/E ratios are forward looking and not trailing P/Es.  At least, that is what the old site used to say in the portfolio tabs of ETF. 

Thanks for reproducing NDX/SPY chart (using stock charts).  The same chart was produced by a professional (perhaps using a different software) in the video link I provided in my earlier post.  I am surprised in your chart the current ratio is clearly above the 2000 peak.  In the video link it is not, even though that was not the main topic of the video.   It is within the first 1 minute of the video, in case you want to check it out.   Is it possible one includes dividends and the other one does not?

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Re: From Barron’s, September 14, 2020 (Part 1)

@Anitya , video is showing the ratio of Nasdaq Comp to SP500. Incidently, that was the first chart I generated with $COMPQ:$SPX and I noticed that same thing that the current value was not there yet to dot.com peak. Then I realized that Barron's chart is for Nasdaq 100 to SP500 [or $NDX:$SPX]. These index value charts don't include dividends.

YBB
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Re: From Barron’s, September 14, 2020 (Part 1)


@Anitya wrote:

Thanks, Yogi.

M* P/E ratios are forward looking and not trailing P/Es.  At least, that is what the old site used to say in the portfolio tabs of ETF. 

Thanks for reproducing NDX/SPY chart (using stock charts).  The same chart was produced by a professional (perhaps using a different software) in the video link I provided in my earlier post.  I am surprised in your chart the current ratio is clearly above the 2000 peak.  In the video link it is not, even though that was not the main topic of the video.   It is within the first 1 minute of the video, in case you want to check it out.   Is it possible one includes dividends and the other one does not?


Don’t know how investors can rely on some thrown together Forward PE numbers when Everything I read says there is no way to estimate forward earnings in this market because the numbers are not reliable which is why many companies have suspended forward guidance on earnings and other metrics which form the data Base analysts rely on for their projections of future performance.

I am going to rely on the the stocks/funds which have had the best performance For me since March 23 To continue  investing in.

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