From Barron’s, September 20, 2021 (Part 1)
Sept 18, 2021 13:21:36 GMT
uncleharley, Capital, and 2 more like this
Post by yogibearbull on Sept 18, 2021 13:21:36 GMT
Pg M1, TRADER. On triple-witching (options expiry) day, the SP500 closed just below 50-dMA (DJIA, DJ Transports, DJ Utilities were already below 50-dMA). On several previous occasions, the SP500 quickly bounced off 50-dMA but it may be different this time (the SP500 has been lingering near 50-dMA for several days already) and Monday will be telling. The list of CONCERNS is long but that has been ignored by investors and that may soon change. A trigger could be collapse of China’s 2nd largest property firm Evergrande/EGRNY ($300+ billion in debt) that may be Lehman-like for global financial system (what happens in China may not just stay in China) or a Fed surprise on early QE taper or something else. Some market weakness in September/October is OK, may be even desirable ahead of good seasonality (November 1 – April 30), but investors’ hope is that it doesn’t turn into a rout.
Company reports have been good but the problem is sales and earnings guidance. Labor and materials shortages (and higher costs) and supply-chain disruptions are starting to hurt sales volumes and that is a problem for profits/margins even with rising prices. Mentioned are MCFT, ETN, MMM, GE.
Nike/NKE earnings may disappoint on Thursday. There are serious production issues in Vietnam due to Covid-19 and there is also weak sales growth in China.
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes.
NO-CHANGE (for the current ZIRP of 0-0.25%) through May 2022 FOMC. Beyond, the probabilities of rate rise are in double-digit %; more than 50% for December 2022 FOMC and later.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -0.07%, SP500 -0.57%, Nasdaq Comp -0.47%, R2000 +0.42%. DJ Transports -0.69%; DJ Utilities -2.73%. (Rotating spot China MCHI -4.15%) US$ index (spot) +0.71%, oil/WTI futures +3.23%, gold futures -2.25%.
YTD (index changes only), DJIA +13.00%, SP500 +18.02%, Nasdaq Comp +16.73%. (Rotating spot China MCHI -14.89%)
Pg M4, EUROPE. Sanofi’s/SNY Covid-19 vaccine in partnership with GlaxoSmithKline/GSK is still in Phase 3 trials. Several EU countries with advanced orders for Sanofi+GlaxoSK vaccine are patiently waiting for the vaccine to come through. Sanofi has been on an acquisition spree including Translate Bio that specializes in nRNA technology, so someday, it will also have a mRNA vaccine (like Pfizer+BioNTech, Moderna). As Sanofi finally catches up, so may its stock.
Pg M4, EMERGING MARKETS. Evergrande’s/EGRNY huge financial trouble isn’t the only problem for China’s PROPERTY market (ETF CHIR -30% in 3 months). After attempts such as tightening mortgage lending standards and talking down the property market weren’t effective, China has set lower reference prices for apartments (some 50% below going rates) in several big cities. Household debt is high at 62% of GDP. Future measures to cool property speculation may include restricting commercial mortgage debt and introducing property taxes (now there are only property transaction taxes). It may be too early to bottom fish. This adds to FOREIGN INVESTORS’ concerns about China’s crackdown on big techs and restricting some industrial production to cut pollution ahead of Winter Olympics.
Pg M6, COMMODITIES. NATURAL-GAS is at 7-yr high (+115% YTD) due to reduced output from Gulf states (impacted by Hurricanes), inventories at 3-yr low ahead of Winter, strong LNG export demand (from Asia, Europe, Lat Am). Prices may remain high until the next Spring.
EXTRA. IRON-ORE prices keep falling as China is restricting steel output to reduce pollution. China’s property market is also weak and that is affecting iron/steel demand from new constructions.
Pg M5, OPTIONS. HEDGING becomes expensive just when you need it. VIX rose to 20.81 (SKEW has been high for a while). Tips: Review portfolio allocation and risk; use proper hedging index; beware of events that may affect options prices; options spreads offer cost-benefit compromise; market often turns when things look bleak; bottom fish by selling puts.
(SP500 VIX 20.81, Nasdaq 100 VXN 22.27, SKEW 149.52 (high)) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg M7: SPACs/blank-check companies M&A are picking up again. Regulatory scrutiny cannot hold SPACs down in the world of 10-yr at 1.3% and junk bonds at 2.8%. SPACs are options on exuberance.
Pg M23, M28: A down week in EUROPE (Greece +1.53%, Netherlands +0.99%, Finland -1.66%) and a bad week in ASIA (India +1.68%, HK -6.05%). The equity CEF index (data to Thursday) underperformed the DJIA and its discount was -3.5%.
TREASURY* 3-mo yield 0.04%, 2-yr 0.23%, 5-yr 0.88%, 10-yr 1.37%, 30-yr 1.91%. DOLLAR rose, DXY 93.25, +0.7% (M31). GOLD (Handy & Harman spot, Thursday) fell to $1,756, -2.2% (M34); the gold-miners tanked. (^XAU was at 123.70, -3.68% for the week)
*Treasury Yield-Curve www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
Top FDIC insured savings deposit rates*: Money-market accounts 0.61%; 3-mo Jumbo CD 0.35%, 1-yr CDs 0.60%; 5-yr CDs 1.10% (M29).
*For local rates www.depositaccounts.com/banks/rates-map/
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 20: COVER STORY, “Inside the Coming War Over DIGITAL CURRENCIES – and What it Means for Your Money”. Cryptos, stablecoins, CBDCs will challenge fiat currencies. Cryptos and stablecoins operate outside of the national currency and banking system. Only a handful of countries have CBDCs; the FED is taking its time to study digital-dollar. Digital assets like non-fungible tokens (NFTs) are growing. Also evolving are lending and interest-bearing accounts based on digital assets held or “staked” in reserves (the SEC views these as securities). Newcomer Solana is developing fast blockchain networks for cryptos, stablecoins and NFTs; its network can handle 65,000 transactions/second at the cost of only $0.00025/transaction. The Fed is moving slowly on digital-dollar that may be provided directly, through banks and Post Offices (to those without bank accounts). Not all Fed Governors are convinced of the value or utility of digital-dollar. BANKS are concerned that they will lose out on transactional fees. But there is risk to MONETARY POLICY if significant alternate currency systems develop outside of the central bank networks. Management of future financial crisis may become difficult.
How will digital assets be REGULATED? As currency, security, commodity or property? At federal or state levels? Some states are not waiting and moving forward with their regulations (NY, NJ, TX, etc). The SEC wants to regulate crypto exchanges and products that act like securities; the SEC and CFTC may have jurisdictional disputes. CONGRESS wants to tax digital assets and transactions. An issue with stablecoin (Tether, USD Coin, etc) is its $1 PEG and its private guarantor, a weak link. Future stablecoin Diem from Facebook/FB will be backed/guaranteed by a consortium of 26 companies. Will/can stablecoins coexist with digital-dollar? It seems that Diem won’t. Who will regulate stablecoin guarantors and the amounts and types of the assets they hold in reserves? Most INVESTORS are just waiting and watching.
Special SUPPLEMENT, 2021 Top Independent Advisors has soft features (advisory industry consolidation; firm features; separate accounts; ESG) and listings of top 100 independent advisors and RIA firms.
Pg 7, UP & DOWN WALL STREET. Supply-chain disruptions and higher consumer demand are causing HIGHER PRICES for many products, but that isn’t benefitting companies. With consumer CPI +5.3% (understating inflation) and producer PPI +8.3% (both y-o-y), profit MARGINS are under pressure. But overall, Q3 earnings are expected to be strong. The FOMC Statement on Wednesday may hint about the QE taper; but taper will likely be decoupled from rate hikes in late-2022 and/or beyond. Tax and infrastructure proposals are moving through CONGRESS and may or may not include debt-ceiling (a failure there will severely disrupt markets). SP500 closed just below 50-dMA (while DJIA, DJ Transports, DJ Utilities were clearly below 50-dMA).
The FED is reviewing its rules after 2 Fed Bank Presidents (and the current FOMC voting members) reported actively trading stocks last year (mREITS, leveraged BL/FR funds, several stocks, all affected by FOMC policy areas). While current rules may not have been broken, appearances were bad. It seems that the current Fed rules only exclude owning or trading bank stocks. Some Fed rules may be clarified or revised.
Pg 11, STREETWISE. DEBT-CEILING drama is like a fiscal chicken fight. The US has had debt-ceiling for 100 years and it has been raised about 100 times, not counting several intervening periods without debt-ceiling, and the last such period just ended in July. FEDERAL DEBT is 101% of GDP (the prior peak was 106% during WW II). Proponents of the new MMT say that debts don’t matter when the US has its own currency. But the debt-ceiling fight is about the money that has already been authorized and spent. Republicans are refusing to support raising the debt-ceiling and Democrats may have just enough votes to slip it through via budget reconciliation. This is no way to manage country’s financial affairs. Time to adjust debt-ceiling is when the spending or tax cuts are being approved, but that would be too logical for DC. Better yet, not have debt-ceiling like most developed countries.
(More later….)
LINK
Company reports have been good but the problem is sales and earnings guidance. Labor and materials shortages (and higher costs) and supply-chain disruptions are starting to hurt sales volumes and that is a problem for profits/margins even with rising prices. Mentioned are MCFT, ETN, MMM, GE.
Nike/NKE earnings may disappoint on Thursday. There are serious production issues in Vietnam due to Covid-19 and there is also weak sales growth in China.
www.barrons.com/magazine?mod=BOL_TOPNAV
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.
NO-CHANGE (for the current ZIRP of 0-0.25%) through May 2022 FOMC. Beyond, the probabilities of rate rise are in double-digit %; more than 50% for December 2022 FOMC and later.
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA -0.07%, SP500 -0.57%, Nasdaq Comp -0.47%, R2000 +0.42%. DJ Transports -0.69%; DJ Utilities -2.73%. (Rotating spot China MCHI -4.15%) US$ index (spot) +0.71%, oil/WTI futures +3.23%, gold futures -2.25%.
YTD (index changes only), DJIA +13.00%, SP500 +18.02%, Nasdaq Comp +16.73%. (Rotating spot China MCHI -14.89%)
Pg M4, EUROPE. Sanofi’s/SNY Covid-19 vaccine in partnership with GlaxoSmithKline/GSK is still in Phase 3 trials. Several EU countries with advanced orders for Sanofi+GlaxoSK vaccine are patiently waiting for the vaccine to come through. Sanofi has been on an acquisition spree including Translate Bio that specializes in nRNA technology, so someday, it will also have a mRNA vaccine (like Pfizer+BioNTech, Moderna). As Sanofi finally catches up, so may its stock.
Pg M4, EMERGING MARKETS. Evergrande’s/EGRNY huge financial trouble isn’t the only problem for China’s PROPERTY market (ETF CHIR -30% in 3 months). After attempts such as tightening mortgage lending standards and talking down the property market weren’t effective, China has set lower reference prices for apartments (some 50% below going rates) in several big cities. Household debt is high at 62% of GDP. Future measures to cool property speculation may include restricting commercial mortgage debt and introducing property taxes (now there are only property transaction taxes). It may be too early to bottom fish. This adds to FOREIGN INVESTORS’ concerns about China’s crackdown on big techs and restricting some industrial production to cut pollution ahead of Winter Olympics.
Pg M6, COMMODITIES. NATURAL-GAS is at 7-yr high (+115% YTD) due to reduced output from Gulf states (impacted by Hurricanes), inventories at 3-yr low ahead of Winter, strong LNG export demand (from Asia, Europe, Lat Am). Prices may remain high until the next Spring.
EXTRA. IRON-ORE prices keep falling as China is restricting steel output to reduce pollution. China’s property market is also weak and that is affecting iron/steel demand from new constructions.
Pg M5, OPTIONS. HEDGING becomes expensive just when you need it. VIX rose to 20.81 (SKEW has been high for a while). Tips: Review portfolio allocation and risk; use proper hedging index; beware of events that may affect options prices; options spreads offer cost-benefit compromise; market often turns when things look bleak; bottom fish by selling puts.
(SP500 VIX 20.81, Nasdaq 100 VXN 22.27, SKEW 149.52 (high)) (Yahoo Finance data)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW?.tsrc=fin-srch
Pg M7: SPACs/blank-check companies M&A are picking up again. Regulatory scrutiny cannot hold SPACs down in the world of 10-yr at 1.3% and junk bonds at 2.8%. SPACs are options on exuberance.
Pg M23, M28: A down week in EUROPE (Greece +1.53%, Netherlands +0.99%, Finland -1.66%) and a bad week in ASIA (India +1.68%, HK -6.05%). The equity CEF index (data to Thursday) underperformed the DJIA and its discount was -3.5%.
TREASURY* 3-mo yield 0.04%, 2-yr 0.23%, 5-yr 0.88%, 10-yr 1.37%, 30-yr 1.91%. DOLLAR rose, DXY 93.25, +0.7% (M31). GOLD (Handy & Harman spot, Thursday) fell to $1,756, -2.2% (M34); the gold-miners tanked. (^XAU was at 123.70, -3.68% for the week)
*Treasury Yield-Curve www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
Top FDIC insured savings deposit rates*: Money-market accounts 0.61%; 3-mo Jumbo CD 0.35%, 1-yr CDs 0.60%; 5-yr CDs 1.10% (M29).
*For local rates www.depositaccounts.com/banks/rates-map/
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 20: COVER STORY, “Inside the Coming War Over DIGITAL CURRENCIES – and What it Means for Your Money”. Cryptos, stablecoins, CBDCs will challenge fiat currencies. Cryptos and stablecoins operate outside of the national currency and banking system. Only a handful of countries have CBDCs; the FED is taking its time to study digital-dollar. Digital assets like non-fungible tokens (NFTs) are growing. Also evolving are lending and interest-bearing accounts based on digital assets held or “staked” in reserves (the SEC views these as securities). Newcomer Solana is developing fast blockchain networks for cryptos, stablecoins and NFTs; its network can handle 65,000 transactions/second at the cost of only $0.00025/transaction. The Fed is moving slowly on digital-dollar that may be provided directly, through banks and Post Offices (to those without bank accounts). Not all Fed Governors are convinced of the value or utility of digital-dollar. BANKS are concerned that they will lose out on transactional fees. But there is risk to MONETARY POLICY if significant alternate currency systems develop outside of the central bank networks. Management of future financial crisis may become difficult.
How will digital assets be REGULATED? As currency, security, commodity or property? At federal or state levels? Some states are not waiting and moving forward with their regulations (NY, NJ, TX, etc). The SEC wants to regulate crypto exchanges and products that act like securities; the SEC and CFTC may have jurisdictional disputes. CONGRESS wants to tax digital assets and transactions. An issue with stablecoin (Tether, USD Coin, etc) is its $1 PEG and its private guarantor, a weak link. Future stablecoin Diem from Facebook/FB will be backed/guaranteed by a consortium of 26 companies. Will/can stablecoins coexist with digital-dollar? It seems that Diem won’t. Who will regulate stablecoin guarantors and the amounts and types of the assets they hold in reserves? Most INVESTORS are just waiting and watching.
Special SUPPLEMENT, 2021 Top Independent Advisors has soft features (advisory industry consolidation; firm features; separate accounts; ESG) and listings of top 100 independent advisors and RIA firms.
Pg 7, UP & DOWN WALL STREET. Supply-chain disruptions and higher consumer demand are causing HIGHER PRICES for many products, but that isn’t benefitting companies. With consumer CPI +5.3% (understating inflation) and producer PPI +8.3% (both y-o-y), profit MARGINS are under pressure. But overall, Q3 earnings are expected to be strong. The FOMC Statement on Wednesday may hint about the QE taper; but taper will likely be decoupled from rate hikes in late-2022 and/or beyond. Tax and infrastructure proposals are moving through CONGRESS and may or may not include debt-ceiling (a failure there will severely disrupt markets). SP500 closed just below 50-dMA (while DJIA, DJ Transports, DJ Utilities were clearly below 50-dMA).
The FED is reviewing its rules after 2 Fed Bank Presidents (and the current FOMC voting members) reported actively trading stocks last year (mREITS, leveraged BL/FR funds, several stocks, all affected by FOMC policy areas). While current rules may not have been broken, appearances were bad. It seems that the current Fed rules only exclude owning or trading bank stocks. Some Fed rules may be clarified or revised.
Pg 11, STREETWISE. DEBT-CEILING drama is like a fiscal chicken fight. The US has had debt-ceiling for 100 years and it has been raised about 100 times, not counting several intervening periods without debt-ceiling, and the last such period just ended in July. FEDERAL DEBT is 101% of GDP (the prior peak was 106% during WW II). Proponents of the new MMT say that debts don’t matter when the US has its own currency. But the debt-ceiling fight is about the money that has already been authorized and spent. Republicans are refusing to support raising the debt-ceiling and Democrats may have just enough votes to slip it through via budget reconciliation. This is no way to manage country’s financial affairs. Time to adjust debt-ceiling is when the spending or tax cuts are being approved, but that would be too logical for DC. Better yet, not have debt-ceiling like most developed countries.
(More later….)
LINK
