From Barron’s, March 4, 2024 (Part 2)
Mar 2, 2024 16:28:39 GMT
rhythmmethod, oldskeet, and 2 more like this
Post by yogibearbull on Mar 2, 2024 16:28:39 GMT
Pg 10. PREVIEW & REVIEW (consolidated). Fed Chair POWELL appears before a House committee on WEDNESDAY and a SENATE committee on THURSDAY.
NEW CARS have become more affordable. Supply-chains have improved, wages are up, interest rates are moderate and stable. The car affordability index bottomed at 52.8 in 05/2020, peaked at 65.8 in 12/2022, and is now at 60.7 (lower index is better). Annual new car sales are 15.5 million (vs 17 million in 2019, 13.75 million in 2022). Due to lower annual sales during and after the pandemic, the inventory of USED CARS is low and used car prices remain strong.
DATA THIS WEEK. Factory orders on TUESDAY; JOLTS report, wholesale inventories on WEDNESDAY; international trade deficit, consumer credit on THURSDAY; jobs report (+200,000 to +225,000), unemployment report (3.6% to 3.7%) on FRIDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
Data This Week Link,
www.barrons.com/market-data/market-lab?mod=md_subnav#consensus-estimate
BULLISH. UPS (yield 4.4%; fwd P/E 17.9; buybacks; program to boost margins by cutting costs and increasing automation; current earnings trough is because it’s absorbing much of the costs of the new Teamster contract upfront; current dividend is fully covered by FCF; pg 16).
BEARISH.
Pg 11: Several big Wall Street and fund firms are now in CRYPTOS – BlackRock/BLK (new IBIT AUM $7.2 billion), Fidelity (new FBTC AUM $5.3 billion), Franklin (EZBC), Invesco (BTCO), etc. Some firms have sat out of this crypto rush – Schwab (but rumored to be ready to jump in), Vanguard, etc. How soon the cryptos have moved through Winter, Ice Age, Spring thaw, and now approaching all-time highs. Crypto ETFs are becoming part of some taxable and retirement model portfolios. In the new Bitcoin-ETF landscape, billions have flowed out of the biggest GBTC (AUM still $24.2 billion and most expensive at ER 1.8%) into the new IBIT, FBTC, etc; Coinbase/COIN benefits from being the custodian for most new Bitcoin ETFs (although this hurts some of its other crypto businesses). The US firms also face regulatory challenges as the SEC, DOJ, NYAG, etc have claimed ad-hoc authority in what the industry claims is really a no-man’s land and that Congress should step in with new regulations to clarify roles of the SEC, CFTC, or another agency. The next court battle is shaping up for the physical/spot-Ethereum ETFs.
Pg 12: CRE (commercial real estate) exposure is blamed for the problems of regional banks (NYCB, etc), but several regional banks are managing their CRE exposures well – AX, COLB, DCOM, INDB, MBIN, OZK, SFBS, SFNC, VLY, WAFD; they claim to be CRE specialists. Banks with high CRE exposures have CRE loans as 300%+ of capital, +50% growth in CRE loans within 3 yrs, and construction / development loans as 100%+ of capital. In absolute dollar terms, big banks (JPM, WFC, BAC, etc) have among the largest CRE loan portfolios, but those are only about 15% of their capital. A problem now is nonperforming CRE loans or those with loan modifications. (of course, last year’s problems of HTM / AFS accounting are still with them)
Pg 17: Barron’s BEST FUND FAMILIES. They were evaluated in 5 categories to produce overall weighted scores – US equity, world equity, mixed assets, taxable bonds, muni bonds. Only active funds were considered, but that meant factor- and active- ETFs. Excluded were Janus Henderson, Dodge & Cox, etc, as they didn’t have enough funds within the 5 categories. Some funds from last year were merged into others, so skipped (but Putnam/Franklin Templeton was too recent). Listed here are Annual and 5-yr rankings; see the online/paper issue for 10-yr and category-wise rankings.
ANNUAL Ranking: #1-Putnam, #2-Fidelity, #3-PGIM, #4-Virtus, #5-Touchstone, #6-Nuveen/TIAA, #7-Rowe Price,…, #10-BlackRock,…, #12-Pimco, #13-State Street, #14-Vanguard,…,#17-DFA,…, #26-Morgan Stanley,…, #30-BNY Mellon,…, #32-Franklin Templeton,…, #34-Capital Group/AF,…, #38-Invesco,…, #45-J P Morgan.
5-YEAR: #1-Putnam, #2-Fidelity, #3-Sit, #4-Amundi, #5-Virtus, #6-State Street, #7-DFA, #8-Nuveen/TIAA,…, #10-Pimco,…, #13-PGIM, #14-J P Morgan,…, #17-Vanguard,…, #25-Morgan Stanley, #26-BlackRock, #27-Rowe price,…, #29-BNY Mellon, #30-Capital Group/AF,…, #39-Invesco,…, #43-Franklin Templeton.
Pg 21: Cecilia ROUSE, President (2023- ), Brookings Institution (DC think tank); formerly, WH roles (CEA, NEC, CFR, etc), Princeton Dean. It’s a puzzle that with the US economy doing well, so many Americans don’t feel good. This may be related to Covid experiences, high prices (low inflation doesn’t men low prices), hybrid work mode, geopolitics. The 108-year-old Brookings (current annual budget $97 million; endowment $430 million) has been in turmoil for the last 2 years with 1 President resigning, 2 interim presidents, and now Rouse is supposed to steady the ship. (The whole article seems like about/bio of Brookings and Rouse. Where is the interview or her comments?)
Pg 22, TECH TRADER. Investors fear that AI may hurt Alphabet’s/GOOGL search (90% global market share) and digital ad (39% global market share) businesses. Its own chatbot Gemini/Bard generates more controversy. Also, AI chatbot queries now are much more expensive (10x?) than regular searches, so that threat may be self-limiting. Alphabet is #5 US company by market-cap (a member of Magnificent 7), but it’s lagging YTD. It faces regulatory issues.
Pg 23, ECONOMY. The FED or BLS/DOL may not recognize the economic impact of Taylor SWIFT (namedropping?), but that from new obesity drugs is undeniable, probably 0.40-1.00% GDP impact. That would be both from the costs of these drugs and reduced healthcare expenditure for the effects of obesity. NVO is so highly valued that its market-cap now exceeds that of Denmark where it it based; US LLY is highflying too.
How much these DC dramas of debt-ceiling and government shutdowns cost? This can be assessed by looking at the CDS (credit default swaps) on US sovereign debt and the spreads of US Treasuries over other sovereign debt. David KOTOK (Cumberland Advisors) has estimated the cost as about $55 billion/yr; the US debt outstanding is $27 trillion. That should wake up politicians who play these games (or not).
Pg 24, Q&A/Interview. Mary BARRA, CEO 2013- , GM. She has handled the post-bankruptcy GM, sale of GM-Europe, pandemic, company moves into autonomous-vehicles and EVs, deal with Tesla/TSLA on supercharging stations, and besides, she is the only woman CEO at a major auto company. There have been some difficulties too – recalls, EV battery development, EV partnership with Honda, etc, and some outright flops such as shared car ownership, etc. Overall, investors are skeptical as the GM stock trades at fwd P/E under 5 – she says that expectations are quite different for EV highflyers. EVs are still most people’s 2nd or 3rd cars, not their primary cars and there is high range anxiety. Of course, the new ICE cars would be phased out by 2035 in the US. GM hybrids will return as interim step between ICE and EVs – they are complex due to dual drives, and make sense when regulations require them and there are government incentives to buy them (i.e. they have low/no profits). Autonomous-vehicles had a huge setback from Covid supply-chain related semi chip shortages (but the real problem was that automakers were relying on low-end chip purchases in the spot markets, and when the crunch came, the semi companies took care of their high-end chip customers who had long-term contracts). Digital services for cars are growing – cars would become another information platform that also moves. Chinese EV market is very crowded and competitive, and it’s hard to make money there, but GM is there for the long haul.
Pg 26, INCOME. Bond volatility MOVE has been elevated. But bond income is still less volatile than that from equity. Mentioned is the newer multisector ETF BINC (not mentioned are similar PYLD, or other bond OEFs, ETFs, or CEFs; looks like a soft feature on BINC, but the title pretends to be broader).
EXTRA, FUNDS. Finally, Blackrock Breit met all redemption requests in February 2024, the 1st time since late-2022. As a nontraded REIT, it has redemption limits of 2% per month or 5% per quarter, and it has received lot of negative press for 15 months about redemption requests far higher than those limits (similar for smaller Starwood SReit; but investors complaining never read the prospectus). The Breit AUM is down to $60 billion (still a giant) from $70 billion. Listed REITs such as VGSLX / VNQ are liquid but also more volatile (unlisted TIAA-REA (also big at AUM $23 billion) has Liquidity Guarantee to redeem any amount once per quarter).
EXTRA. Cheap small-caps – avoid value traps in the lowest quintile of SCs and bottom fish in the 2nd lowest quintile.
Pg 54, OTHER VOICES. Desmond LACHMAN, American Enterprise Institute (DC think tank). Global economy is SLOWING DOWN (Germany, UK, Japan, China, etc). The property sector in some countries is in distress (China, etc; but see International Trader for where it’s doing well). Global banking systems holds CREs that haven’t been market-to-market. The US economy is in batter shape than many others and it has held up despite the Fed’ rush to raise rates; the widely anticipated recession was a no-show. But beware of the headwinds of high rates, high inflation, regional banking troubles. The silver lining of slowdown (or worse, recession) is that inflation is reduced and then the central banks may cut rates. The author suggests that the Fed should cut rates sooner than later.
Pg 55, RETIREMENT. There are several tax benefits for being 50+: $1K/yr IRA catchup contributions; 55+ catchup contributions for HSAs; 65+ extra standard deductions (easy to miss on 1040, but not in 1040-SR); varying amounts of LTC premiums from 51+ can be counted in 7.5% of AGI for medical expenses on Schedule A (to itemize). Beware that withdrawal from IRAs or 401k/403b may lead to higher taxes on Social Security (no age-related break, so just a warning).
NOTE. It’s very irritating that Barron’s has stopped mentioning TICKERS for most companies mentioned. I now have to look them up. Sometimes this takes time as there are similar names, especially for banks.
LINK
NEW CARS have become more affordable. Supply-chains have improved, wages are up, interest rates are moderate and stable. The car affordability index bottomed at 52.8 in 05/2020, peaked at 65.8 in 12/2022, and is now at 60.7 (lower index is better). Annual new car sales are 15.5 million (vs 17 million in 2019, 13.75 million in 2022). Due to lower annual sales during and after the pandemic, the inventory of USED CARS is low and used car prices remain strong.
DATA THIS WEEK. Factory orders on TUESDAY; JOLTS report, wholesale inventories on WEDNESDAY; international trade deficit, consumer credit on THURSDAY; jobs report (+200,000 to +225,000), unemployment report (3.6% to 3.7%) on FRIDAY.
www.barrons.com/magazine?mod=BOL_TOPNAV
Data This Week Link,
www.barrons.com/market-data/market-lab?mod=md_subnav#consensus-estimate
BULLISH. UPS (yield 4.4%; fwd P/E 17.9; buybacks; program to boost margins by cutting costs and increasing automation; current earnings trough is because it’s absorbing much of the costs of the new Teamster contract upfront; current dividend is fully covered by FCF; pg 16).
BEARISH.
Pg 11: Several big Wall Street and fund firms are now in CRYPTOS – BlackRock/BLK (new IBIT AUM $7.2 billion), Fidelity (new FBTC AUM $5.3 billion), Franklin (EZBC), Invesco (BTCO), etc. Some firms have sat out of this crypto rush – Schwab (but rumored to be ready to jump in), Vanguard, etc. How soon the cryptos have moved through Winter, Ice Age, Spring thaw, and now approaching all-time highs. Crypto ETFs are becoming part of some taxable and retirement model portfolios. In the new Bitcoin-ETF landscape, billions have flowed out of the biggest GBTC (AUM still $24.2 billion and most expensive at ER 1.8%) into the new IBIT, FBTC, etc; Coinbase/COIN benefits from being the custodian for most new Bitcoin ETFs (although this hurts some of its other crypto businesses). The US firms also face regulatory challenges as the SEC, DOJ, NYAG, etc have claimed ad-hoc authority in what the industry claims is really a no-man’s land and that Congress should step in with new regulations to clarify roles of the SEC, CFTC, or another agency. The next court battle is shaping up for the physical/spot-Ethereum ETFs.
Pg 12: CRE (commercial real estate) exposure is blamed for the problems of regional banks (NYCB, etc), but several regional banks are managing their CRE exposures well – AX, COLB, DCOM, INDB, MBIN, OZK, SFBS, SFNC, VLY, WAFD; they claim to be CRE specialists. Banks with high CRE exposures have CRE loans as 300%+ of capital, +50% growth in CRE loans within 3 yrs, and construction / development loans as 100%+ of capital. In absolute dollar terms, big banks (JPM, WFC, BAC, etc) have among the largest CRE loan portfolios, but those are only about 15% of their capital. A problem now is nonperforming CRE loans or those with loan modifications. (of course, last year’s problems of HTM / AFS accounting are still with them)
Pg 17: Barron’s BEST FUND FAMILIES. They were evaluated in 5 categories to produce overall weighted scores – US equity, world equity, mixed assets, taxable bonds, muni bonds. Only active funds were considered, but that meant factor- and active- ETFs. Excluded were Janus Henderson, Dodge & Cox, etc, as they didn’t have enough funds within the 5 categories. Some funds from last year were merged into others, so skipped (but Putnam/Franklin Templeton was too recent). Listed here are Annual and 5-yr rankings; see the online/paper issue for 10-yr and category-wise rankings.
ANNUAL Ranking: #1-Putnam, #2-Fidelity, #3-PGIM, #4-Virtus, #5-Touchstone, #6-Nuveen/TIAA, #7-Rowe Price,…, #10-BlackRock,…, #12-Pimco, #13-State Street, #14-Vanguard,…,#17-DFA,…, #26-Morgan Stanley,…, #30-BNY Mellon,…, #32-Franklin Templeton,…, #34-Capital Group/AF,…, #38-Invesco,…, #45-J P Morgan.
5-YEAR: #1-Putnam, #2-Fidelity, #3-Sit, #4-Amundi, #5-Virtus, #6-State Street, #7-DFA, #8-Nuveen/TIAA,…, #10-Pimco,…, #13-PGIM, #14-J P Morgan,…, #17-Vanguard,…, #25-Morgan Stanley, #26-BlackRock, #27-Rowe price,…, #29-BNY Mellon, #30-Capital Group/AF,…, #39-Invesco,…, #43-Franklin Templeton.
Pg 21: Cecilia ROUSE, President (2023- ), Brookings Institution (DC think tank); formerly, WH roles (CEA, NEC, CFR, etc), Princeton Dean. It’s a puzzle that with the US economy doing well, so many Americans don’t feel good. This may be related to Covid experiences, high prices (low inflation doesn’t men low prices), hybrid work mode, geopolitics. The 108-year-old Brookings (current annual budget $97 million; endowment $430 million) has been in turmoil for the last 2 years with 1 President resigning, 2 interim presidents, and now Rouse is supposed to steady the ship. (The whole article seems like about/bio of Brookings and Rouse. Where is the interview or her comments?)
Pg 22, TECH TRADER. Investors fear that AI may hurt Alphabet’s/GOOGL search (90% global market share) and digital ad (39% global market share) businesses. Its own chatbot Gemini/Bard generates more controversy. Also, AI chatbot queries now are much more expensive (10x?) than regular searches, so that threat may be self-limiting. Alphabet is #5 US company by market-cap (a member of Magnificent 7), but it’s lagging YTD. It faces regulatory issues.
Pg 23, ECONOMY. The FED or BLS/DOL may not recognize the economic impact of Taylor SWIFT (namedropping?), but that from new obesity drugs is undeniable, probably 0.40-1.00% GDP impact. That would be both from the costs of these drugs and reduced healthcare expenditure for the effects of obesity. NVO is so highly valued that its market-cap now exceeds that of Denmark where it it based; US LLY is highflying too.
How much these DC dramas of debt-ceiling and government shutdowns cost? This can be assessed by looking at the CDS (credit default swaps) on US sovereign debt and the spreads of US Treasuries over other sovereign debt. David KOTOK (Cumberland Advisors) has estimated the cost as about $55 billion/yr; the US debt outstanding is $27 trillion. That should wake up politicians who play these games (or not).
Pg 24, Q&A/Interview. Mary BARRA, CEO 2013- , GM. She has handled the post-bankruptcy GM, sale of GM-Europe, pandemic, company moves into autonomous-vehicles and EVs, deal with Tesla/TSLA on supercharging stations, and besides, she is the only woman CEO at a major auto company. There have been some difficulties too – recalls, EV battery development, EV partnership with Honda, etc, and some outright flops such as shared car ownership, etc. Overall, investors are skeptical as the GM stock trades at fwd P/E under 5 – she says that expectations are quite different for EV highflyers. EVs are still most people’s 2nd or 3rd cars, not their primary cars and there is high range anxiety. Of course, the new ICE cars would be phased out by 2035 in the US. GM hybrids will return as interim step between ICE and EVs – they are complex due to dual drives, and make sense when regulations require them and there are government incentives to buy them (i.e. they have low/no profits). Autonomous-vehicles had a huge setback from Covid supply-chain related semi chip shortages (but the real problem was that automakers were relying on low-end chip purchases in the spot markets, and when the crunch came, the semi companies took care of their high-end chip customers who had long-term contracts). Digital services for cars are growing – cars would become another information platform that also moves. Chinese EV market is very crowded and competitive, and it’s hard to make money there, but GM is there for the long haul.
Pg 26, INCOME. Bond volatility MOVE has been elevated. But bond income is still less volatile than that from equity. Mentioned is the newer multisector ETF BINC (not mentioned are similar PYLD, or other bond OEFs, ETFs, or CEFs; looks like a soft feature on BINC, but the title pretends to be broader).
EXTRA, FUNDS. Finally, Blackrock Breit met all redemption requests in February 2024, the 1st time since late-2022. As a nontraded REIT, it has redemption limits of 2% per month or 5% per quarter, and it has received lot of negative press for 15 months about redemption requests far higher than those limits (similar for smaller Starwood SReit; but investors complaining never read the prospectus). The Breit AUM is down to $60 billion (still a giant) from $70 billion. Listed REITs such as VGSLX / VNQ are liquid but also more volatile (unlisted TIAA-REA (also big at AUM $23 billion) has Liquidity Guarantee to redeem any amount once per quarter).
EXTRA. Cheap small-caps – avoid value traps in the lowest quintile of SCs and bottom fish in the 2nd lowest quintile.
Pg 54, OTHER VOICES. Desmond LACHMAN, American Enterprise Institute (DC think tank). Global economy is SLOWING DOWN (Germany, UK, Japan, China, etc). The property sector in some countries is in distress (China, etc; but see International Trader for where it’s doing well). Global banking systems holds CREs that haven’t been market-to-market. The US economy is in batter shape than many others and it has held up despite the Fed’ rush to raise rates; the widely anticipated recession was a no-show. But beware of the headwinds of high rates, high inflation, regional banking troubles. The silver lining of slowdown (or worse, recession) is that inflation is reduced and then the central banks may cut rates. The author suggests that the Fed should cut rates sooner than later.
Pg 55, RETIREMENT. There are several tax benefits for being 50+: $1K/yr IRA catchup contributions; 55+ catchup contributions for HSAs; 65+ extra standard deductions (easy to miss on 1040, but not in 1040-SR); varying amounts of LTC premiums from 51+ can be counted in 7.5% of AGI for medical expenses on Schedule A (to itemize). Beware that withdrawal from IRAs or 401k/403b may lead to higher taxes on Social Security (no age-related break, so just a warning).
NOTE. It’s very irritating that Barron’s has stopped mentioning TICKERS for most companies mentioned. I now have to look them up. Sometimes this takes time as there are similar names, especially for banks.
LINK
