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7 EV Stocks Set to Soar as the Infrastructure Bill Passes

InvestorPlace - Stock Market News, Stock Advice & Trading Tips Here are seven top EV stocks growth investors may want to consider, in this volatile and perhaps overvalued market right now. The post 7 EV Stocks Set to Soar as the Infrastructure Bill Passes appeared first on InvestorPlace. More From InvestorPlace Stock Prodigy Who Found NIO at $2… Says Buy THIS Now Man Who Called Black Monday: “Prepare Now.” #1 EV Stock Still Flying Under the Radar Interested in Crypto? Read This First........»»

Category: topSource: investorplaceNov 24th, 2021

Materials ETF (VAW) Hits New 52-Week High

The materials ETF hit a 52-week high lately. Can it soar further? For investors seeking momentum, Vanguard Materials ETF VAW is probably on radar. The fund just hit a 52-week high and is up about 36% from its 52-week low price of $144.30/share.But are more gains in store for this ETF? Let’s take a quick look at the fund and the near-term outlook on it to get a better idea on where it might be headed:VAW in FocusThe underlying MSCI US Investable Market Materials 25/50 Index includes stocks of U.S. companies within the materials sector. The product charges 10 basis points in annual fees.Why the Move?The U.S. materials sector has been an area to watch lately, given the latest passage of the $1.2 trillion worth of the infrastructure bill. Infrastructure and industrial activities will definitely require materials and thus the sector will emerge as yet another beneficiary. Plus, higher pent-up demand and an improving labor market should boost the inflationary pressure and increase the price of materials.More Gains Ahead?The fund VAW has a Zacks ETF Rank #2 (Buy). Plus, VAW should remain strong ahead given a positive weighted alpha of 30.04. As a result, there is definitely still some promise for risk-aggressive investors who want to ride on this surging ETF. Want key ETF info delivered straight to your inbox? Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.Get it free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Vanguard Materials ETF (VAW): ETF Research Reports To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksNov 12th, 2021

Wall Street Still Has Room to Run: ETFs to Play

Wall Street has been hovering around a record high level. Holiday season, chances of more antiviral pills, Biden's infrastructure plan, upbeat U.S. economic growth momentum and upbeat earnings are likely to extend the rally. Wall Street has been hovering around a record high level. The S&P 500 is up 7.7% past month, the otherwise laggard Dow Jones has gained about 5.7%, the Nasdaq Composite has advanced 9.8% and the small-cap index Russell 2000 has jumped 8.6%. The S&P 500 recorded the longest series of records since 1997.We are now in November, which is a historically upbeat month for the stock market. So is December. According to moneychimp.com, a consensus carried out from 1950 to 2020 has revealed that November ended up offering positive returns in 48 years and negative returns in 23 years, with an average positive return of 1.53%, while December saw 53 up years and 18 down years with an average positive return of 1.39%.The S&P 500 rises about 4.3% in the fourth quarter, per Barron’s, making it the best quarter of the year. Over the past decade, the S&P 500 Index has averaged a 4% gain, according to a CNBC analysis of Kensho released in 2019. This year is unlikely to be an exception. We will tell you why.5 Key Factors for a Further Wall Street Rally Holiday SeasonThe late October-December period embraces the key holiday season, which puts the spotlight on the performance of retailers. As loads of sales-boosting events —Thanksgiving, Cyber Monday, Black Friday and Christmas — fall in this quartile, the sector generally sees a sales boost.The National Retail Federation (“NRF”) projects November/December retail sales in the range of $843.4 billion to $859 billion, up 8.5% to 10.5% from 2020 results. The NRF said its forecast — excluding automobile dealers, gas stations and restaurants and covering Nov 1 to Dec 31— beat the previous high of $777.3 billion, up 8.2%, in 2020 as well as the average gain of 4.4% over the past five years.Deloitte forecasts considerably higher holiday sales for 2021, estimating growth of 7% to 9% to between $1.28 and $1.3 trillion during the November-to-January time span. That is more than Deloitte’s 1% to 1.5% projection for 2020 and the U.S. Census Bureau’s November 2020-to-January 2021 sales growth measure of 5.8% to $1.19 trillion (seasonally adjusted, excluding autos and fuel).More Antiviral Pills & Booster Shots in the Way?After widespread COVID-19 vaccination, boosters are available now. More companies are trying to come up with antiviral therapies. Recently, Pfizer has announced that its experimental antiviral pill cut the rates of hospitalization and death for adults by 89%.Last month, Merck & Co. and partner Ridgeback Biotherapeutics LP submitted their experimental pill to regulators as a study revealed that it lowered the risk of getting seriously ill or dying by half in patients with mild-to-moderate Covid-19. Such flow of news has every reason to boost the pharma and biotech funds.Biden's Infrastructure PlanOn Nov 5, in a majority voting of 228-206, the House of Representative passed a $1.2 trillion bipartisan infrastructure bill. The bill was cleared by the Senate in August. This would put $550 billion of new funding into transportation projects, the utility grid and broadband.U.S. Economy to Gain Momentum in Q4The U.S. economy lost its growth momentum in the third quarter mainly due to the resurgence of the Delta variant of COVID-19. However, the economy should rebound in Q4. In its latest projection on Nov 4, the Atlanta Fed reported that the U.S. economy will grow by 8.5% in fourth-quarter 2021. This indicates an improvement from 8.1% on Nov 1 and 6.6% on Oct 29. The U.S. GDP grew 6.4%, 6.7% and 2%, in the first, second and third quarters of this year, respectively.Upbeat EarningsPer the Earnings Trends issued on Nov 3, 2021, for the 363 S&P 500 members that have reported Q3 results through Nov 3, total earnings and revenues are up +40.1% and +18.5%, respectively from the same period last year, with 81.0% beating EPS estimates and 73.6% beating revenue estimates. The proportion of these 363 index members beating both EPS and revenue estimates is 63.4%. The S&P 500 earnings growth for the upcoming Q4 is projected to be 20.2% over 10.6% revenue growth.Top-Ranked ETFs to Play Against this backdrop, we highlight a few top-ranked ETFs that could soar higher in the coming days.iShares U.S. Transportation ETF IYT – Zacks Rank #2 (Buy)As economic reopening is speeding up, sectors that are highly related to economic reopening should benefit. Moreover, with the holiday season approaching, transportation stocks have every reason to cheer as even online deliveries will need the assistance of faster and efficient transportation.Vanguard High Dividend Yield ETF VYM – Zacks Rank #2The underlying FTSE High Dividend Yield Index consists of common stocks of companies that pay dividends that generally are higher than average. The fund yields 2.69% annually, much higher than the benchmark U.S. Treasury yield.VanEck Retail ETF RTH – Zacks Rank #2Investors should also note that the consumer discretionary sector is cyclical in nature, and typically performs better in a trending economy, irrespective of rate hike fear. The cyclicality of the sector and an expected surge in sales in the holiday season make RTH our choice.Industrial Select Sector SPDR Fund XLI – Zacks Rank #1 (Strong Buy)The industrial sector has been one of the top performers of the fourth quarter over the last 10 years with an average return of around 6%, per CNBC.Vanguard S&P SmallCap 600 Growth ETF VIOG – Zacks Rank #2Small-cap stocks are enjoying great momentum currently. Plus, these domestically-focused stocks are great tools to make the most of a trending economy. A likely gain in the U.S. dollar amid the Fed QE taper would also not hurt the pint-sized stocks due to its limited foreign exposure.Health Care Select Sector SPDR ETF XLV – Zacks Rank #1With news flowing in on the COVID-19 vaccines and treatments, healthcare is sure to rule in the coming few months. Want key ETF info delivered straight to your inbox? Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.Get it free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Industrial Select Sector SPDR ETF (XLI): ETF Research Reports Health Care Select Sector SPDR ETF (XLV): ETF Research Reports iShares U.S. Transportation ETF (IYT): ETF Research Reports VanEck Retail ETF (RTH): ETF Research Reports Vanguard High Dividend Yield ETF (VYM): ETF Research Reports Vanguard S&P SmallCap 600 Growth ETF (VIOG): ETF Research Reports To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksNov 10th, 2021

Biden unveils plan for congested ports, waterways after infrastructure bill passes

The Biden administration on Tuesday announced what it called "a set of concrete steps to accelerate investment in our ports, waterways, and freight networks," as it noted the bipartisan infrastructure bill passed by Congress provides $17 billion for such facilities. The steps include alleviating congestion at the Port of Savannah by funding the Georgia Port Authority's pop-up container yards project, launching programs to modernize ports and marine highways with more than $240 million in grant funding within the next 45 days, identifying projects for Army Corps of Engineers construction at coastal ports and inland waterways within the next 60 days, and calling for new data standards for goods movement. Biden is slated to talk up this plan for ports on Wednesday during a visit to the Port of Baltimore in Maryland.Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news......»»

Category: topSource: marketwatchNov 9th, 2021

Futures Melt Up To New Record High Ahead Of Payrolls

Futures Melt Up To New Record High Ahead Of Payrolls US index futures continued their relentless meltup on the last day of the week, before today's jobs report which is expected to bounce strongly from last month's disappointing print (exp. 450K, up from 194K), and could set the pace for the Fed's taper into 2022 if it is too much of an outlier in either direction. At 730am, e-mini S&P futures were up 8.25 or 0.18% to 4,681.5, a new all time high; Nasdaq futures rose 48 points or 0.29% and Dow futures were up 35 or 0.1%. 10Y yields were flat at 1.53% and the dollar index jumped, while Brent traded just above $80 after yesterday's rout. “Investors took comfort from the Federal Reserve’s slow and steady approach when announcing the time-line for its taper program,” said Michael Hewson, chief market analyst at CMC Markets in London. “Today’s payrolls report should confirm that the U.S. labor market is still improving.” After one of the busiest earnings days this season, it has been a furious session with Expedia to News jumping in premarket trading on better-than-expected results.  Airbnb jumped 7.7% after the travel website reported record sales and earnings that exceeded analyst estimates. Meanwhile, Peloton crashed 33% after the fitness company cut its annual revenue forecast by as much as $1 billion because of declining demand in the post-pandemic economy.  Here are some of the biggest U.S. movers today: Peloton (PTON US) shares tanked 32% in U.S. premarket trading after analysts said its results and reduced guidance implied weaker demand than expected, and that the home-fitness company’s business model may need a rethink Square (SQ US) shares drop 4.5% in U.S. premarket trading after its 3Q results fell short of the consensus estimate, but its outlook remains strong, analysts say. The weakness in its Cash App and Bitcoin revenue could have been predicted, they added. Airbnb (ABNB US) shares rose 8% in U.S. premarket after the vacation-rental giant reported record sales and earnings that beat analysts’ estimates. RBC and Barclays hiked their price targets, citing improving earnings and supply-demand dynamics in 2022 NRX Pharmaceuticals (NRXP US) and Relief Therapeutics (RLF SW), which are partners on a drug to treat Covid-19, tumbled after the U.S. Food and Drug Administration declined to issue an emergency use authorization for the medication. GoPro (GPRO US) shares soar 17.2% premarket Tuesday after the maker of mountable and wearable cameras reported third-quarter results that exceeded analyst estimates Expedia (EXPE US) shares rally in premarket trading, as the online travel agency reports third-quarter revenue and adjusted earnings that beat expectations. The company’s CEO also gave positive commentary about a recovery in the travel industry Novavax (NVAX US) climbs as much as 6% after the biotech company said it filed with the World Health Organization for emergency use listing for its Covid vaccine Pinterest (PINS US) rises 5% in premarket trading after the company reported stronger-than-expected profit and revenue that met analysts’ estimates Microchip (MCHP US) gains 2.5% in premarket trading after projecting revenue and adjusted EPS that exceeded the average analyst estimates Ontrak (OTRK US) jumped 24% postmarket after the tele-health company boosted its full-year guidance Grid Dynamics (GDYN US) jumped 18% in postmarket trading after the information-technology services company forecasts full-year revenue that beat the average analyst estimate Pfizer (PFE) surged more than 10% after the company announced it would seek approval for a new covid pill after strong trial data. Looking ahead now, we’ll cap off a very busy macro week today with the US jobs report for October As previewed earlier, consensus expects +450k increase in nonfarm payrolls, which in turn would send the unemployment rate down a tenth to a post-pandemic low of 4.7%. The last couple of jobs reports have seen some downside surprises, but if realized, that +450k number would be the strongest jobs growth in 3 months. We’ve had some fairly positive labor market data in advance of the jobs report too, with the ADP’s report of private payrolls exceeding expectations on Wednesday at 571k (vs. 400k expected), and yesterday the weekly initial jobless claims for the week through October 30 fell to a fresh post-pandemic low of 269k (vs. 275k expected). The Fed made it clear this week that labor market evolution after the delta variant will be a key determinant in the future path of monetary policy. In any case, risk euphoria was strong with Europe as well, where stocks scaled another record peak as consumer and tech companies led the Stoxx Europe 600 Index up 0.2% to an all-time high poised for the longest winning streak since mid-June. FTSE MIB and FTSE 100 outperformed at the margin. Technology stocks outperformed, while energy and travel and leisure stocks declined. Among the biggest movers, Allegro.eu SA soared 7.8% after Poland’s largest e-commerce bought a Czech peer in a $1 billion deal. Euronext NV fell 4.4% after the exchange operator’s third-quarter results undershot expectations. However, most travel stocks dropped as a fourth wave of the pandemic hits the continent, with Germany reporting record infections. European stocks extended October’s recovery to return to their all-time highs, as investors scooped up the region’s stocks thanks to a reassuring earnings season and as central banks signal they are in no hurry to raise interest rates just yet. “We’ve seen a fairly benign reaction to the earnings season, in some respects. Perhaps people were a little bit nervous going into it,” Alastair George, chief investment strategist at Edison Group, said by phone. “The market troughed in the early part of October and has bounced back since then, and if we look at earnings revisions, they’re not as robust as they were earlier on in the Covid recovery cycle, but we’re not seeing downgrades,” George added. Asian equities fell, as a slide in bond yields globally and a decline in Hong Kong-listed tech shares weighed on sentiment. The MSCI Asia Pacific Index slid as much as 0.5%, led lower by consumer discretionary and utility shares. Alibaba and Tencent were the biggest drags with analysts accessing earnings outlooks ahead of the companies’ quarterly results announcements. Hong Kong’s Hang Seng Tech Index fell 1.6%, while the benchmark Hang Seng Index dropped 1.4%. Traders are now awaiting the U.S. jobs report later Friday for further cues on monetary policy tightening. “Markets will be seeking confirmation on whether the job market recovery warrants a mid to late-2022 lift-off in rates as reflected in the Fed funds futures,” Jun Rong Yeap, market strategist at IG Asia, wrote in a note. The Asian stock benchmark is set for a weekly rise of less than 1% as the earnings season progresses. Supply-chain constraints and inflation worries are being cited as concerns by many of the largest companies in the region, with several seeing their shares tumble as the chip shortage prompts them to slash their annual profit forecasts. India’s stock market was closed for a holiday Friday. Japanese stocks fell as the yen held its strength against the dollar and investors assessed the potential supply response from the U.S. to a gradual hike in production from OPEC+. The Topix index dropped 0.7% to close at 2,041.42 in Tokyo, while the Nikkei 225 declined 0.6% to 29,611.57. Toyota Motor contributed the most to the Topix’s loss, decreasing 1.4%. Out of 2,181 shares in the index, 540 rose and 1,589 fell, while 52 were unchanged. Japan’s currency was little changed at 113.64 yen per dollar, after gaining 0.2% on Thursday Australia's S&P/ASX 200 index rose 0.4% to 7,456.90, its highest close since Sept. 16. The benchmark gained 1.8% for the week.  Eight of the 11 subgauges finished Friday trade higher, with miners and healthcare stocks driving the gains.  The Reserve Bank of Australia struck an upbeat note on the economy, while maintaining that faster wages growth and inflation will take some time and the first interest-rate increase is unlikely before 2024. Administration soared after receiving a conditional, non-binding indicative takeover proposal from investment fund Carlyle Asia Partners V. Clinuvel tumbled after it was cut to hold at Jefferies.  In New Zealand, the S&P/NZX 50 index rose 1% to 13,074.61. In FX, the Bloomberg Dollar Spot Index reached its strongest level in more than three weeks as the greenback was steady or higher versus all of its Group-of-10 peers. The euro traded near its cycle lows following strong U.S. data and renewed dovish commentary by European Central Bank officials and options now paint a similar outlook. The slowdown in inflation next year may not be as intense and quick as the European Central Bank had anticipated a few months ago, ECB Vice President Luis de Guindos says. The pound fell against all its Group-of-10 peers and gilts rallied, sending yields down by as many as 5 basis points. Money markets no longer fully price the Bank of England raising its key rate to 1% in Dec. 2022, pushing bets out to Feb. 2023. Labor market data is an important piece of the jigsaw for the BOE, Governor Andrew Bailey says in an interview with BBC Radio 4. Australia’s 10-year bonds had their first weekly gain in more than two months after the BOE joined the RBA and the Fed in pushing back against aggressive rate-hike bets; the Aussie and Kiwi weakened. The yen rose as traders unwound bearish bets on the currency before the release of key U.S. jobs data and repricing of the outlook for policy tightening. In rates, the 10Y yield was unchanged at 1.53%. Gilts extend Thursday’s post-BO shockE rally, richening ~5bps across the curve in a modest flattening move. Short sterling futures add 2.5-3 ticks in red and green packs as expectations for higher rates are pared back. MPC-dated OIS rates factor in only 11bps of hike by the December meeting and no longer fully price the Bank’s rate at 1% by end-2022. Bunds follow, cash USTs drift ahead of today’s payrolls release. In commodities, crude futures hold a narrow range after OPEC+ rebuffed U.S. demands for accelerated output.with WTI trading just below $80. Spot gold drifts higher, briefly testing $1,800/oz. Base metals are mixed: LME lead and tin rally, zinc drops over 1.5% with canceled warrants hitting the highest since August To the day ahead now, and the main data highlight will be the aforementioned US jobs report, but European data will also include September figures on Euro Area retail sales and German and French industrial production. Central bank speakers will include the ECB’s Vice President de Guindos, as well as the ECB’s Holzmann, Centeno and Panetta, in addition to the BoE’s Ramsden, Pill and Tenreyro. Market Snapshot S&P 500 futures little changed at 4,674.25 STOXX Europe 600 up 0.1% to 483.89 German 10Y yield little changed at -0.24% Euro little changed at $1.1558 MXAP down 0.4% to 198.36 MXAPJ down 0.3% to 645.66 Nikkei down 0.6% to 29,611.57 Topix down 0.7% to 2,041.42 Hang Seng Index down 1.4% to 24,870.51 Shanghai Composite down 1.0% to 3,491.57 Sensex up 0.5% to 60,067.62 Australia S&P/ASX 200 up 0.4% to 7,456.94 Kospi down 0.5% to 2,969.27 Brent Futures up 0.8% to $81.22/bbl Gold spot up 0.4% to $1,798.55 U.S. Dollar Index little changed at 94.35 Top Overnight News from Bloomberg Germany reported record Covid-19 infections for a second straight day, as a fourth wave of the pandemic hits Europe and threatens to overwhelm hospitals in some hot spots The increasingly influential expectations gap between bond traders and central bankers faces a fresh test Friday -- U.S. jobs data that could reignite or damp out the inflation concerns policy makers tried to downplay this week A shortage of homes for sale and a buoyant labor market are expected to underpin the U.K. housing market as consumers come under pressure from soaring inflation and higher interest rates, according to Halifax A more detailed look at global markets courtesy of Newsquawk Asian equity markets traded cautiously following a somewhat mixed handover from the US where the S&P 500 and Nasdaq extended on fresh record highs with outperformance in rate-sensitive stocks alongside the rally in global bonds. However, the DJIA lagged but with only marginal losses as attention shifted to the upcoming NFP jobs data, while Chinese developer default concerns provided headwinds in Asia after reports Kaisa Group missed a payment on its wealth management product. ASX 200 (+0.4%) was underpinned by strength in the mining-related sectors as gold producers benefitted from the recent advances in the precious metal which approached just shy of the USD 1800/oz level and with sentiment also helped by the continued dovish tone by the RBA in its quarterly Statement on Monetary Policy, although advances were capped amid losses in tech and with energy names suffering due to lower oil prices. Nikkei 225 (-0.6%) weakness was a function of recent adverse currency flows but with downside stemmed as participants digest a slew of earnings releases and reports the government is considering cash handouts of JPY 100k to under-18s. Hang Seng (-1.4%) and Shanghai Comp. (-1.0%) were both subdued with Hong Kong pressured by losses in the blue chip financial, tech and energy stocks and with property names also constrained by the missed Kaisa Group payment which the Shenzhen-based developer plans to repay in instalments. It was also reported that China told certain smaller banks to limit wealth products, although the losses in the mainland were cushioned after the PBoC upped its liquidity effort despite still resulting in a net daily drain. Finally, 10yr JGBs were higher following on from the gains in global counterparts which were spurred by the surprise BoE hold on rates and with the weakness in Japanese stocks also helping keep bond prices afloat, with price action also unfazed by the lack of purchases from the BoJ which were instead seeking to buy corporate bonds with 1yr-3yr maturities for Nov. 10th. Top Asian News Japan Eases Many Covid-Era Border Restrictions as Cases Slump Developer in China Misses Payment on Loan Backed by Fantasia World’s Largest Pension Fund GPIF Posts $17 Billion Gain HSBC Requests All of Its Hong Kong Staff to Get Vaccinated European equities broadly trade on a marginally firmer footing (Euro Stoxx 50 +0.4%; Stoxx 600 +0.2%) with the Stoxx 600 set to close the week out with gains of around 1.6%. Macro commentary for the session has been relatively light thus far in the wake of yesterday’s BoE surprise. The handover from the APAC session was predominantly a negative one with Hang Seng (-1.4%) and Shanghai Comp. (-1%) both subdued as stocks in Hong Kong were pressured by losses in the blue-chip financial, tech and energy stocks and with property names also constrained by the missed Kaisa Group payment which the Shenzhen-based developer plans to repay in instalments. Stateside, futures have been inching higher ahead of the latest US jobs report with consensus looking for a 450k addition in nonfarm payrolls. Events in Washington are also worth keeping an eye on after CNN’s Raju reported yesterday that House Dems see Friday as the day they can finish the rule, USD 1.75tln Build Back Better bill and infrastructure bill. The Infrastructure bill would then go to Biden’s desk and the USD 1.75tln bill would go to the Senate for further negotiation with Manchin and other Senate Dems. Back to Europe, sectors are relatively mixed with Telecom names outperforming amid gains in BT (+1.8%) who sit at the top of the FTSE 100 as speculation continues to rumble on that billionaire investor Patrick Drahi could make a move for the Co. Deutsche Telekom is also providing support for the sector after confirming that IFM is to buy 50% in Co's Glasfaserplys GmbH for EUR 900mln. To the downside, Travel & Leisure names lag as opening gains for IAG (-2.1%) proved to be fleeting with the Co. warning of a potential EUR 3bln FY loss alongside Q3 earnings. Elsewhere, Oil & Gas names are trading lower alongside losses in the crude complex, with Basic Resources also near the foot of the leaderboard. Top European News Adler Pressure Builds With Idle Cranes and Angry Berlin Buyers Axa Jumps to More Than 3-Year High After Share Buyback Plan Europe Gas Prices Rebound as Traders Eye Russia’s Next Move ECB’s Guindos Says Inflation Will Slow in 2022 ‘Without a Doubt’ In FX, the Dollar index has gained some traction and has broken out of the 94.273-417 APAC range in the run-up to the US labour market report – with the headline NFP print forecast at 450k (full preview available in the Newsquawk Research Suite), although anything short of an extreme jobs reports this month will likely not sway the Fed's dials following the taper announcement earlier this week - which will commence later this month. On the fiscal front, the US House is to meet at 12:00GMT/08:00EDT to debate the procedural rule to put the social spending bill on the floor. Democrats hope to debate and vote on the social spending and infrastructure bills today, according to Fox. From a technical perspective, DXY eyes yesterday 94.475 high ahead of the YTD peak at 94.563. GBP, EUR - Sterling is the marked laggard thus far in what is seemingly a hangover on the day after the BoE coupled with Brexit risk, as the UK and EU's Brexit negotiators are set to meet in a bid to temper down cross-channel frictions. Governor Bailey made an appearance on UK radio this morning but failed to provide much in the way of additional colour regarding yesterday's policy decision – with markets currently assigning a 2/3 chance of a 15bps hike in December. On that note, BoE's new Chief Economist Pill, alongside MPC members Tenreyro and Ramsden, are all slated to speak throughout the session. Over to Brexit developments, RTE's Connelly recently reported that there is a "growing expectation" that the UK will trigger Article 16 - suggesting that "the view is that the EU's response could be much swifter and more 'radical' than expected.", although a special meeting of the bloc's leaders will likely be needed before any move. From a technical standpoint, EUR/GBP breached overnight resistance at 0.8565 before briefly topping the 200 DMA at 0.8584. In turn, GBP/USD declined from its 1.3508 high to a base sub-1.3450, with some traders suggesting the pair ran into sellers just ahead of a Fib level at 1.3511. EUR is supported by the EUR/GBP cross, with EUR/USD relatively flat on the day and still above yesterday's 1.1527 low. EUR/USD also looks ahead to some OpEx – with EUR 1.4bln between 1.5555-60 alongside some EUR 725mln at strike 1.1575. AUD, NZD, CAD - The high-beta non-US dollars all post modest intraday losses. The Aussie sits at the bottom of this bunch after the RBA's SoMP overnight reiterated a patient approach, with headwinds also felt by a decline in iron ore prices overnight whilst copper trades lacklustre. NZD is softer in sympathy whilst the Loonie bears the brunt of lower post-OPEC crude prices. AUD/USD has declined from a 0.7408 peak and dips under its 200 DMA (0.7379) ahead of the 50 DMA (0.7364). NZD/USD meanwhile loses ground under the 0.7100 mark – which also coincides with its 21 and 200 DMAs. USD/CAD eyes its 200 DMA at 1.2479 from a 1.2450 base in the run-up to the Canadian jobs report – with the pair also cognizant of USD 1.3bln in OpEx between 1.2500-05. In commodities, WTI and Brent front-month futures consolidate following yesterday's post-OPEC+ declines and heading into today's main event – the US labour market report. To recap the OPEC+ confab, ministers opted to continue the current plan to hike monthly output by 400k BPD (despite calls from the US to up output by 600-800k BPD), whilst reports also suggested that there will be no compensation for the underproduction seen from some nations. Traders are now on the lookout for a US response, with Washington yesterday reiterating the use of tools against oil prices. As a reminder, US Energy Secretary Granholm in an FT interview in October raised the prospect of an SPR release, whilst also refusing to rule out a ban on oil crude oil exports, suggesting “it is also a tool”. From the demand side, China’s economic slowdown has prompted JPM to downgrade the nation’s GDP growth forecast by 1ppt to 4.0%, citing the lingering impact of the power crunch and resurgence in COVID. It’s also worth noting that next week will see the Chinese inflation metrics, with oil prices expected to contribute to another Y/Y rise in PPI. WTI Dec trades just under USD 80/bbl (vs 78.96/bbl low) whilst Brent Jan trades on either side of USD 81/bbl (vs low 80.26/bbl). Turning to metals, spot gold and silver are uninteresting heading into the US jobs report whilst LME copper remains under USD 9,500/t. Overnight, Dalian iron ore futures fell once again to log a fourth consecutive week of losses amid China’s crackdown on the raw material. US Event Calendar 8:30am: Oct. Change in Nonfarm Payrolls, est. 450,000, prior 194,000 Change in Private Payrolls, est. 420,000, prior 317,000 Unemployment Rate, est. 4.7%, prior 4.8% Underemployment Rate, prior 8.5% Labor Force Participation Rate, est. 61.7%, prior 61.6% Average Hourly Earnings YoY, est. 4.9%, prior 4.6% Average Hourly Earnings MoM, est. 0.4%, prior 0.6% Average Weekly Hours All Emplo, est. 34.8, prior 34.8 3pm: Sept. Consumer Credit, est. $16b, prior $14.4b DB's Jim Reid concludes the overnight wrap Markets had another buoyant session yesterday as they received a dovish surprise from the Bank of England, just as they were digesting the Fed’s tapering decision from the previous evening. In response, markets shifted gear and pushed back pricing of future rate hikes, which in turn led to a sharp rally across the curve in sovereign bond markets in every major economy. And with investors lowering the odds of a near-term removal in monetary policy support, that helped equities take another leg higher, with the S&P 500 (+0.42%) advancing for the 15th time in the last 17 sessions to reach a fresh all-time high. We’ll start with the BoE as they generated the main headlines, and contrary to building expectations that a potential rate hike could be imminent, the MPC in fact voted by 7-2 to keep Bank Rate on hold at 0.1%, with only the most hawkish members favouring a 15bps increase. This came in spite of the fact that the BoE upgraded their inflation forecasts yet again, now seeing CPI peaking “at around 5% in April 2022”. The meeting summary did say that if the data was in line with their projections it would “be necessary over coming months to increase Bank Rate”, but overall it was a pretty dovish decision, with the MPC also voting by 6-3 to continue with its existing QE program. In their forecasts that were conditioned on the market-implied path for Bank Rate, they said “a margin of spare capacity is expected to emerge”, and that CPI would be beneath target at the end of the forecast period, so again pushing back against market pricing that had been looking for multiple hikes in 2022. In response, our UK economists have shifted their call for lift-off of 15bps to December, before seeing further 25bps hikes in May 2022 and February 2023. For more details, see their reaction note (link here). Markets reacted strongly to the decision as investors were surprised by the extent of the BoE’s dovishness. Gilts rallied sharply and outperformed sovereign bonds elsewhere, with 5yr yields (-20.0bps) seeing their biggest move lower in over 5 years, back in the immediate aftermath of the 2016 Brexit referendum. The 2yr yield was also down a massive -21.1 bps, marking its own biggest move lower since the initial market panic over Covid-19 back in March 2020. And sterling (-1.37%) had its worst performance against the dollar so far this year, which therefore left it as the worst performer among the G10 currencies too. The BoE meeting triggered a rally of global sovereign bonds, though whilst the gilt curve bull steepened, most other curves wound up flatter on the day. In the US, yields on 10yr Treasuries fell -7.7 bps to 1.53%, marking their biggest move lower since August, whilst the 2yr Treasury yield retreated -4.4bps. Real yields continue to drive the treasury curve, with the 10yr real yield down -8.6 bps to move back beneath -1% again. Elsewhere in Europe, yields on 10yr bunds (-5.6bps), OATs (-6.4bps) and BTPs (-11.4bps) all declined as well, with lower real yields the driver once again. This dramatic shift to price in greater monetary support for longer was good news for equities yesterday, with the major indices pressing on to fresh all-time highs. By the close of trade, the S&P 500 (+0.42%) had hit a new record, though in reality it was a fairly narrow-based advance, with fewer than half of the companies in the index actually moving higher on the day, whilst financials (-1.34%) underperformed against the backdrop of lower yields and a flatter curve. Interest-sensitive tech stocks did much better, with the NASDAQ (+0.81%) also at a record high as it achieved a 9th consecutive daily advance, its longest winning streak since 2019, whilst the FANG+ index of megacap tech stocks advanced +1.29% to reach a fresh high of its own. Over in Europe, the STOXX 600 (+0.41%) hit a record high too, even if the index was similarly hampered by financials (-0.86%), and records were also attained by Germany’s DAX (+0.44%) and France’s CAC 40 (+0.53%). That rally in equities hasn’t carried over into Asia this morning where indices including the Nikkei (-0.72%), the KOSPI (-0.65%), the Hang Seng (-0.96%) and the Shanghai Composite (-0.25%) are all trading lower. However, the surge in sovereign bonds has been echoed elsewhere, with yields on Australian 10yr debt down -4.0bps this morning, and bonds also advanced in China after the PBOC increased their short-term cash injections yet again. Speaking of Chinese debt, Kaisa Group Holdings Ltd, a developer, and its units listed in Hong Kong were suspended from trading after the company missed payments on wealth products and raised liquidity concerns. Meanwhile, the latest Covid-19 outbreak in China continued to spread, with a further 90 new cases reported on Friday, 22 of which were asymptomatic. Otherwise, S&P 500 futures (+0.01%) are almost unchanged this morning and yields on 10y Treasuries have moved up +1.2bps. Looking ahead now, we’ll cap off a very busy macro week today with the US jobs report for October, which is out at 12:30 London time. In terms of what to expect, our US economists are looking for a +400k increase in nonfarm payrolls, which in turn would send the unemployment rate down a tenth to a post-pandemic low of 4.7%. The last couple of jobs reports have seen some downside surprises, but if realised, that +400k number would be the strongest jobs growth in 3 months. We’ve had some fairly positive labour market data in advance of the jobs report too, with the ADP’s report of private payrolls exceeding expectations on Wednesday at 571k (vs. 400k expected), and yesterday the weekly initial jobless claims for the week through October 30 fell to a fresh post-pandemic low of 269k (vs. 275k expected). The Fed made it clear this week that labour market evolution after the delta variant will be a key determinant in the future path of monetary policy. Speaking of the Fed, it was reported by Dow Jones that Fed Chair Powell was seen visiting the White House yesterday. It comes with just 3 months left until the end of Powell’s current 4-year term, and follows President Biden saying on Tuesday that an announcement on the Fed position would come “fairly quickly”. For reference, the decision on who would be nominated as Fed Chair had already been announced at this point 4, 8 and 12 years ago. As well as the BoE, the other important meeting was that from the OPEC+ group, who rejected the demands from President Biden and others for a larger increase in oil production. They decided to increase output by +400k b/d in December, though afterwards oil actually gave up its surge earlier in the day to end the session lower, with WTI moving all the way from an intraday peak where it was up +3.17% to close down by -2.54%. A spokesperson for the US National Security Council said that the US would consider a range of tools to deal with oil prices, and Energy Secretary Granholm said last month that releasing crude oil from the strategic petroleum reserve was being considered. Lastly on the data front, the Euro Area composite PMI for October was revised down a tenth from the flash reading to 54.2, whilst the services PMI was also revised down a tenth to 54.6. Separately, the Euro Area PPI reading for September came in at +16.0% year-on-year (vs. +15.4% expected). Lastly, the preliminary Q3 reading of nonfarm productivity showed an annualised decline of -5.0% (vs. -3.1% expected), which was its largest quarterly decline since 1981. To the day ahead now, and the main data highlight will be the aforementioned US jobs report, but European data will also include September figures on Euro Area retail sales and German and French industrial production. Central bank speakers will include the ECB’s Vice President de Guindos, as well as the ECB’s Holzmann, Centeno and Panetta, in addition to the BoE’s Ramsden, Pill and Tenreyro. Tyler Durden Fri, 11/05/2021 - 08:12.....»»

Category: personnelSource: nytNov 5th, 2021

Bitcoin & The US Fiscal Reckoning

Bitcoin & The US Fiscal Reckoning Authored by Avik Roy via NationalAffairs.com, Cryptocurrencies like bitcoin have few fans in Washington. At a July congressional hearing, Senator Elizabeth Warren warned that cryptocurrency "puts the [financial] system at the whims of some shadowy, faceless group of super-coders." Treasury secretary Janet Yellen likewise asserted that the "reality" of cryptocurrencies is that they "have been used to launder the profits of online drug traffickers; they've been a tool to finance terrorism." Thus far, Bitcoin's supporters remain undeterred. (The term "Bitcoin" with a capital "B" is used here and throughout to refer to the system of cryptography and technology that produces the currency "bitcoin" with a lowercase "b" and verifies bitcoin transactions.) A survey of 3,000 adults in the fall of 2020 found that while only 4% of adults over age 55 own cryptocurrencies, slightly more than one-third of those aged 35-44 do, as do two-fifths of those aged 25-34. As of mid-2021, Coinbase — the largest cryptocurrency exchange in the United States — had 68 million verified users. To younger Americans, digital money is as intuitive as digital media and digital friendships. But Millennials with smartphones are not the only people interested in bitcoin; a growing number of investors are also flocking to the currency's banner. Surveys indicate that as many as 21% of U.S. hedge funds now own bitcoin in some form. In 2020, after considering various asset classes like stocks, bonds, gold, and foreign currencies, celebrated hedge-fund manager Paul Tudor Jones asked, "[w]hat will be the winner in ten years' time?" His answer: "My bet is it will be bitcoin." What's driving this increased interest in a form of currency invented in 2008? The answer comes from former Federal Reserve chairman Ben Bernanke, who once noted, "the U.S. government has a technology, called a printing press...that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation...the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to...inflation." In other words, governments with fiat currencies — including the United States — have the power to expand the quantity of those currencies. If they choose to do so, they risk inflating the prices of necessities like food, gas, and housing. In recent months, consumers have experienced higher price inflation than they have seen in decades. A major reason for the increases is that central bankers around the world — including those at the Federal Reserve — sought to compensate for Covid-19 lockdowns with dramatic monetary inflation. As a result, nearly $4 trillion in newly printed dollars, euros, and yen found their way from central banks into the coffers of global financial institutions. Jerome Powell, the current Federal Reserve chairman, insists that 2021's inflation trends are "transitory." He may be right in the near term. But for the foreseeable future, inflation will be a profound and inescapable challenge for America due to a single factor: the rapidly expanding federal debt, increasingly financed by the Fed's printing press. In time, policymakers will face a Solomonic choice: either protect Americans from inflation, or protect the government's ability to engage in deficit spending. It will become impossible to do both. Over time, this compounding problem will escalate the importance of Bitcoin. THE FIAT-CURRENCY EXPERIMENT It's becoming clear that Bitcoin is not merely a passing fad, but a significant innovation with potentially serious implications for the future of investment and global finance. To understand those implications, we must first examine the recent history of the primary instrument that bitcoin was invented to challenge: the American dollar. Toward the end of World War II, in an agreement hashed out by 44 Allied countries in Bretton Woods, New Hampshire, the value of the U.S. dollar was formally fixed to 1/35th of the price of an ounce of gold. Other countries' currencies, such as the British pound and the French franc, were in turn pegged to the dollar, making the dollar the world's official reserve currency. Under the Bretton Woods system, foreign governments could retrieve gold bullion they had sent to the United States during the war by exchanging dollars for gold at the relevant fixed exchange rate. But enabling every major country to exchange dollars for American-held gold only worked so long as the U.S. government was fiscally and monetarily responsible. By the late 1960s, it was neither. Someone needed to pay the steep bills for Lyndon Johnson's "guns and butter" policies — the Vietnam War and the Great Society, respectively — so the Federal Reserve began printing currency to meet those obligations. Johnson's successor, Richard Nixon, also pressured the Fed to flood the economy with money as a form of economic stimulus. From 1961 to 1971, the Fed nearly doubled the circulating supply of dollars. "In the first six months of 1971," noted the late Nobel laureate Robert Mundell, "monetary expansion was more rapid than in any comparable period in a quarter century." That year, foreign central banks and governments held $64 billion worth of claims on the $10 billion of gold still held by the United States. It wasn't long before the world took notice of the shortage. In a classic bank-run scenario, anxious European governments began racing to redeem dollars for American-held gold before the Fed ran out. In July 1971, Switzerland withdrew $50 million in bullion from U.S. vaults. In August, France sent a destroyer to escort $191 million of its gold back from the New York Federal Reserve. Britain put in a request for $3 billion shortly thereafter. Finally, that same month, Nixon secretly gathered a small group of trusted advisors at Camp David to devise a plan to avoid the imminent wipeout of U.S. gold vaults and the subsequent collapse of the international economy. There, they settled on a radical course of action. On the evening of August 15th, in a televised address to the nation, Nixon announced his intention to order a 90-day freeze on all prices and wages throughout the country, a 10% tariff on all imported goods, and a suspension — eventually, a permanent one — of the right of foreign governments to exchange their dollars for U.S. gold. Knowing that his unilateral abrogation of agreements involving dozens of countries would come as a shock to world leaders and the American people, Nixon labored to re-assure viewers that the change would not unsettle global markets. He promised viewers that "the effect of this action...will be to stabilize the dollar," and that the "dollar will be worth just as much tomorrow as it is today." The next day, the stock market rose — to everyone's relief. The editors of the New York Times "unhesitatingly applaud[ed] the boldness" of Nixon's move. Economic growth remained strong for months after the shift, and the following year Nixon was re-elected in a landslide, winning 49 states in the Electoral College and 61% of the popular vote. Nixon's short-term success was a mirage, however. After the election, the president lifted the wage and price controls, and inflation returned with a vengeance. By December 1980, the dollar had lost more than half the purchasing power it had back in June 1971 on a consumer-price basis. In relation to gold, the price of the dollar collapsed — from 1/35th to 1/627th of a troy ounce. Though Jimmy Carter is often blamed for the Great Inflation of the late 1970s, "the truth," as former National Economic Council director Larry Kudlow has argued, "is that the president who unleashed double-digit inflation was Richard Nixon." In 1981, Federal Reserve chairman Paul Volcker raised the federal-funds rate — a key interest-rate benchmark — to 19%. A deep recession ensued, but inflation ceased, and the U.S. embarked on a multi-decade period of robust growth, low unemployment, and low consumer-price inflation. As a result, few are nostalgic for the days of Bretton Woods or the gold-standard era. The view of today's economic establishment is that the present system works well, that gold standards are inherently unstable, and that advocates of gold's return are eccentric cranks. Nevertheless, it's important to remember that the post-Bretton Woods era — in which the supply of government currencies can be expanded or contracted by fiat — is only 50 years old. To those of us born after 1971, it might appear as if there is nothing abnormal about the way money works today. When viewed through the lens of human history, however, free-floating global exchange rates remain an unprecedented economic experiment — with one critical flaw. An intrinsic attribute of the post-Bretton Woods system is that it enables deficit spending. Under a gold standard or peg, countries are unable to run large budget deficits without draining their gold reserves. Nixon's 1971 crisis is far from the only example; deficit spending during and after World War I, for instance, caused economic dislocation in numerous European countries — especially Germany — because governments needed to use their shrinking gold reserves to finance their war debts. These days, by contrast, it is relatively easy for the United States to run chronic deficits. Today's federal debt of almost $29 trillion — up from $10 trillion in 2008 and $2.4 trillion in 1984 — is financed in part by U.S. Treasury bills, notes, and bonds, on which lenders to the United States collect a form of interest. Yields on Treasury bonds are denominated in dollars, but since dollars are no longer redeemable for gold, these bonds are backed solely by the "full faith and credit of the United States." Interest rates on U.S. Treasury bonds have remained low, which many people take to mean that the creditworthiness of the United States remains healthy. Just as creditworthy consumers enjoy lower interest rates on their mortgages and credit cards, creditworthy countries typically enjoy lower rates on the bonds they issue. Consequently, the post-Great Recession era of low inflation and near-zero interest rates led many on the left to argue that the old rules no longer apply, and that concerns regarding deficits are obsolete. Supporters of this view point to the massive stimulus packages passed under presidents Donald Trump and Joe Biden  that, in total, increased the federal deficit and debt by $4.6 trillion without affecting the government's ability to borrow. The extreme version of the new "deficits don't matter" narrative comes from the advocates of what has come to be called Modern Monetary Theory (MMT), who claim that because the United States controls its own currency, the federal government has infinite power to increase deficits and the debt without consequence. Though most mainstream economists dismiss MMT as unworkable and even dangerous, policymakers appear to be legislating with MMT's assumptions in mind. A new generation of Democratic economic advisors has pushed President Biden to propose an additional $3.5 trillion in spending, on top of the $4.6 trillion spent on Covid-19 relief and the $1 trillion bipartisan infrastructure bill. These Democrats, along with a new breed of populist Republicans, dismiss the concerns of older economists who fear that exploding deficits risk a return to the economy of the 1970s, complete with high inflation, high interest rates, and high unemployment. But there are several reasons to believe that America's fiscal profligacy cannot go on forever. The most important reason is the unanimous judgment of history: In every country and in every era, runaway deficits and skyrocketing debt have ended in economic stagnation or ruin. Another reason has to do with the unusual confluence of events that has enabled the United States to finance its rising debts at such low interest rates over the past few decades — a confluence that Bitcoin may play a role in ending. DECLINING FAITH IN U.S. CREDIT To members of the financial community, U.S. Treasury bonds are considered "risk-free" assets. That is to say, while many investments entail risk — a company can go bankrupt, for example, thereby wiping out the value of its stock — Treasury bonds are backed by the full faith and credit of the United States. Since people believe the United States will not default on its obligations, lending money to the U.S. government — buying Treasury bonds that effectively pay the holder an interest rate — is considered a risk-free investment. The definition of Treasury bonds as "risk-free" is not merely by reputation, but also by regulation. Since 1988, the Switzerland-based Basel Committee on Banking Supervision has sponsored a series of accords among central bankers from financially significant countries. These accords were designed to create global standards for the capital held by banks such that they carry a sufficient proportion of low-risk and risk-free assets. The well-intentioned goal of these standards was to ensure that banks don't fail when markets go down, as they did in 2008. The current version of the Basel Accords, known as "Basel III," assigns zero risk to U.S. Treasury bonds. Under Basel III's formula, then, every major bank in the world is effectively rewarded for holding these bonds instead of other assets. This artificially inflates demand for the bonds and enables the United States to borrow at lower rates than other countries. The United States also benefits from the heft of its economy as well as the size of its debt. Since America is the world's most indebted country in absolute terms, the market for U.S. Treasury bonds is the largest and most liquid such market in the world. Liquid markets matter a great deal to major investors: A large financial institution or government with hundreds of billions (or more) of a given currency on its balance sheet cares about being able to buy and sell assets while minimizing the impact of such actions on the trading price. There are no alternative low-risk assets one can trade at the scale of Treasury bonds. The status of such bonds as risk-free assets — and in turn, America's ability to borrow the money necessary to fund its ballooning expenditures — depends on investors' confidence in America's creditworthiness. Unfortunately, the Federal Reserve's interference in the markets for Treasury bonds have obscured our ability to determine whether financial institutions view the U.S. fiscal situation with confidence. In the 1990s, Bill Clinton's advisors prioritized reducing the deficit, largely out of a conern that Treasury-bond "vigilantes" — investors who protest a government's expansionary fiscal or monetary policy by aggressively selling bonds, which drives up interest rates — would harm the economy. Their success in eliminating the primary deficit brought yields on the benchmark 10-year Treasury bond down from 8% to 4%. In Clinton's heyday, the Federal Reserve was limited in its ability to influence the 10-year Treasury interest rate. Its monetary interventions primarily targeted the federal-funds rate — the interest rate that banks charge each other on overnight transactions. But in 2002, Ben Bernanke advocated that the Fed "begin announcing explicit ceilings for yields on longer-maturity Treasury debt." This amounted to a schedule of interest-rate price controls. Since the 2008 financial crisis, the Federal Reserve has succeeded in wiping out bond vigilantes using a policy called "quantitative easing," whereby the Fed manipulates the price of Treasury bonds by buying and selling them on the open market. As a result, Treasury-bond yields are determined not by the free market, but by the Fed. The combined effect of these forces — the regulatory impetus for banks to own Treasury bonds, the liquidity advantage Treasury bonds have in the eyes of large financial institutions, and the Federal Reserve's manipulation of Treasury-bond market prices — means that interest rates on Treasury bonds no longer indicate the United States' creditworthiness (or lack thereof). Meanwhile, indications that investors are growing increasingly concerned about the U.S. fiscal and monetary picture — and are in turn assigning more risk to "risk-free" Treasury bonds — are on the rise. One such indicator is the decline in the share of Treasury bonds owned by outside investors. Between 2010 and 2020, the share of U.S. Treasury securities owned by foreign entities fell from 47% to 32%, while the share owned by the Fed more than doubled, from 9% to 22%. Put simply, foreign investors have been reducing their purchases of U.S. government debt, thereby forcing the Fed to increase its own bond purchases to make up the difference and prop up prices. Until and unless Congress reduces the trajectory of the federal debt, U.S. monetary policy has entered a vicious cycle from which there is no obvious escape. The rising debt requires the Treasury Department to issue an ever-greater quantity of Treasury bonds, but market demand for these bonds cannot keep up with their increasing supply. In an effort to avoid a spike in interest rates, the Fed will need to print new U.S. dollars to soak up the excess supply of Treasury bonds. The resultant monetary inflation will cause increases in consumer prices. Those who praise the Fed's dramatic expansion of the money supply argue that it has not affected consumer-price inflation. And at first glance, they appear to have a point. In January of 2008, the M2 money stock was roughly $7.5 trillion; by January 2020, M2 had more than doubled, to $15.4 trillion. As of July 2021, the total M2 sits at $20.5 trillion — nearly triple what it was just 13 years ago. Over that same period, U.S. GDP increased by only 50%. And yet, since 2000, the average rate of growth in the Consumer Price Index (CPI) for All Urban Consumers — a widely used inflation benchmark — has remained low, at about 2.25%. How can this be? The answer lies in the relationship between monetary inflation and price inflation, which has diverged over time. In 2008, the Federal Reserve began paying interest to banks that park their money with the Fed, reducing banks' incentive to lend that money out to the broader economy in ways that would drive price inflation. But the main reason for the divergence is that conventional measures like CPI do not accurately capture the way monetary inflation is affecting domestic prices. In a large, diverse country like the United States, different people and different industries experience price inflation in different ways. The fact that price inflation occurs earlier in certain sectors of the economy than in others was first described by the 18th-century Irish-French economist Richard Cantillon. In his 1730 "Essay on the Nature of Commerce in General," Cantillon noted that when governments increase the supply of money, those who receive the money first gain the most benefit from it — at the expense of those to whom it flows last. In the 20th century, Friedrich Hayek built on Cantillon's thinking, observing that "the real harm [of monetary inflation] is due to the differential effect on different prices, which change successively in a very irregular order and to a very different degree, so that as a result the whole structure of relative prices becomes distorted and misguides production into wrong directions." In today's context, the direct beneficiaries of newly printed money are those who need it the least. New dollars are sent to banks, which in turn lend them to the most creditworthy entities: investment funds, corporations, and wealthy individuals. As a result, the most profound price impact of U.S. monetary inflation has been on the kinds of assets that financial institutions and wealthy people purchase — stocks, bonds, real estate, venture capital, and the like. This is why the price-to-earnings ratio of S&P 500 companies is at record highs, why risky start-ups with long-shot ideas are attracting $100 million venture rounds, and why the median home sales price has jumped 24% in a single year — the biggest one-year increase of the 21st century. Meanwhile, low- and middle-income earners are facing rising prices without attendant increases in their wages. If asset inflation persists while the costs of housing and health care continue to grow beyond the reach of ordinary people, the legitimacy of our market economy will be put on trial. THE RETURN OF SOUND MONEY Satoshi Nakamoto, the pseudonymous creator of Bitcoin, was acutely concerned with the increasing abundance of U.S. dollars and other fiat currencies in the early 2000s. In 2009 he wrote, "the root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust." Bitcoin was created in anticipation of the looming fiscal and monetary crisis in the United States and around the world. To understand how bitcoin functions alongside fiat currency, it's helpful to examine the monetary philosophy of the Austrian School of economics, whose leading figures — especially Hayek and Ludwig von Mises — greatly influenced Nakamoto and the early developers of Bitcoin. The economists of the Austrian School were staunch advocates of what Mises called "the principle of sound money" — that is, of keeping the supply of money as constant and predictable as possible. In The Theory of Money and Credit, first published in 1912, Mises argued that sound money serves as "an instrument for the protection of civil liberties against despotic inroads on the part of governments" that belongs "in the same class with political constitutions and bills of rights." Just as bills of rights were a "reaction against arbitrary rule and the nonobservance of old customs by kings," he wrote, "the postulate of sound money was first brought up as a response to the princely practice of debasing the coinage." Mises believed that inflation was just as much a violation of someone's property rights as arbitrarily taking away his land. After all, in both cases, the government acquires economic value at the expense of the citizen. Since monetary inflation creates a sugar high of short-term stimulus, politicians interested in re-election will always have an incentive to expand the money supply. But doing so comes at the expense of long-term declines in consumer purchasing power. For Mises, the best way to address such a threat is to avoid fiat currencies altogether. And in his estimation, the best sound-money alternative to fiat currency is gold. "The excellence of the gold standard," Mises wrote, is "that it renders the determination of the monetary unit's purchasing power independent of the policies of governments and political parties." In other words, gold's primary virtue is that its supply increases slowly and steadily, and cannot be manipulated by politicians. It may appear as if gold was an arbitrary choice as the basis for currency, but gold has a combination of qualities that make it ideal for storing and exchanging value. First, it is verifiably unforgeable. Gold is very dense, which means that counterfeit gold is easy to identify — one simply has to weigh it. Second, gold is divisible. Unlike, say, cattle, gold can be delivered in fractional units both small and large, enabling precise pricing. Third, gold is durable. Unlike commodities that rot or evaporate over time, gold can be stored for centuries without degradation. Fourth, gold is fungible: An ounce of gold in Asia is worth the same as an ounce of gold in Europe. These four qualities are shared by most modern currencies. Gold's fifth quality is more distinct, however, as well as more relevant to its role as an instrument of sound money: scarcity. While people have used beads, seashells, and other commodities as primitive forms of money, those items are fairly easy to acquire and introduce into circulation. While gold's supply does gradually increase as more is extracted from the ground, the rate of extraction relative to the total above-ground supply is low: At current rates, it would take approximately 66 years to double the amount of gold in circulation. In comparison, the supply of U.S. dollars has more than doubled over just the last decade. When the Austrian-influenced designers of bitcoin set out to create a more reliable currency, they tried to replicate all of these qualities. Like gold, bitcoin is divisible, unforgeable, divisible, durable, and fungible. But bitcoin also improves upon gold as a form of sound money in several important ways. First, bitcoin is rarer than gold. Though gold's supply increases slowly, it does increase. The global supply of bitcoin, by contrast, is fixed at 21 million and cannot be feasibly altered. Second, bitcoin is far more portable than gold. Transferring physical gold from one place to another is an onerous process, especially in large quantities. Bitcoin, on the other hand, can be transmitted in any quantity as quickly as an email. Third, bitcoin is more secure than gold. A single bitcoin address carried on a USB thumb drive could theoretically hold as much value as the U.S. Treasury holds in gold bars — without the need for costly militarized facilities like Fort Knox to keep it safe. In fact, if stored using best practices, the cost of securing bitcoin from hackers or assailants is far lower than the cost of securing gold. Fourth, bitcoin is a technology. This means that, as developers identify ways to augment its functionality without compromising its core attributes, they can gradually improve the currency over time. Fifth, and finally, bitcoin cannot be censored. This past year, the Chinese government shut down Hong Kong's pro-democracy Apple Daily newspaper not by censoring its content, but by ordering banks not to do business with the publication, thereby preventing Apple Daily from paying its suppliers or employees. Those who claim the same couldn't happen here need only look to the Obama administration's Operation Choke Point, a regulatory attempt to prevent banks from doing business with legitimate entities like gun manufacturers and payday lenders — firms the administration disfavored. In contrast, so long as the transmitting party has access to the internet, no entity can prevent a bitcoin transaction from taking place. This combination of fixed supply, portability, security, improvability, and censorship resistance epitomizes Nakamoto's breakthrough. Hayek, in The Denationalisation of Money, foresaw just such a separation of money and state. "I believe we can do much better than gold ever made possible," he wrote. "Governments cannot do better. Free enterprise...no doubt would." While Hayek and Nakamoto hoped private currencies would directly compete with the U.S. dollar and other fiat currencies, bitcoin does not have to replace everyday cash transactions to transform global finance. Few people may pay for their morning coffee with bitcoin, but it is also rare for people to purchase coffee with Treasury bonds or gold bars. Bitcoin is competing not with cash, but with these latter two assets, to become the world's premier long-term store of wealth. The primary problem bitcoin was invented to address — the devaluation of fiat currency through reckless spending and borrowing — is already upon us. If Biden's $3.5 trillion spending plan passes Congress, the national debt will rise further. Someone will have to buy the Treasury bonds to enable that spending. Yet as discussed above, investors are souring on Treasurys. On June 30, 2021, the interest rate for the benchmark 10-year Treasury bond was 1.45%. Even at the Federal Reserve's target inflation rate of 2%, under these conditions, Treasury-bond holders are guaranteed to lose money in inflation-adjusted terms. One critic of the Fed's policies, MicroStrategy CEO Michael Saylor, compares the value of today's Treasury bonds to a "melting ice cube." Last May, Ray Dalio, founder of Bridgewater Associates and a former bitcoin skeptic, said "[p]ersonally, I'd rather have bitcoin than a [Treasury] bond." If hedge funds, banks, and foreign governments continue to decelerate their Treasury purchases, even by a relatively small percentage, the decrease in demand could send U.S. bond prices plummeting. If that happens, the Fed will be faced with the two unpalatable options described earlier: allowing interest rates to rise, or further inflating the money supply. The political pressure to choose the latter would likely be irresistible. But doing so would decrease inflation-adjusted returns on Treasury bonds, driving more investors away from Treasurys and into superior stores of value, such as bitcoin. In turn, decreased market interest in Treasurys would force the Fed to purchase more such bonds to suppress interest rates. AMERICA'S BITCOIN OPPORTUNITY From an American perspective, it would be ideal for U.S. Treasury bonds to remain the world's preferred reserve asset for the foreseeable future. But the tens of trillions of dollars in debt that the United States has accumulated since 1971 — and the tens of trillions to come — has made that outcome unlikely. It is understandably difficult for most of us to imagine a monetary world aside from the one in which we've lived for generations. After all, the U.S. dollar has served as the world's leading reserve currency since 1919, when Britain was forced off the gold standard. There are only a handful of people living who might recall what the world was like before then. Nevertheless, change is coming. Over the next 10 to 20 years, as bitcoin's liquidity increases and the United States becomes less creditworthy, financial institutions and foreign governments alike may replace an increasing portion of their Treasury-bond holdings with bitcoin and other forms of sound money. With asset values reaching bubble proportions and no end to federal spending in sight, it's critical for the United States to begin planning for this possibility now. Unfortunately, the instinct of some federal policymakers will be to do what countries like Argentina have done in similar circumstances: impose capital controls that restrict the ability of Americans to exchange dollars for bitcoin in an attempt to prevent the digital currency from competing with Treasurys. Yet just as Nixon's 1971 closure of the gold window led to a rapid flight from the dollar, imposing restrictions on the exchange of bitcoin for dollars would confirm to the world that the United States no longer believes in the competitiveness of its currency, accelerating the flight from Treasury bonds and undermining America's ability to borrow. A bitcoin crackdown would also be a massive strategic mistake, given that Americans are positioned to benefit enormously from bitcoin-related ventures and decentralized finance more generally. Around 50 million Americans own bitcoin today, and it's likely that Americans and U.S. institutions own a plurality, if not the majority, of the bitcoin in circulation — a sum worth hundreds of billions of dollars. This is one area where China simply cannot compete with the United States, since Bitcoin's open financial architecture is fundamentally incompatible with Beijing's centralized, authoritarian model. In the absence of major entitlement reform, well-intentioned efforts to make Treasury bonds great again are likely doomed. Instead of restricting bitcoin in a desperate attempt to forestall the inevitable, federal policymakers would do well to embrace the role of bitcoin as a geopolitically neutral reserve asset; work to ensure that the United States continues to lead the world in accumulating bitcoin-based wealth, jobs, and innovations; and ensure that Americans can continue to use bitcoin to protect themselves against government-driven inflation. To begin such an initiative, federal regulators should make it easier to operate cryptocurrency-related ventures on American shores. As things stand, too many of these firms are based abroad and closed off to American investors simply because outdated U.S. regulatory agencies — the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission, the Treasury Department, and others — have been unwilling to provide clarity as to the legal standing of digital assets. For example, the SEC has barred Coinbase from paying its customers' interest on their holdings while refusing to specify which laws Coinbase has violated. Similarly, the agency has refused to approve Bitcoin exchange-traded funds (ETFs) without specifying standards for a valid ETF application. Congress should implement SEC Commissioner Hester Peirce's recommendations for a three-year regulatory grace period for decentralized digital tokens and assign to a new agency the role of regulating digital assets. Second, Congress should clarify poorly worded legislation tied to a recent bipartisan infrastructure bill that would drive many high-value crypto businesses, like bitcoin-mining operations, overseas. Third, the Treasury Department should consider replacing a fraction of its gold holdings — say, 10% — with bitcoin. This move would pose little risk to the department's overall balance sheet, send a positive signal to the innovative blockchain sector, and enable the United States to benefit from bitcoin's growth. If the value of bitcoin continues to appreciate strongly against gold and the U.S. dollar, such a move would help shore up the Treasury and decrease the need for monetary inflation. Finally, when it comes to digital versions of the U.S. dollar, policymakers should follow the advice of Friedrich Hayek, not Xi Jinping. In an effort to increase government control over its monetary system, China is preparing to unveil a blockchain-based digital yuan at the 2022 Beijing Winter Olympics. Jerome Powell and other Western central bankers have expressed envy for China's initiative and fret about being left behind. But Americans should strongly oppose the development of a central-bank digital currency (CBDC). Such a currency could wipe out local banks by making traditional savings and checking accounts obsolete. What's more, a CBDC-empowered Fed would accumulate a mountain of precise information about every consumer's financial transactions. Not only would this represent a grave threat to Americans' privacy and economic freedom, it would create a massive target for hackers and equip the government with the kind of censorship powers that would make Operation Choke Point look like child's play. Congress should ensure that the Federal Reserve never has the authority to issue a virtual currency. Instead, it should instruct regulators to integrate private-sector, dollar-pegged "stablecoins" — like Tether and USD Coin — into the framework we use for money-market funds and other cash-like instruments that are ubiquitous in the financial sector. PLANNING FOR THE WORST In the best-case scenario, the rise of bitcoin will motivate the United States to mend its fiscal ways. Much as Congress lowered corporate-tax rates in 2017 to reduce the incentive for U.S. companies to relocate abroad, bitcoin-driven monetary competition could push American policymakers to tackle the unsustainable growth of federal spending. While we can hope for such a scenario, we must plan for a world in which Congress continues to neglect its essential duty as a steward of Americans' wealth. The good news is that the American people are no longer destined to go down with the Fed's sinking ship. In 1971, when Washington debased the value of the dollar, Americans had no real recourse. Today, through bitcoin, they do. Bitcoin enables ordinary Americans to protect their savings from the federal government's mismanagement. It can improve the financial security of those most vulnerable to rising prices, such as hourly wage earners and retirees on fixed incomes. And it can increase the prosperity of younger Americans who will most acutely face the consequences of the country's runaway debt. Bitcoin represents an enormous strategic opportunity for Americans and the United States as a whole. With the right legal infrastructure, the currency and its underlying technology can become the next great driver of American growth. While the 21st-century monetary order will look very different from that of the 20th, bitcoin can help America maintain its economic leadership for decades to come. Tyler Durden Tue, 10/19/2021 - 23:25.....»»

Category: worldSource: nytOct 20th, 2021

Boyar Value Group 3Q21 Commentary

Boyar Value Group commentary for the third quarter ended September 30, 2021. Q3 2021 hedge fund letters, conferences and more “Cryptocurrencies, regardless of where they’re trading today, Will eventually prove to be worthless. Once the exuberance Wears off, or liquidity dries up, they will go to zero. I wouldn’t recommend anyone invest in Cryptocurrencies.” – […] Boyar Value Group commentary for the third quarter ended September 30, 2021. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Warren Buffett Series in PDF Get the entire 10-part series on Warren Buffett in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more “Cryptocurrencies, regardless of where they’re trading today, Will eventually prove to be worthless. Once the exuberance Wears off, or liquidity dries up, they will go to zero. I wouldn’t recommend anyone invest in Cryptocurrencies.” – John Paulson Stock market investors have a laundry list of worries these days, from partisan bickering over the infrastructure package and a massive social and climate spending bill (amid a high-stakes game of political chicken over the debt ceiling) to supply chain disruptions and a spike in the costs of critical commodities. Geopolitical tensions are escalating between the United States and China—which is undergoing a significant regulatory crackdown—and question marks surround the future of interest rates and the consequences of a future Fed taper. And that’s to say nothing of the coronavirus! So it’s no surprise that investors are on edge—we’re getting depressed just reading through the list. Yet volatility in 2021, measured by how much the S&P 500 has decreased from its all-time high (~5%), has been tame. (According to David Lebovitz, a global market strategist with JP Morgan, the average peak-totrough decline for the S&P 500 over the past 41 years has been 14.3%.) In fact, until September, the S&P 500 was regularly charting new all-time highs, at ~54 and counting. But then the stock market got spooked, with the S&P 500 suffering its worst monthly performance (down 4.65%) since March 2020 and its worst September performance since 2011 (during the European debt crisis). Worse, all but one sector was in the red, with Energy the only advancer. Despite a 4.65% September loss, the S&P 500 eked out a 2% gain for the quarter, marking the sixth consecutive quarter of advances. But its 227 days without a 5% drop from the high ended on September 29—the seventh-longest such streak on record, Jacob Sonenshine of Barron’s tells us. The Dow and the Nasdaq were less fortunate, with their fivequarter winning streaks ending after respective falls of 4.2% and 5.31% in September. The Dow declined by 1.46% for the quarter, and the Nasdaq fell by 0.38%. Historically speaking, a September decline in the S&P 500 isn’t surprising: the past 100 years have seen 89 monthly drops of more than 5%. Felice Maranz of Bloomberg notes that September and October have accounted for 12 of the 26 times the market has dropped by more than 10% in a month. Encouragingly, these 26 drops were followed by subsequent 12-month gains on 16 occasions (for an average gain of 6.8%). Bond yields also began to increase (the 10-year Treasury went from 1.18% to 1.61% in less than 3 months), which dragged down technology shares. Higher yields on long-term risk-free investments make future profits less valuable, harming many tech company valuations, which are often based on expectations of significant profits many years down the line. Since technology companies are weighted heavily in the S&P 500 (nearly 28%, or more than 2x the weighting of the next-largest sector, Health Care, at 13.3%), the index dropped quite a bit more than the average stock did. (In September the S&P 500 index declined by 4.65%, while the S&P 500 equal-weighted index fell 3.90%.) The S&P 500 finished 3Q 2021 selling for 20.3x earnings (fwd.) versus 19.2x at its February 19, 2020, pre-COVID peak and 13.3x at its March 23, 2020, pandemic low. Since the March 23 bottom, the S&P 500 has gained well over 90%. By most traditional valuation measures (price to earnings, price to book, price to free cash flow, etc.), the S&P 500 is historically overvalued. Overvaluation against historical averages does not mean that investors should avoid equities, because extraordinarily low interest rates make prior valuation comparisons less meaningful. More important, at The Boyar Value Group, we don’t buy “the market”; rather, we purchase, and hold, businesses that sell far below our estimate of their worth. It might be especially hard uncovering bargains right now, but we’ve identified quite a few businesses selling at attractive levels even so. What’s Been Driving Share Price Returns in 2021? None of the 11 S&P 500 GICS sectors had standout performance in 3Q 2021, with 4 in negative territory and 1 flat (Consumer Discretionary). The biggest gainer, Financials, advanced a mere 2.7%. (For comparison, last quarter’s biggest gainer, Real Estate, advanced 13.1%.) By the end of 3Q, no sector was in negative territory YTD, and the best-performing sector by far was Energy (+43.2%). However, its low weighting in the S&P 500 (2.7%) gave it little effect on the index’s return, and its fantastic rise should be viewed in context, following as it did a loss of 37.3% in 2020. Other notable gainers thus far in 2021 have been Financials (+29.1%), Real Estate (+24.4%), and Communication Services (+21.6%). Interestingly, according to JP Morgan, since the market bottomed in March 2020, the S&P 500 had advanced ~97.3% as of September 30, 2021—leaving the index “only” ~30.6% above its February 2020 peak. The FAAMG stocks (Facebook, Apple, Amazon, Microsoft, and Alphabet—formerly Google), which have seemingly been leading the market ever upward, have struggled lately. Since their September peak, they have lost ~9%, or nearly $1 trillion, in market value. Due to FAAMG’s heavy weighting in the S&P 500 (~22%), if this area of the market continues struggling, the S&P 500 likely won’t perform well. Even so, we think there could be plenty of opportunities to make money investing in companies that have lower index weightings and/or that are outside the major indices. Some of the biggest “pandemic winners” are struggling too, with shares in Zoom Video Communications Inc (NASDAQ:ZM), Peloton Interactive Inc (NASDAQ:PTON), and Teladoc Health Inc (NYSE:TDOC) down 24%, 43%, and 34%, respectively, in 2021. (Though it’s worth noting that each company’s share price is trading significantly higher than before the pandemic.) One pandemic standout that has continued to soar throughout 2021 is vaccine maker Moderna, whose shares are up 192% in 2021 and up over 1,000% since March 2020. In hindsight, many signs of an imminent pullback were present. Market sentiment, for example, was very bullish (usually a contrarian indicator). At the beginning of August, two-thirds of JP Morgan clients surveyed were planning to increase their stock exposure in the coming weeks. A recent Bank of America gauge that tracks levels of optimism among market strategists was at a postcrisis high, and as of mid-August, 56% of all Wall Street analyst recommendations on S&P 500 index components were buys, the highest figure since 2002. However, we aren’t market timers. That’s because we know that trying to pinpoint the exact start of a market correction is a fool’s errand that impedes long-term results by prompting more trades (making results less tax-efficient) while removing the chance to make spectacular gains with companies that may be temporarily overvalued based on current earnings but that still have great long-term potential. When selling a high-quality company that has temporarily gotten ahead of itself in terms of valuation but that has excellent future growth prospects, knowing when to repurchase shares is extremely difficult, because the company’s share price often never drops enough to tempt investors into buying it again. So if you sell early to lock in a profit, anticipating a future correction, your profit on a well-timed sale might short-change you on future outsized gains. Reasons for Optimism According to Bloomberg, the final quarter of the year has been the strongest quarter for stocks since 2001, with an average increase of 4.1%. If history is any guide, 4Q 2021 could be a good quarter: 412 members of the S&P 500 are heading into it with gains for the year, the third-highest figure during the past 20 years. During that same period, each time 400 or more stocks have been positive through 3Q, the S&P 500 has produced a gain for 4Q.In another potentially bullish sign for stocks, cash holdings among S&P 500 companies hit $1.8 trillion in August 2021, as reported by Dow Jones Market Data—an increase of almost 30% from 3Q 2019. According to recent research by Goldman Sachs cited by Hardika Singh in a Wall Street Journal article, corporate America seems unlikely to be hoarding this cash, with S&P 500 companies expected to increase cash spending to $2.8 trillion in 2021 (mostly on capital expenditures, mergers, and business investment). Corporations also seem willing to buy back their own shares, having collectively authorized ~$870 billion in share repurchases thus far in 2021, $50 billion ahead of the record set in the first 9 months of 2018. If they deploy this capital wisely, share buybacks could buoy share prices in the short run, with capital investments spurring long-term earnings growth. What Does TINA Have to Do with the Stock Market? TINA, meaning “there is no alternative,” has become a popular catchphrase among investors, used to express the idea that stocks should continue doing well simply because interest rates are so low as to leave investors few investment options to produce an adequate rate of return. With the 10-year Treasury yielding ~1.6% and municipal bonds yielding ~1.17%, investors certainly are lacking attractive traditionally “safe” investment opportunities! Interest rates are so low that even the yields on some risky European junk bonds don’t earn any real return after factoring in inflation. Until rates rise meaningfully, equities should continue to see support—because there truly are few alternatives. The State of Value Investing Since April 2020, the S&P 500 value index has risen a little under 60%, while the S&P 500 growth index has surged over 90%, says Jacob Sonenshine of Barron’s. Value stocks should start outperforming if history is any guide: in the first 2 years of a recovery after a recession, value has bested growth by an average of 24%, based on data from Research Affiliates. The swift rotation back into value shares that began in September 2020 ended abruptly in July of this year as the delta variant slowed down the economic recovery, interest rates fell, and investors once again began embracing technology-oriented shares. But value looks like it might be making a comeback, with interest rates rising again and investors starting to embrace industrial and financial shares. Market Tops With the S&P 500 having advanced well over 80% since its March 2020 highs, and in view of all the political and economic uncertainty on the horizon, investors are questioning whether the latest bull market has ended. However, Mark Hulbert of the Wall Street Journal points out that unlike bear-market bottoms, which usually occur quickly (thankfully), bull markets end slowly, because individual sectors or investment styles peak and retreat at different times: “A recent illustration that not all sectors and styles hit their bull-market highs at the same time came at the top of the internet-stock bubble in early 2000. Though the S&P 500 and Nasdaq Composite indexes hit their bull-market highs in March 2000, value stocks—and small-cap value stocks, in particular—kept on rising. The S&P 500 at its October 2002 bear-market low was 49% lower than its March 2000 high, and the Nasdaq Composite was 78% lower, but the average small-cap value stock was 2% higher than it was in March 2000. Hulbert analyzed 30 bull-market tops since the mid-1920s, using data maintained by Ned Davis Research, and identified the dates when individual sectors and market styles (value, growth, blend) reached their bull-market peaks, reporting a 225-day spread between the dates when the first and last market sectors reached their bull-market tops. There are exceptions, of course, such as with bear markets caused by exogenous events such as 9/11 and the pandemic, but in general, he says, “it’s more accurate to view a bull-market top as a process rather than a single event.” As Hulbert points out, even the so-called experts can’t determine when a market peaks. Over the past 40 years, on days when the S&P 500 reached a bull-market high, the market timers that he followed recommended equity exposure at an average of 65.7%—a higher level of recommended investment than on 95% of all other days over the period. The experts were even worse at picking bear market lows, with their average equity exposure at market lows over the same period a mere 5%—yet another example of investors buying high and selling low! The takeaway is that knowing when a market has peaked is pretty much impossible to do regularly: even the so-called experts are consistently wrong. Individual investors would do much better to base their decisions on the value of each of their holdings rather than trying to guess whether they’re in a bull or bear market. Speculation in the Market The amount of speculation in the stock market worries us. A good example is the heightened use of stock options, which have legitimate hedging purposes, but which individuals seem to have recently embraced for speculative purposes. CBOE data indicate that option trading by individual investors has risen 4x over the past 5 years. As noted by Gundan Banerdi in the Wall Street Journal, “Nine of 10 of the most-active call-options trading days in history have taken place in 2021, Cboe Global Markets data show. Almost 39 million option contracts have changed hands on an average day this year, up 31% from 2020 and the highest level since the market’s inception in 1973, according to figures from the Options Clearing Corp.” As a result, the options market has grown so large that in some respects it’s bigger than the stock market. In 2021, for example, according to CBOE data, the daily average notional value of single stock options was over $432 billion, compared with $404 billion in stocks. We’ve said it before, and we’ll say it again: staying the course and taking a long-term view is one of individual investors’ best ways of stacking the odds of investment success in their favor. According to Dalbar, over the past 20 years the S&P 500 has advanced 7.5% annually, yet the average investor has gained a mere 2.9% (barely beating the 2.1% inflation over the period). Why this underperformance? Partly because investors let their emotions get the best of them and chase the latest investment fad (or they pile into equities at market peaks and sell out at market troughs)—or sell for nonfundamental reasons, such as simply because a company’s share price (or an index) has increased in value. By contrast, taking a multiyear view tilts the odds of success in investors’ favor. Since 1950, the range of stock market returns measured by the S&P 500 (using data supplied by JP Morgan) in any given year has been from +47% to -39%. For any given 5-year period, however, that range is +28% to -3%—and for any given 20-year period, it is +17% to +6%. In short, since 1950, there has never been a 20-year period when investors did not make at least 6% per year in the stock market. Although past performance is certainly no guarantee of future returns, history shows that the longer the time frame you give yourself, the better your chances of earning a satisfactory return. As always, we’re available to answer any questions you might have. If you’d like to discuss these issues further, please reach out to us at jboyar@boyarvaluegroup.com or 212-995-8300. Best regards, Mark A. Boyar Jonathan I. Boyar Boyar Value Group Updated on Oct 14, 2021, 2:01 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 14th, 2021

Mitch McConnell reverses on the debt ceiling as Congress poised to get another two months to avoid a government default

Senate Republicans were in disarray earlier as they struggled to come up with enough support to clear an initial procedural vote. Senate Minority Leader Mitch McConnell, R-Ky., arrives to speak to reporters ahead of a test vote scheduled by Democratic Leader Chuck Schumer of New York on the bipartisan infrastructure deal senators brokered with President Joe Biden, in Washington, Wednesday, July 21, 2021. AP Photo/J. Scott Applewhite The Senate approved a short-term debt limit extension through early December, sending it to the House. The move marks a reversal for Sen. McConnell, who previously urged the GOP to block Democrats' efforts. The deal punts the risk of a government default to December, when Congress will have to raise the ceiling again. See more stories on Insider's business page. The Senate approved a measure to extend the debt limit through early December, defusing a perilous showdown that brought the US to the edge of default. The bill now goes to the House for a vote sometime next week.The tally was 50-48 with every Senate Republican opposed to the measure during final passage. But 11 GOP senators, including Senate Minority Leader Mitch McConnell, joined Democrats to cut off debate and break the filibuster's 60-vote threshold in an initial procedural vote."Republicans played a risky and partisan game, and I am glad their brinkmanship didn't work," Senate Majority Leader Chuck Schumer of New York said in a floor speech.McConnell caved Wednesday afternoon, offering Democrats a short extension to avoid a looming government default as . The senator from Kentucky had been blocking Democrats' efforts to raise the ceiling since early last week. Thursday's vote marks a reversal from that stance and arrived just 11 days before the government's estimated deadline.It raises the debt ceiling by $480 billion, letting the government continue borrowing freely until December, according to Treasury Department estimates.Many Republicans were unhappy with McConnell's olive branch and the party struggled to scrounge up enough votes to cross the 60-vote threshold to end debate."We need to be able to get on this," Sen. Lisa Murkowski of Alaska told Insider. "The only way we're gonna be able to get on this is if we can get 60 votes. I'm gonna be one of those 60."Most Senate Republicans were lined up in opposition to the debt limit extension. "Debt is not the friend of the American public and we should resist it," Sen. Rand Paul of Kentucky told Insider.The debt ceiling is the statutory cap on how much the government can borrow to repay its bills. Suspending the limit gives the US more time to pay its bills for pandemic stimulus and other key aid programs from the last two years. If Congress fails to raise the limit, the government can default on its debt and plunge the US into a new economic crisis.Thursday's deal essentially kicks the can down the road, leaving Congress where it started heading into the holiday season. Democrats are still reluctant to use the time-consuming reconciliation process to lift the limit on their own. And McConnell was adamant on Wednesday that Republicans won't offer any more support."This will moot Democrats' excuses about the time crunch they created and give the unified Democratic government more than enough time to pass standalone debt limit legislation through reconciliation," he said in a statement.Senate Republicans had maintained that Democrats must unilaterally raise the debt ceiling, arguing the GOP wants no part in financing the $3.5 trillion social spending plan. But Democrats argued that raising the ceiling is a bipartisan responsibility. Doing so would cover debt incurred from both the Trump and the Biden administrations, including President Donald Trump's $900 billion stimulus package from last December.Democrats ramped up the pressure on the GOP throughout the week. President Joe Biden lambasted Republicans for their obstruction on Monday, and spoke with business leaders on Wednesday about the harm of a potential government default."Not only are Republicans refusing to do their job, they're using their power to prevent us from doing our job of saving the economy from a catastrophic event," Biden said during the Monday press conference. "I think, quite frankly, it's hypocritical, dangerous, and disgraceful."Brace for December deadlinesThe GOP started to blinked on Wednesday as Democrats explored several options for raising the ceiling on their own. One solution to emerge was a one-time change to the filibuster that would let Democrats raise the limit with a party-line vote. Biden floated blowing a hole in the filibuster on Tuesday, telling reporters it was "a real possibility" to avoid a federal default.It may very well have forced McConnell's hand. "It's not an insignificant part of the calculation, I'm quite sure," Sen. Kevin Cramer of North Dakota told Insider in an interview.The minority leader has long warned that eliminating or weakening the filibuster would plunge the Senate into chaos. Moderate Democrats Joe Manchin and Kyrsten Sinema were strongly opposed to any filibuster changes, but pressure on them to reverse course would likely intensify as the country hurtled toward the October 18 deadline.While the deal only delays an inevitable debt-ceiling battle until the winter, it also staves off a horrific economic threat. Failure to raise the ceiling would be calamitous. Government funding would quickly freeze for Social Security beneficiaries, members of the armed services, and public workers. The country would slide into a recession and lose nearly 6 million jobs, Moody's Analytics estimated. American household wealth would plummet by $15 trillion as fears of a government default could tank stocks.Hitting the ceiling would also be disastrous for the country's global strength. The US dollar serves as the world's reserve currency, and its power relies on trust in the government to pay its debt.Nothing would be "more harmful" to the currency than a default, Treasury Secretary Janet Yellen warned September 27. The dollar would quickly lose its relevance, interest rates would shoot higher, and Americans' payments on everything from credit-card bills to home loans would soar, she added.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderOct 7th, 2021

The Deficit Ceiling Is No Longer A Concern

In his Daily Market Notes report to investors, while commenting on the deficit ceiling, Louis Navellier wrote: Q3 2021 hedge fund letters, conferences and more We survey our investors each week, and this week’s topic was whether or not now is a good time to invest in stocks.  Despite market gyrations, retail investors remain bullish. […] In his Daily Market Notes report to investors, while commenting on the deficit ceiling, Louis Navellier wrote: if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more We survey our investors each week, and this week’s topic was whether or not now is a good time to invest in stocks.  Despite market gyrations, retail investors remain bullish. Refreshing Poise It looks like we just went through the pause that refreshed and these oscillations are about to end. And one of the reasons is, is a lot of the things that were overhanging the market of have dissipated. Obviously, the deficit ceiling is no longer a concern.  Higher energy prices impacting Europe and other countries is now dissipating because Russia reassured Europe they have plenty of natural gas. Also, crude oil prices have started to ebb. Some of it's seasonal pressure. A lot of its OPEC increased their production. So that energy inflation that was starting to impact some economy severely is now dissipating. Also, private payrolls are much stronger than anticipated. Today, we had new claims for unemployment and continuing claims both fell after rising for three weeks, especially on new weekly claims. And so, they finally fell and they were well below economist's expectations. That's setting the stage for a very, very strong Friday payroll report. And that's important because the Fed has an unemployment mandate. And if the jobs really start to come back, then that'll allow the fed to go to this next stage and start to briefly taper and things like that. If the Fed starts to taper and/or next year raises key rates a quarter percent, it's not going to hurt growth stocks. Growth stocks are the place to be when rates start to tilt up just a tad. So our stocks are going to be in oasis. We're going to have wave after wave of good earnings, starting the third week of October. It looks like for many stocks better earnings are coming from margin rather than sales expansion. The Proposed Tax Increases Have Been Shelved One thing that should help the U.S. consumer is the proposed tax increases have been shelved, due to the infighting within the Democratic Party that is scared of losing their majority in the 2022 mid-term elections.  Essentially, any significant tax increase, even for infrastructure spending, would be viewed as a negative development heading into the 2022 mid-term elections. Furthermore, Senator Joe Manchin made it crystal clear that no matter what spending package the House of Representatives passes, he had not been consulted and would likely not support the proposed bill.  In the end, Senator Joe Manchin is the most powerful person in Washington D.C., so any spending and tax increases will have to be approved by him. The good news is that as inflation continues to heat up and push China and other countries into a recession, the U.S. remains an oasis.  The port bottlenecks and supply chain glitches persist, but at least the U.S. is not expected to be crippled by high coal and natural gas prices that are now hindering China and much of Europe. Interestingly, the Fed’s favorite inflation indicator, namely the Personal Consumption Expenditures (PCE) index rose 0.3% in August and is now running at the highest level in 31 years.  Consumer Spending Up However,  the Commerce Department reported that consumer spending rose 0.8% in August, up sharply.   Any time consumers are spending more than their income is a good sign. So has we head into the fourth quarter, much of the uncertainty plaguing financial markets is starting to dissipate.  The only thing that continues to frustrate many investors is inflation.  The bottom line is that U.S. economy remains an oasis around the world, which is why the U.S. dollar is near a one-year high. The Atlanta Fed on Tuesday lowered its third quarter GDP estimate to an annual pace of 1.3%, down from its previous estimate of 2.3%.  The trade deficit and weaker than expected home sales seem to be the primary culprit behind the Atlanta Fed’s downward GDP revision.  Overall, the U.S. seems constrained by ongoing port bottlenecks, which are getting worse as retailers strive to stock up on merchandise for the holidays. The Facebook Outage The Facebook, Inc. (NASDAQ:FB) outage earlier this week was one part of a perfect storm facing the company that also included alarming claims whistleblower Frances Haugen.    In the end, Facebook still has a lot of allies in Congress, so it will be interesting to sell what, if any regulatory action will be taken against Facebook.  I suspect that due to the First Amendment, very little action will be taken against Facebook. The fourth quarter is a seasonally strong quarter that is characterized by positive gains for October, November and December.  I should add that January is also a seasonally strong month, so we have four straight months of seasonal strength to look forward too.  November is the strongest month in the fourth quarter, since we typically get an “early January effect” just before Thanksgiving, when small capitalization stocks seasonally surge. v Updated on Oct 7, 2021, 5:07 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 7th, 2021

The Economic Growth Is Decelerating

In his Daily Market Notes report to investors, while commenting on the decelerating economic growth, Louis Navellier wrote: Q2 2021 hedge fund letters, conferences and more Investor Distractions Three major factors are distracting investors, namely the U.S. budget deficit ceiling, soaring inflation, and supply chain/port bottlenecks. Regarding the U.S. budget deficit, I want to assure […] In his Daily Market Notes report to investors, while commenting on the decelerating economic growth, Louis Navellier wrote: if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q2 2021 hedge fund letters, conferences and more Investor Distractions Three major factors are distracting investors, namely the U.S. budget deficit ceiling, soaring inflation, and supply chain/port bottlenecks. Regarding the U.S. budget deficit, I want to assure investors that the deficit ceiling will be lifted by Congress before October 18th, but not before many politicians get to embarrass each other over the federal budget deficit. The proposed infrastructure bill is now officially dead after the Biden Administration sided with the progressive wing of the Democratic party and alienated the more moderate members in Congress, so there are not currently enough votes in the House of Representatives to advance the proposed bill to the Senate with proposed tax hikes.  The fact that taxes are not going up is very bullish for overall economic growth. Decelerating Economic Growth There is no doubt that economic growth is decelerating, since the Atlanta Fed recently lowered its third-quarter GDP estimate to an annual pace of 2.3%, down from its previous estimate of 3.2%.  The trade deficit and weaker-than-expected home sales seem to be the primary culprit behind the Atlanta Fed’s downward GDP revision.  Overall. The U.S. seems constrained by ongoing port bottlenecks, which are getting worse as retailers strive to stock up on merchandise for the holidays. The good news is that as inflation continues to heat up and push China and other countries into a recession, the U.S. remains an oasis.  The port bottlenecks and supply chain glitches persist, but at least the U.S. is not excepted to be crippled by high coal and natural gas prices that are now hindering China and much of Europe. The Fed is blaming inflation on the port bottlenecks and still believes that inflation is “transitory.”  It is important to remember that slightly over a year ago, the U.S. economy was characterized by deflation, which the Fed definitely fixed with its easy-money policies, ultralow interest rates and quantitative easing.  The only problem is the Fed “overshot” its 2% inflation target. Interestingly, the Fed’s favorite inflation indicator, namely the Personal Consumption Expenditures (PCE) index rose 0.3% in August and is now running at a 4.3% pace in the last 12 months, which is the highest level in 31 years. Fed Chairman Jerome Powell before the House of Representatives recently said the surge in prices this year “is a function of supply-side bottlenecks over which we have no control.”  However, Powell also briefly spooked the stock market when he said the Fed faces a “Difficult Trade-Off” if inflation does not moderate and stressed that “Our expectations in that inflation will come down.” The Proposed Tax Increases Have Been Shelved One thing that should help the U.S. consumer is the proposed tax increases have been shelved, due to the infighting within the Democratic Party that is scared of losing their majority in the 2022 mid-term elections.  Essentially, any significant tax increase, even for infrastructure spending, would be viewed as a negative development heading into the 2022 mid-term elections. Furthermore, Senator Joe Manchin made it crystal clear that no matter what spending package the House of Representatives passes, he had not been consulted and would likely not support the proposed bill.  In the end, Senator Joe Manchin is the most powerful person in Washington D.C., so any spending and tax increases will have to be approved by him. The bottom line is that the U.S. economy remains an oasis around the world, which is why the U.S. dollar is near a one-year high.  Not only does the U.S. have positive economic growth, but we also have higher interest rates and continue to attract foreign capital that may keep Treasury yields artificially low.  Furthermore, although the pace of economic growth in the U.S. is slowing, the consumer remains healthy based on personal income and many companies have robust order backlogs due to port bottlenecks and other supply shortages.  Finally, our growth stocks are a great inflation hedge. The fourth quarter is a seasonally strong quarter that is characterized by positive gains for October, November and December.  I should add that January is also a seasonally strong month, so we have four straight months of seasonal strength to look forward to.  November is the strongest month in the fourth quarter since we typically get an “early January effect” just before Thanksgiving when small-capitalization stocks seasonally surge. Heard & Notable: The Pandora Papers Leak revealed 2.94 terabytes of offshore tax activities of prominent figures in the world of business, politics, entertainment and sports. Compared to the famous 2010 Wikileaks release of U.S. diplomatic cables, the Pandora Papers are more than 1,700 times as large. Source: Statista Updated on Oct 4, 2021, 2:28 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 4th, 2021

Futures Rebound As Yields Drop

Futures Rebound As Yields Drop U.S. index futures rebounded on Tuesday from Monday's stagflation-fear driven rout as an increase in Treasury yields abated and the greenback dropped from a 10 month high while Brent crude dropped from a 3 year high of $80/barrel after API showed a surprise stockpile build across all products. One day after one of Wall Street’s worst selloff of this year which saw the S&P's biggest one-day drop since May, dip buyers made yet another another triumphal return to global markets, with Nasdaq 100 futures climbing 130 points or 0.9% after the tech-heavy index tumbled the most since March on Tuesday as U.S. Treasury yields rose on tapering and stagflationconcerns. S&P 500 futures rose 28 points or 0.6% after the underlying gauge also slumped amid mounting concern over the debt-ceiling impasse in Washington. A key catalyst for today's easing in financial conditions was the 10-year yield shedding four basis points and the five-year rate falling below 1%. In the past five sessions, the 10Y yield rose by a whopping 25 basis point, a fast enough move to trigger VaR shocks across risk parity investors. "We think (10-year treasury yields) are likely to around 1.5% to 1.75%, so they obviously still have room to go," said Daniel Lam, senior cross-asset strategist at Standard Chartered, who added that the rise in yields was driven by the fact that the United States was almost definitely going to start tapering its massive asset purchases by the end of this year, and that this would drive a shift from growth stocks into value names. Shares of FAAMG gigatechs rose between 1% and 1.3% in premarket trading as the surge in yields eased. Oil firms and supermajors like Exxon and Chevron dipped as a rally in crude prices petered out. The S&P energy sector has gained 3.9% so far this week and is on track for its best monthly performance since February. Among stocks, Boeing rose 2.5% after it said 737 MAX test flight for China’s aviation regulator last month was successful and the planemaker hopes a two-year grounding will be lifted this year. Cybersecurity firm Fortinet Inc. led premarket gains among S&P 500 Index companies. Here are some of the other big movers this morning: Micron (MU US) shares down more than 3% in U.S. premarket trading after the chipmaker’s forecast came in well below analyst expectations. Co. was hurt by slowing demand from personal-computer makers Lucid (LCID US) shares rise 9.7% in U.S. premarket trading after the electric-vehicle company said it has started production on its debut consumer car EQT Corp. (EQT US) shares fell 4.8% in Tuesday postmarket trading after co. reports offering by certain shareholders who received shares as a part of its acquisition of Alta Resources Development’s upstream and midstream units PTK Acquisition (PTK US) rises in U.S. premarket trading after the blank-check company’s shareholders approved its combination with the Israel-based semiconductor company Valens Cal-Maine (CALM US) shares rose 4.4% postmarket Tuesday after it reported net sales for the first quarter that beat the average analyst estimate as well as a narrower-than-estimated loss Sherwin-Williams (SHW US) dropped 3.5% in Tuesday postmarket trading after its forecasted adjusted earnings per share for the third quarter missed the average analyst estimate Boeing (BA US) and Spirit Aerosystems (SPR US) climb as much as 3% after being upgraded to outperform by Bernstein on travel finally heading to inflection point The S&P 500 is set to break its seven-month winning streak as fears about non-transitory inflation, China Evergrande’s default, potential higher corporate taxes and a sooner-than expected tapering of monetary support by the Federal Reserve clouded investor sentiment in what is usually a seasonally weak month. Meanwhile, Senate Democrats are seeking a vote Wednesday on a stopgap funding bill to avert a government shutdown, but without a provision to increase the federal debt limit. On Tuesday, Jamie Dimon said a U.S. default would be “potentially catastrophic” event, in other words yet another multibillion bailout for his bank. “Many things are in flux: the pandemic is not over, the supply chain bottlenecks we are seeing are affecting all sorts of prices and we’ll need to see how it plays out because the results are not clear in terms of inflation,” Belita Ong, Dalton Investments chairman, said on Bloomberg Television. Europe’s Stoxx 600 gauge rebounded from a two-month low, rising 0.9% and reversing half of yesterday's losses. Semiconductor-equipment company ASM International posted the biggest increase on the index amid positive comments by analysts on its growth outlook. A sharp rebound during the European session marked a turnaround from the downbeat Asian session, when equities extended losses amid concerns over stagflation and China Evergrande Group’s debt crisis. Sentiment improved as a steady flow of buyers emerged in the Treasury market, ranging from foreign and domestic funds to leveraged accounts.  Here are some of the biggest European movers today: Academedia shares rise as much as 6.9% in Stockholm, the most since June 1, after the company said the number of participants for its higher vocational education has increased 25% y/y. ASM International jumps as much as 7.3%, rebounding from a three-day sell-off, boosted by supportive analyst comments and easing bond yields. GEA Group gains as much as 4.7% after the company published new financial targets through 2026, which Citigroup says are above analysts’ consensus and an encouraging signal. DSV bounces as much as 4.4% as JPMorgan upgrades to overweight, saying the recent pullback in the shares presents an opportunity. Genova Property Group falls as much as 10% in Stockholm trading after the real estate services company placed shares at a discount to the last close. ITM Power drops as much as 6.4% after JPMorgan downgrades to neutral from overweight on relative valuation, with a more mixed near-term outlook making risk/reward seem less compelling. Royal Mail slides as much as 6.2% after UBS cuts its rating to sell from buy, expecting U.K. labor shortages and wage inflation pressures to hurt the parcel service company’s profit margins. Earlier in the session, Asian equities slumped in delayed response to the US rout. MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.43% with Australia off 1.5%, and South Korea falling 2.06%. The Hong Kong benchmark shed 1.2% and Chinese blue chips were 1.1% lower. Japan's Nikkei shed 2.35% hurt by the general mood as the country's ruling party votes for a new leader who will almost certainly become the next prime minister ahead of a general election due in weeks.  Also on traders' minds was cash-strapped China Evergrande whose shares rose as much as 12% after it said it plans to sell a 9.99 billion yuan ($1.5 billion) stake it owns in Shengjing Bank. Evergrande is due to make a $47.5 million bond interest payment on its 9.5% March 2024 dollar bond, having missed a similar payment last week, but it said in the stock exchange filing the proceeds of the sale should be used to settle its financial liabilities due to Shengjing Bank. Chinese real estate company Fantasia Holdings Group is struggling to avoid falling deeper into distress, just as the crisis at China Evergrande flags broader risks to other heavily indebted developers. In Japan, the country's PGIF, or Government Pension Investment Fund, the world’s largest pension fund, said it won’t include yuan- denominated Chinese sovereign debt in its portfolio. In rates, as noted above, Treasuries lead global bonds higher, paring large portion of Tuesday’s losses with gains led by intermediates out to long-end of the curve. Treasury yields richer by up to 4bp across long-end of the curve with 10s at around 1.50%, outperforming bunds and gilts both by 2bp; front-end of the curve just marginally richer, flattening 2s10s spread by 3.2bp with 5s30s tighter by 0.5bp. Futures volumes remain elevated amid evidence of dip buyers emerging Tuesday and continuing over Wednesday’s Asia hours. Session highlights include a number of Fed speakers, including Chair Powell.     In FX, the Bloomberg Dollar Spot Index was little changed after earlier advancing, and the dollar slipped versus most of its Group-of-10 peers. The yen was the best G-10 performer as it whipsawed after earlier dropping to 111.68 per dollar, its weakest level since March 2020. The Australian dollar also advanced amid optimism over easing of Covid-related restrictions while the New Zealand dollar was the worst performer amid rising infections. The euro dropped to an 11-month low while the pound touched its weakest level since January against the greenback amid a bout of dollar strength as the London session kicked off. Confidence in the euro-area economy unexpectedly rose in September as consumers turned more optimistic about the outlook and construction companies saw employment prospects improve. The yen climbed from an 18-month low as a decline in stocks around the world helps boost demand for the currency as a haven. Japanese bonds also gained. In commodities, oil prices dropped after touching a near three-year high the day before. Brent crude fell 0.83% to $78.25 per barrel after topping $80 yesterday; WTI dipped 1.09% to $74.47 a barrel. Gold edged higher with the spot price at $1,735.6 an ounce, up 0.1% from the seven-week low hit the day before as higher yields hurt demand for the non interest bearing asset. Base metals are under pressure with LME aluminum and copper lagging. Looking at the day ahead, the biggest highlight will be a policy panel at the ECB forum on central banking featuring ECB President Lagarde, Fed Chair Powell, BoJ Governor Kuroda and BoE Governor Bailey. Other central bank speakers include ECB Vice President de Guindos, the ECB’s Centeno, Stournaras, Makhlouf, Elderson and Lane, as well as the Fed’s Harker, Daly and Bostic. Meanwhile, data releases include UK mortgage approvals for August, the final Euro Area consumer confidence reading for September, and US pending home sales for August. Market Snapshot S&P 500 futures up 0.7% to 4,371.75 STOXX Europe 600 up 0.8% to 455.97 MXAP down 1.2% to 197.38 MXAPJ down 0.7% to 635.17 Nikkei down 2.1% to 29,544.29 Topix down 2.1% to 2,038.29 Hang Seng Index up 0.7% to 24,663.50 Shanghai Composite down 1.8% to 3,536.29 Sensex down 0.4% to 59,445.57 Australia S&P/ASX 200 down 1.1% to 7,196.71 Kospi down 1.2% to 3,060.27 Brent Futures down 0.7% to $78.53/bbl Gold spot up 0.4% to $1,740.79 U.S. Dollar Index little changed at 93.81 German 10Y yield fell 1.1 bps to -0.210% Euro down 0.2% to $1.1664 Top Overnight News from Bloomberg China’s central bank governor said quantitative easing implemented by global peers can be damaging over the long term and vowed to keep policy normal for as long as possible China’s central bank injected liquidity into the financial system for a ninth day in the longest run since December as it sought to meet a surge in seasonal demand for cash China stepped in to buy a stake in a struggling regional bank from China Evergrande Group as it seeks to limit contagion in the financial sector from the embattled property developer The Chinese government is considering raising power prices for industrial consumers to help ease a growing supply crunch Japan’s Government Pension Investment Fund, the world’s largest pension fund, said it won’t include yuan-denominated Chinese sovereign debt in its portfolio. The decision comes as FTSE Russell is set to start adding Chinese debt to its benchmark global bond index, which the GPIF follows, from October Fumio Kishida is set to become Japan’s prime minister, after the ex-foreign minister overcame popular reformer Taro Kono to win leadership of the country’s ruling party, leaving stock traders feeling optimistic ECB Governing Council member Gabriel Makhlouf said policy makers must be ready to respond to persistently higher inflation that could result from lasting supply bottlenecks Inflation accelerated in Spain to the fastest pace in 13 years, evidence of how surging energy costs are feeding through to citizens around the euro-zone economy Sterling-debt sales by corporates exceeded 2020’s annual tally as borrowers rushed to secure ultra-cheap funding costs while they still can. Offerings will top 70 billion pounds ($95 billion) through Wednesday, beating last year’s total sales by at least 600 million pounds, according to data compiled by Bloomberg A more detailed look at global markets courtesy of Newsquawk Asian equity markets were pressured on spillover selling from global peers which saw the S&P 500 suffer its worst day since May after tech losses were magnified as yields climbed and with sentiment also dampened by weak data in the form of US Consumer Confidence and Richmond Fed indexes. ASX 200 (-1.1%) was heavily pressured by tech and with mining-related stocks dragged lower by weakness in underlying commodity prices, with the mood also clouded by reports that Queensland is on alert for a potential lockdown and that Australia will wind down emergency pandemic support payments within weeks. Nikkei 225 (-2.1%) underperformed amid the broad sell-off and as participants awaited the outcome of the LDP leadership vote which saw no candidate win a majority (as expected), triggering a runoff between vaccine minister Kono and former foreign minister Kishida to face off in a second round vote in which Kishida was named the new PM. KOSPI (-1.2%) was heavily pressured by the tech woes and after North Korea confirmed that yesterday’s launch was a new type of hypersonic missile. Hang Seng (+0.7%) and Shanghai Comp. (-1.8%) conformed to the broad risk aversion with tech stocks hit in Hong Kong, although the losses were milder compared to regional peers with Evergrande shares boosted after it sold CNY 10bln of shares in Shengjing Bank that will be used to pay the developer’s debt owed to Shengjing Bank, which is the Co.’s first asset sale amid the current collapse concerns although it still faces another USD 45.2mln in interest payments due today. In addition, the PBoC continued with its liquidity efforts and there was also the absence of Stock Connect flows to Hong Kong with Southbound trading already closed through to the National Holidays. Finally, 10yr JGBs were slightly higher as risk assets took a hit from the tech sell-off and with T-notes finding some reprieve overnight. Furthermore, the BoJ were also in the market for nearly JPY 1tln of JGBs mostly in 3yr-10yr maturities and there were notable comments from Japan’s GPIF that it is to avoid investments in Chinese government bonds due to concerns over China market. Top Asian News L&T Is Said in Talks to Merge Power Unit With Sembcorp India Prosecutors Seek Two Years Jail for Ghosn’s Alleged Accomplice Japan to Start Process to Sell $8.5 Billion Postal Stake Gold Climbs From Seven Week Low as Yields Retreat, Dollar Pauses Bourses in Europe are attempting to claw back some ground lost in the prior session’s global stocks rout (Euro Stoxx 50 +0.9%; Stoxx 600 +0.8%). The upside momentum seen at the cash open has somewhat stabilised amid a lack of news flow and with a busy agenda ahead from a central bank standpoint, with traders also cognizant of potential month-end influence. US equity futures have also been gradually drifting higher since the reopen of electronic trade. As things stand, the NQ (+1.0%) narrowly outperforms the ES (+0.7%), RTY (+0.8%) and YM (+0.6%) following the tech tumble in the prior session, and with yields easing off best levels. Back to European cash, major regional bourses see broad-based gains with no standout performers. Sectors are mostly in the green; Oil & Gas resides at the foot of the bunch as crude prices drift lower and following two consecutive sessions of outperformance. On the flip side, Tech resides among today’s winners in what is seemingly a reversal of yesterday’s sector configuration, although ASML (+1.3%) may be offering some tailwinds after upping its long-term outlook whilst suggesting ASML and its supply chain partners are actively adding and improving capacity to meet this future customer demand – potentially alleviating some concerns in the Auto sector which is outperforming at the time of writing. Retail also stands strong as Next (+3.0%) upped its guidance whilst suggesting the longer-term outlook for the Co. looks more positive than it had been for many years. In terms of individual movers, Unilever (+1.0%) is underpinned by source reports that the Co. has compiled a shortlist of at least four bidders for its PG Tips and Lipton Iced Tea brands for some GBP 4bln. HeidelbergCement (-1.4%) is pressured after acquiring a 45% stake in the software firm Command Alko. Elsewhere, Morrisons (+1.3%) is on the front foot as the takeover of the Co. is to be decided via an auction process as touted earlier in the month. Top European News Makhlouf Says ECB Must Be Ready to Act If Inflation Entrenched ASML to Ride Decade-Long Sales Boom After Chip Supply Crunch Spanish Inflation at 13-Year High in Foretaste of Regional Spike U.K. Mortgage Approvals Fall to 74,453 in Aug. Vs. Est. 73,000 In FX, the yield and risk backdrop is not as constructive for the Dollar directly, but the index has posted another marginal new y-t-d best, at 93.891 compared to 93.805 yesterday with ongoing bullish momentum and the bulk of the US Treasury curve remaining above key or psychological levels, in contrast to other global bond benchmarks. Hence, the Buck is still elevated and on an upward trajectory approaching month end on Thursday, aside from the fact that hedge rebalancing flows are moderately positive and stronger vs the Yen. Indeed, the Euro is the latest domino to fall and slip to a fresh 2021 low around 1.1656, not far from big barriers at 1.1650 and further away from decent option expiry interest at the 1.1700 strike (1 bn), and it may only be a matter of time before Sterling succumbs to the same fate. Cable is currently hovering precariously above 1.3500 and shy of the January 18 base (1.3520) that formed the last pillar of support for the Pound before the trough set a week earlier (circa 1.3451), and ostensibly supportive UK data in the form of BoE mortgage lending and approvals has not provided much relief. AUD/JPY - A rather odd couple in many ways given their contrasting characteristics as a high beta or activity currency vs traditional safe haven, but both are benefiting from an element of corrective trade, consolidation and short covering relative to their US counterpart. Aud/Usd is clinging to 0.7250 in advance of Aussie building approvals on Thursday and Usd/Jpy is retracing from its new 111.68 y-t-d pinnacle amidst the less rampant yield environment and weighing up the implications of ex-Foreign Minister Kishida’s run-off win in the LDP leadership contest and the PM-in-waiting’s pledge to put together a Yen tens of trillion COVID-19 stimulus package before year end. CHF/CAD/NZD - All relatively confined vs their US rival, as the Franc continues to fend off assaults on the 0.9300 level with some impetus from a significant improvement in Swiss investor sentiment, while the Loonie is striving to keep its head above 1.2700 ahead of Canadian ppi data and absent the recent prop of galloping oil prices with WTI back under Usd 75/brl from Usd 76.67 at best on Tuesday. Elsewhere, the Kiwi is pivoting 0.6950 pre-NZ building consents and still being buffeted by strong Aud/Nzd headwinds. SCANDI/EM - Not much purchase for the Sek via upgrades to Swedish GDP and inflation forecast upgrades by NIER as sentiment indices slipped across the board, but some respite for the Try given cheaper crude and an uptick in Turkish economic confidence. Conversely, the Cnh and Cny have not received their customary fillip even though the PBoC added liquidity for the ninth day in a row overnight and China’s currency regulator has tightened control over interbank trade and asked market makers to narrow the bid/ask spread, according to sources. In commodities, WTI and Brent front month futures have been trimming overnight losses in early European trade. Losses overnight were seemingly a function of profit-taking alongside the bearish Private Inventory Report – which showed a surprise build in weekly crude stocks of 4.1mln bbls vs exp. -1.7mln bbls, whilst the headline DoE looks for a draw of 1.652mln bbls. Further, there have been growing calls for OPEC+ to further open the taps beyond the monthly 400k BPD hike, with details also light on the White House’s deliberations with OPEC ahead of the decision-making meeting next week. Despite these calls, it’s worth bearing in mind that OPEC’s latest MOMR stated, “increased risk of COVID-19 cases primarily fuelled by the Delta variant is clouding oil demand prospects going into the final quarter of the year, resulting in downward adjustments to 4Q21 estimates. As a result, 2H21 oil demand has been adjusted slightly lower, partially delaying the oil demand recovery into 1H22.” Brent Dec dipped back under USD 78/bbl (vs low 763.77/bbl) after testing USD 80/bbl yesterday, whilst WTI Nov lost the USD 75/bbl handle (vs low USD 73.37/bbl). Over to metals, spot gold and silver have seen somewhat of divergence as real yields negate some effects of the new YTD peak printed by the Dollar index, whilst spot silver succumbs to the Buck. Over to base metals, LME copper trade is lacklustre as the firmer dollar weighs on the red metal. Shanghai stainless steel meanwhile extended on losses, notching the fourth session of overnight losses with desks citing dampened demand from the Chinese power crunch. US Event Calendar 7am: Sept. MBA Mortgage Applications, prior 4.9% 10am: Aug. Pending Home Sales YoY, est. -13.8%, prior -9.5% 10am: Aug. Pending Home Sales (MoM), est. 1.3%, prior -1.8% Central Bank speakers 9am: Fed’s Harker Discusses Economic Outlook 11:45am: Powell Takes Part in ECB Forum on Central Banking 11:45am: Bailey, Kuroda, Lagarde, Powell on ECB Forum Panel 1pm: Fed’s Daly Gives Speech to UCLA 2pm: Fed’s Bostic Gives Remarks at Chicago Fed Payments DB's Jim Reid concludes the overnight wrap The main story of the last 24 hours has been a big enough rise in yields to cause a major risk-off move, with 10yr Treasury yields up another +5.0bps to 1.537% yesterday, and this morning only seeing a slight -0.3bps pullback to 1.534%. At the intraday peak yesterday, they did climb as high as 1.565% earlier in the session, but this accelerated the risk off and sent yields somewhat lower intraday as a result, which impacted the European bond closes as we’ll see below. All told, US yields closed at their highest level in 3 months and up nearly +24bps since last Wednesday’s close, shortly after the FOMC meeting. That’s the largest 4-day jump in US yields since March 2020, at the outset of the pandemic and shortly after the Fed announced their latest round of QE. This all led to the worst day for the S&P 500 (-2.04%) since mid-May and the worst for the NASDAQ (-2.83%) since mid-March. The S&P 500 is down -4.06% from the highs now – trading just below the Evergrande (remember that?) lows from last week. So the index still has not seen a -5% sell-off on a closing basis for 228 days and counting. If we make it to Halloween it will be a full calendar year. Regardless, the S&P and STOXX 600 remain on track for their worst monthly performances so far this year. Those moves have continued this morning in Asia, where the KOSPI (-2.05%), Nikkei (-1.64%), Hang Seng (-0.60%), and the Shanghai Comp (-1.79%) are all trading lower. The power crisis in China is further dampening sentiment there, and this morning Bloomberg have reported that the government are considering raising prices for industrial users to ease the shortage. Separately, we heard that Evergrande would be selling its stake in a regional bank at 10 billion yuan ($1.55bn) as a step to resolve its debt crisis, and Fitch Ratings also downgraded Evergrande overnight from CC to C. However, US equity futures are pointing to some stabilisation later, with those on the S&P 500 up +0.49%. Running through yesterday’s moves in more depth, 23 of the 24 industry groups in the S&P 500 fell back yesterday with the lone exception being energy stocks (+0.46%), which gained despite the late pullback in oil prices. In fact only 53 S&P constituents gained on the day. The largest losses were in high-growth sectors like semiconductors (-3.82%), media (-3.08%) and software (-3.05%), whilst the FANG+ index was down -2.52% as 9 of the 10 index members lost ground – Alibaba’s +1.47% gain was the sole exception. Over in Europe it was much the same story, with the STOXX 600 (-2.18%) falling to its worst daily performance since July as bourses across the continent fell back, including the German DAX (-2.09%) and France’s CAC 40 (-2.17%). Back to bonds and the rise in 10yr Treasury yields yesterday was primarily led by higher real rates (+2.1bps), which hit a 3-month high of their own, whilst rising inflation breakevens (+2.3bps) also offered support. In turn, higher yields supported the US dollar, which strengthened +0.41% to its highest level since November last year, though precious metals including gold (-0.92%) fell back as investors had less need for the zero-interest safe haven. Over in Europe the sell-off was more muted as bonds rallied into the close before selling off again after. Yields on 10yr bunds (+2.4bps), OATs (+3.0bps) and BTPs (+6.1bps) all moved higher but were well off the peaks for the day. 10yr Gilts closed up +4.2bps but that was -6.6bps off the high print. And staying with the UK, sterling (-1.18%) saw its worst day this year and fell to its lowest level since January 11 as sentiment has increasingly been knocked by the optics of the fuel crisis here. Given this and the hawkish BoE last week many are now talking up the stagflation risk. On the petrol crisis it’s hard to know how much is real and how much is like an old fashion bank run fuelled mostly by wild speculation. Regardless it doesn’t look good to investors for now. All this came against the backdrop of yet further milestones on inflation expectations, as the German 10yr breakeven hit a fresh 8-year high of 1.690%, just as the Euro Area 5y5y forward inflation swap hit a 4-year high of its own at 1.789%. Meanwhile 10yr UK breakevens pulled back some, finishing -6bps lower on the day after initially spiking up nearly +5bps in the opening hours of trading. This highlights the uncertainty as to the implications of a more hawkish BoE last week. As we’ve discussed over recent days, part of the renewed concerns about inflation have come from a fresh spike in energy prices, and yesterday saw Brent crude move above $80/bbl in regards intraday trading for the first time since 2018. Furthermore, natural gas prices continued to hit fresh highs yesterday, with European futures up +2.69% to a fresh high of €78.56 megawatt-hours. That said, oil prices did pare back their gains later in the session as the equity selloff got underway, with Brent crude (-0.55%) and WTI (-0.21%) both closing lower on the day, and this morning they’ve fallen a further -1.49% and -1.54% respectively. Yesterday, Fed Chair Powell and his predecessor Treasury Secretary Yellen appeared jointly before the Senate Banking Committee. The most notable moment came from Senator Warren who criticized Chair Powell for his track record on regulation, saying he was a “dangerous man” and then saying on the record that the she would not support his re-nomination ahead of his term ending in February. Many senators, mostly Republicans, voiced concerns over inflationary pressures, but both Yellen and Powell maintained their stances that the current high level of inflation was temporary and due to the supply chain issues from Covid-19 that they expect to be resolved in time. Lastly, both Powell and Yellen warned the Senators that a potential US default would be “catastrophic” and Treasury Secretary Yellen said in a letter to Congress that the Treasury Department now estimated the US would hit the debt ceiling on October 18. So we’ve got an important few days and weeks coming up. Last night, Senate Majority Leader Schumer tried to pass a vote that would drop the threshold from 60 to a simple majority to suspend the debt limit, but GOP Senator Cruz amongst others blocked this and went forward with forcing Democrats to use the budget reconciliation measure instead. Some Democrats have pushed back saying that the budget process would take too long and increases the risk of a default. While this is all going on we’re now less than 48 hours from a US government shutdown as it stands, though there seems to be an agreement on the funding measure if it were to be raised as clean bill without the debt ceiling provisions. There is also other business in Washington due tomorrow, with the bipartisan infrastructure bill with $550bn of new spending up for a vote. While the funding bill is the higher short-term priority, there was news yesterday that progressive members of the House of Representatives may try and block the infrastructure bill if it comes up ahead of the budget reconciliation vote. That was according to Congressional Progressive Caucus Chair Jayapal who said “Progressives will vote for both bills, but a majority of our members will only vote for the infrastructure bill after the President’s visionary Build Back Better Act passes.” The infrastructure bill could be tabled once again as there is no real urgency to get it voted on until the more pressing debt ceiling and funding bill issues are resolved. Democratic leadership is trying to thread a needle and the key sticking point appears to be if the moderate and progressive wing can agree on the budget quickly enough to beat the clock on the US defaulting on its debt. Shifting back to central bankers, ECB President Lagarde warned against withdrawing stimulus too rapidly as a response to inflationary pressures. She contested that there are “no signs that this increase in inflation is becoming broad-based across the economy,” and continued that the “key challenge is to ensure that we do not overreact to transitory supply shocks that have no bearing on the medium term.” Similar to her US counterpart, Lagarde cited higher energy prices and supply-chain breakdowns as the root cause for the current high inflation data and argued these would recede in due time. The ECB continues to strike a more dovish tone than the Fed and BoE. Speaking of inflation, DB’s chief European economist, Mark Wall, has just put out a podcast where he discusses the ECB, inflation and the value of a flexible asset purchase programme. He and his team have a baseline assumption that the ECB will double the pace of their asset purchases to €40bn per month to smooth the exit from the Pandemic Emergency Purchase Programme, but the upward momentum in the inflation outlook and the latest uncertainty from recent supply shocks puts a premium on policy flexibility. You can listen to the podcast "Focus Europe: Podcast: ECB, inflation and the value of a flexible APP" here. In Germany, there weren’t a great deal of developments regarding the election and coalition negotiations yesterday, but NTV reported that CSU leader Markus Söder had told a regional group meeting of the party that he expected the next government would be a traffic-light coalition of the SPD, the Greens and the FDP. Speaking to reporters later in the day, he went onto say that the SPD’s Olaf Scholz had the best chance of becoming chancellor, and that the SPD had the right to begin coalition negotiations. Running through yesterday’s data, the Conference Board’s consumer confidence reading in the US for September fell to 109.3 (vs. 115.0 expected), which marks the third consecutive decline in the reading and the lowest it’s been since February. Meanwhile house prices continued to rise, with the FHFA’s house price index for July up +1.4% (vs. +1.5% expected), just as the S&P CoreLogic Case-Shiller index saw a record +19.7% increase in July as well. To the day ahead now, and the biggest highlight will be a policy panel at the ECB forum on central banking featuring ECB President Lagarde, Fed Chair Powell, BoJ Governor Kuroda and BoE Governor Bailey. Other central bank speakers include ECB Vice President de Guindos, the ECB’s Centeno, Stournaras, Makhlouf, Elderson and Lane, as well as the Fed’s Harker, Daly and Bostic. Meanwhile, data releases include UK mortgage approvals for August, the final Euro Area consumer confidence reading for September, and US pending home sales for August. Tyler Durden Wed, 09/29/2021 - 07:42.....»»

Category: blogSource: zerohedgeSep 29th, 2021

Dow Rises for Fourth Straight Day in Mixed Start to the Week

Dow Rises for Fourth Straight Day in Mixed Start to the Week The final week of a difficult September began on Monday with a mixed session, as recovery names and technology went their separate ways. Meanwhile, all eyes will be on Washington in the coming days as Congress has a lot on its plate, especially passing a budget to avert a government shutdown. The Dow now has a four-day winning streak after advancing 0.21% (or about 71 points) to 34,869.37. Meanwhile, the NASDAQ slipped 0.52% (or about 77 points) to 14,969.97 amid rising yields, while the S&P ended a three-day winning run by declining 0.28% to 4443.11. It was a heckuva lot better session than last Monday when each of the major indices plunged by 1.7% or more. But that story had a happy ending as an acceptable Fed statement helped stocks stage an impressive turnaround that ended with slight gains by Friday, breaking weekly losing streaks for all the indices. It was all the more impressive since the back half of September is considered the toughest time of the year for the market. Investors even had to deal with the potential default of Evergrande, China’s largest property developer. We haven’t heard the last of this issue, but it isn’t at the front of investor minds at the moment. If you were thinking we might get an easier end to this crazy month… think again! Just as the Fed was in the spotlight last week, now it’s time for Washington to take centerstage. The main issue is that Congress needs to fund the government by the end of September (Thursday) to prevent a shutdown in October. As if that weren’t enough, they’ll also be looking at passing the $1 trillion infrastructure bill and they still need to raise the debt ceiling sometime in October to avoid an unprecedented default of U.S. debt. Get ready for another eventful week. By the way, stocks are down by approximately 1.5% in September with three more sessions to go. Today's Portfolio Highlights: Insider Trader: Looks like the recovery play is back! Tracey thinks the financials might be poised for another rally in the next few months, so she bought Texas Capital Bancshares (TCBI) and Old Second Bancorp (OSBC) on Monday. TCBI is a regional bank that has a new management team and a turnaround plan, which includes adding branches throughout Texas and adding a broker-dealer business. Earlier this month, the Chief Risk Officer and the CEO bought shares in what the editor considers to be “confidence” buys. Meanwhile, OSBC is a 150-year-old small-cap community bank from Aurora, IL that experienced a cluster buy this month. Shares were recently picked up by an EVP, the Vice Chairman and two directors. One of these directors bought three times this month. Tracey added each name with a 10% allocation, while also getting out of Hibbett (HIBB) since the sports apparel retailer is a “mess” right now. Learn a lot more about all of today’s moves in the full write-up.   Technology Innovators: The push to make this portfolio more aggressive continued on Monday with Brian’s addition of Datto Holding (MSP), a provider of cloud-based software and technology solutions. The company is on a roll with three straight quarters of positive surprises, bringing the four-quarter average to just under 22% (including a slight miss in last year’s third quarter). Rising earnings estimates gave MSP the enviable status of Zacks Rank #2 (Buy). EPS is still very small for this name, which explains its “stiff” PE of 44x. Other value characteristics are more reasonable. As usual, Brian is keeping an eye on the company’s operating margins, which have improved to 8% from 2.6% in the past few quarters. These are low numbers for such a stock, so the editor thinks MSP could be due for an aggressive shift higher in the coming quarters. Read the full write-up for more specifics on this new addition.    Commodity Innovators: It’s been a bumpy ride for Continental Resources (CLR) in this portfolio. Shortly after Jeremy added this E&P company on July 8, the position plunged and came close to the portfolio’s max loss as crude came under pressure. But the editor held on under difficult circumstances, and today was able to sell CLR for a nice 26.7% return in less than three months. The new addition is IPath Series B Bloomberg Cotton Subindex Total Return ETN (BAL), as supply shortages are lifting cotton prices toward 2021 highs. Jeremy sees BAL as a mid-term holding. The full write-up has more on these moves. By the way, this service also had the best performer of the day as Cabot Oil & Gas (COG) rose 8.5%. It also has three of the top 5 winners of the past month with COG rising 27.7%, while EnLink Midstream (ENLC) and CF Industries (CF) increased 27.6% and 24%, respectively. Value Investor: Back in mid-August, Tracey sold Magnolia Oil & Gas (MGY) for a nearly 40% profit as the oil trade was breaking down again. Through all the ups and downs though, she continues to be bullish on energy. E&Ps should especially benefit from higher prices, so the editor decided to buy MGY once again on Monday. The company has a great balance sheet, while earnings are expected to soar moving forward. But that wasn’t all! Tracey also wants more retail/consumer-focused exposure in the portfolio, so her second addition today was American Eagle (AEO). The company has a couple strong brands, making it a big player in reopening areas like athleisure and denim. But the editor is also impressed with its acquisition of AirTerra, a startup logistics company that shows AEO’s interest in tech and innovation investment. Needless to say, MGY and AEO are both cheap at the moment with solid potential moving forward. Read the full write-up for a lot more info on today’s action. Black Box Trader: All four of the sells this week brought profits to the portfolio, including a double-digit return. Here are the stocks that were sold in this week's adjustment: • Range Resources (RRC, +30.6%) • Goldman Sachs (GS, +5.7%) • Signet Jewelers (SIG, +5.6%) • American International Group (AIG, +3.7%) The new buys that filled these spots included: • Capital One Financial (COF) • Johnson Controls (JCI) • LKQ Corp. (LKQ) • Textron (TXT) Read the Black Box Trader’s Guide to learn more about this computer-driven service. Until Tomorrow, Jim Giaquinto Recommendations from Zacks' Private Portfolios: Believe it or not, this article is not available on the Zacks.com website. The commentary is a partial overview of the daily activity from Zacks' private recommendation services. If you would like to follow our Buy and Sell signals in real time, we've made a special arrangement for readers of this website. Starting today you can see all the recommendations from all of Zacks' portfolios absolutely free for 7 days. Our services cover everything from value stocks and momentum trades to insider buying and positive earnings surprises (which we've predicted with an astonishing 80%+ accuracy). Click here to "test drive" Zacks Ultimate for FREE >>  Zacks Investment Research.....»»

Category: topSource: zacksSep 28th, 2021

S&P 500 Records a Broad-Based Rally YTD: 5 Top-Ranked Picks

We have narrowed down our search to five large-cap S&P 500 stocks that have strong growth potential for the rest of 2021. These are AZO, MOS, ULTA, ORLY, and WST. U.S. stock markets have performed better than expected so far this year with just four days of trading left in the third quarter. Despite the meltdown in September, most of the stock indexes are currently at a level well above the average estimations of the market analysts at the beginning of the year. The trend is likely to continue in the fourth quarter despite the threat of the Delta variant and higher inflationary pressure.S&P 500 – The Best Performer YTDYear to date (YTD), the S&P 500 Index — popularly known as the market’s benchmark — has rallied 18.6% while the Dow and the Nasdaq Composite climbed 13.7% and 16.8%, respectively. The small-cap-centric Russell 2000 advanced 13.8% and the mid-cap-specific S&P 400 appreciated 17%.The S&P 500 registered an all-time high of 4,545.85 on Sep 2. However, owing to the market’s meltdown this month, the benchmark is currently trading at 2% below its all-time high. Nevertheless, the index has regained momentum, finishing the last three trading sessions in positive territory. Moreover, the S&P 500 has seen a broad-based rally so far in 2021 with all its 11 sectors currently in the green.At its current level of 4,455.48, the S&P 500 is well above its 50-day and 200-day moving averages of 4,439.43 and 4,120.53, respectively. In financial literature, the 50-day moving average line is generally recognized as the short-term trend setter, while the 200-day moving average is considered a long-term trend setter.Furthermore, it is widely believed in the technical analysis space that whenever the 50-day moving average line surges ahead of the 200-day moving average line, a long-term uptrend for the index becomes a strong possibility.Future CatalystsThe Wall Street rally continued in the first two months of third-quarter 2021 before suffering a big blow in September. However, U.S. stock markets rebounded impressively in the last three trading sessions and recouped a large part of the losses it suffered in September.In his statement after the conclusion of the two-day FOMC meeting on Sep 22, Fed Chairman Jerome Powell said, “If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted.” However, the impact of tapering seems to have been already factored in market valuations.U.S. corporate profits are likely to remain solid in the third quarter after skyrocketing in the first two quarters of 2021. Per our current projection, total earnings of the S&P 500 Index are expected to jump 26% year over year on 13.7% higher revenues. For 2021, total earnings of the S&P 500 Index are currently forecast to soar 42.5% year over year on 13.4% higher revenues.  On Aug 24, the House of Representatives advanced a $1 trillion bipartisan infrastructure bill. On Sep 26, Speaker Nancy Pelosi said that the bill is expected to be passed this week. On Aug 10, the U.S. Senate had passed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years.Total spending may go up to $1.2 trillion if the plan is extended to eight years. Infrastructure projects such as roads, bridges, passenger rails, airports, drinking water, and waste-water systems, high-speed Internet, and climate-related infrastructure should benefit.Our Top PicksWe have narrowed down our search to five large-cap (market capital > $10 billion) S&P 500 stocks that have strong growth potential for the rest of 2021. These stocks have seen positive earnings estimate revisions in the past 30 days indicating that the market is expecting companies to do good business in the near term.  Moreover, these stocks have provided double-digit returns in the past three months compared with the benchmark’s return of a mere 4.1%. Finally, each of our picks carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.The chart below shows the price performance of our five picks in the past three months.Image Source: Zacks Investment ResearchWest Pharmaceutical Services Inc. WST manufactures and sells containment and delivery systems for injectable drugs and healthcare products in the United States, Europe and internationally. It operates through two segments, Proprietary Products and Contract-Manufactured Products.The company’s high-value products continue to drive higher gross and operating margins. Additionally, it continued to see strong uptake of HVP components, which include Westar, FluroTec, Envision and NovaPure offerings along with Daikyo’s Crystal Zenith.The company has an expected earnings growth rate of 72.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.8% over the past 30 days. The stock price has jumped 25.8% in the past three months.The Mosaic Co. MOS produces and markets concentrated phosphate and potash crop nutrients in North America and internationally. It operates through three segments: Phosphates, Potash, and Mosaic Fertilizantes.Demand for phosphate and potash in North America remains strong in 2021. Strong grower economics and crop commodity prices are driving fertilizer demand globally. The company should also gain from higher prices. The acquisition of Vale Fertilizantes is also expected to deliver significant synergies. Mosaic is also expected to benefit from its cost-reduction initiatives.The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 3.8% over the past 30 days. The stock price has climbed 17.8% in the past three months.AutoZone Inc. AZO is one of the leading specialty retailers and distributors of automotive replacement parts and accessories in the United States. It operates in the Do-It-Yourself (DIY) retail, Do-It-for-Me (DIFM) auto parts and products markets.AutoZone's high-quality products, store-expansion initiatives and omni-channel efforts to improve customer shopping experience are boosting the company’s market share. This retailer of automotive aftermarket parts has been generating record revenues for 23 consecutive years and the trend is expected to continue. The ramp up of e-commerce efforts is aiding AutoZone’s top-line growth.The company has an expected earnings growth rate of 1% for the current year (ending August 2022). The Zacks Consensus Estimate for its current-year earnings has improved 3.4% over the past 30 days. The stock price has risen 13.2% in the past three months.O'Reilly Automotive Inc. ORLY operates as a retailer of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States. The specialty retailer of automotive aftermarket parts is poised to benefit from store openings and distribution centers in profitable regions.The company has a competitive edge due to a dual market strategy by serving the Do-it-Yourself and Do-it-for-Me customers. A customer-centric business model and the growing demand for high-quality auto parts are likely to boost O’Reilly’s prospects.The company has an expected earnings growth rate of 17.5% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 0.1% over the past 30 days. The stock price has appreciated 11.4% in the past three months.Ulta Beauty Inc. ULTA operates as a retailer of beauty products in the United States. The company has been seeing market share gains in major beauty categories for a while now, with skincare standing out. Its foremost priority is to strengthen its omnichannel business and explore the potential of both physical and digital facets.The company has an expected earnings growth rate of more than 100% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings has improved 9.8% over the past 30 days. The stock price has advanced 11.3% in the past three months. Zacks Names "Single Best Pick to Double" From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all. You know this company from its past glory days, but few would expect that it's poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks' Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.Free: See Our Top Stock and 4 Runners Up >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report OReilly Automotive, Inc. (ORLY): Free Stock Analysis Report Ulta Beauty Inc. (ULTA): Free Stock Analysis Report AutoZone, Inc. (AZO): Free Stock Analysis Report The Mosaic Company (MOS): Free Stock Analysis Report West Pharmaceutical Services, Inc. (WST): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksSep 27th, 2021

Futures Slide On Growing Stagflation Fears As Treasury Yields Surge

Futures Slide On Growing Stagflation Fears As Treasury Yields Surge US index futures, European markets and Asian stocks all turned negative during the overnight session, surrendering earlier gains as investors turned increasingly concerned about China's looming slowdown - and outright contraction - amid a global stagflationary energy crunch, which sent 10Y TSY yields just shy of 1.50% this morning following a Goldman upgrade in its Brent price target to $90 late on Sunday. At 745 a.m. ET, S&P 500 e-minis were down 4.75 points, or 0.1% after rising as much as 0.6%, Nasdaq 100 e-minis were down 83 points, or 0.54% and Dow e-minis were up 80 points, or 0.23%. The euro slipped as Germany looked set for months of complex coalition talks. While the market appears to have moved beyond the Evergrande default, the debt crisis at China's largest developer festers (with Goldman saying it has no idea how it will end), and data due this week will show a manufacturing recovery in the world’s second-largest economy is faltering faster. A developing energy crisis threatens to crimp global growth further at a time markets are preparing for a tapering of Fed stimulus. The week could see volatile moves as traders scrutinize central bankers’ speeches, including Chair Jerome Powell’s meetings with Congressional panels. “Most bad news comes from China these days,” Ipek Ozkardeskaya, a senior analyst at Swissquote Group Holdings, wrote in a note. “The Evergrande debt crisis, the Chinese energy crackdown on missed targets and the ban on cryptocurrencies have been shaking the markets, along with the Fed’s more hawkish policy stance last week.” Oil majors Exxon Mobil and Chevron Corp rose 1.5% and 1.2% in premarket trade, respectively, tracking crude prices, while big lenders including JPMorgan, Citigroup, Morgan Stanley and Bank of America Corp gained about 0.8%.Giga-cap FAAMG growth names such as Alphabet, Microsoft, Amazon.com, Facebook and Apple all fell between 0.3% and 0.4%, as 10Y yield surged, continuing their selloff from last week, which saw the 10Y rise as high as 1.4958% and just shy of breaching the psychological 1.50% level. While growth names were hit, value names rebounded as another market rotation appears to be in place: industrials 3M Co and Caterpillar Inc, which tend to benefit the most from an economic rebound, also inched higher (although one should obviously be shorting CAT here for its China exposure). Market participants have moved into value and cyclical stocks from tech-heavy growth names after the Federal Reserve last week indicated it could begin unwinding its bond-buying program by as soon as November, and may raise interest rates in 2022. Here are some other notable premarket movers: Gores Guggenheim (GGPI US) shares rise 7.2% in U.S. premarket trading as Polestar agreed to go public with the special purpose acquisition company, in a deal valued at about $20 billion. Naked Brand (NAKD US), one of the stocks caught up in the first retail trading frenzy earlier this year, rises 11% in U.S. premarket trading, extending Friday’s gains. Among other so-called meme stocks in premarket trading: ReWalk Robotics (RWLK) +6.5%, Vinco Ventures (BBIG) +18%, Camber Energy (CEI) +2.9% Pfizer (PFE US) and Opko Health (OPK US) in focus after they said on Friday that the FDA extended the review period for the biologics license application for somatrogon. Opko fell 3.5% in post-market trading. Aspen Group (ASPU) climbed 10% in Friday postmarket trading after board member Douglas Kass buys $172,415 of shares, according to a filing with the U.S. Securities & Exchange Commission. Seaspine (SPNE US) said spine surgery procedure volumes were curtailed in many areas of the U.S. in 3Q and particularly in August. Tesla (TSLA US) and other electric- vehicle related stocks globally may be active on Monday after Germany’s election, in which the Greens had their best-ever showing and are likely to be part of any governing coalition. Europe likewise drifted lower, with the Stoxx Europe 600 Index erasing earlier gains and turning negative as investors weighed the risk to global growth from the China slowdown and the energy crunch. The benchmark was down 0.1% at last check. Subindexes for technology (-0.9%) and consumer (-0.8%) provide the main drags while value outperformed, with energy +2.4%, banks +2% and insurance +1.3%.  The DAX outperformed up 0.5%, after German election results avoided the worst-case left-wing favorable outcome.  U.S. futures. Rolls-Royce jumped 12% to the highest since March 2020 after the company was selected to provide the powerplant for the B-52 Stratofortress under the Commercial Engine Replacement Program. Here are some of the other biggest European movers today IWG rises as much as 7.5% after a report CEO Mark Dixon is exploring a multibillion-pound breakup of the flexible office-space provider AUTO1 gains as much as 6.1% after JPMorgan analyst Marcus Diebel raised the recommendation to overweight from neutral Cellnex falls as much as 4.3% to a two-month low after the tower firm is cut to sell from neutral at Citi, which says the stock is “priced for perfection in an imperfect industry” European uranium stocks fall with Yellow Cake shares losing as much as 6% and Nac Kazatomprom shares declining as much as 4.7%. Both follow their U.S. peers down following weeks of strong gains as the price of uranium ballooned For those who missed it, Sunday's closely-watched German elections concluded with the race much closer than initially expected: SPD at 25.7%, CDU/CSU at 24.1%, Greens at 14.8%, FDP at 11.5%, AfD at 10.3% Left at 4.9%, the German Federal Returning Officer announced the seat distribution from the preliminary results which were SPD at 206 seats, CDU/CSU at 196. Greens at 118, FDP at 92, AfD at 83, Left at 39 and SSW at 1. As it stands, three potential coalitions are an option, 1) SPD, Greens and FDP (traffic light), 2) CDU/CSU, Greens and FDP (Jamaica), 3) SPD and CDU/CSU (Grand Coalition but led by the SPD). Note, option 3 is seen as the least likely outcome given that the CDU/CSU would be unlikely willing to play the role of a junior partner to the SPD. Therefore, given the importance of the FDP and Greens in forming a coalition for either the SPD or CDU/CSU, leaders of the FDP and Greens have suggested that they might hold their own discussions with each other first before holding talks with either of the two larger parties. Given the political calculus involved in trying to form a coalition, the process is expected to play out over several months. From a markets perspective, the tail risk of the Left party being involved in government has now been removed due to their poor performance and as such, Bunds trade on a firmer footing. Elsewhere, EUR is relatively unfazed due to the inconclusive nature of the result. We will have more on this in a subsequent blog post. Asian stocks fell, reversing an earlier gain, as a drop in the Shanghai Composite spooked investors in the region by stoking concerns about the pace of growth in China’s economy.  The MSCI Asia Pacific Index wiped out an advance of as much as 0.7%, on pace to halt a two-day climb. Consumer discretionary names and materials firms were the biggest contributors to the late afternoon drag. Financials outperformed, helping mitigate drops in other sectors.  “Seeing Shanghai shares extending declines, investors’ sentiment has turned weak, leading to profit-taking on individual stocks or sectors that have been gaining recently,” said Shoichi Arisawa, an analyst at Iwai Cosmo Securities. “The drop in Chinese equities is reminding investors about a potential slowdown in their economy.”  The Shanghai Composite was among the region’s worst performers along with Vietnam’s VN Index. Shares of China’s electricity-intensive businesses tumbled after Beijing curbed power supplies in the country’s manufacturing hubs to cut emissions. The CSI 300 still rose, thanks to gains in heavily weighted Kweichow Moutai and other liquor makers. Asian equities started the day on a positive note as financials jumped, tracking gains in U.S. peers and following a rise in Treasury yields. Resona Holdings was among the top performers after Morgan Stanley raised its view on the stock and Japanese banks. The regional market has been calmer over the past few trading sessions after being whipsawed by concerns over any fallout from China Evergrande Group’s debt troubles. While anxiety lingers, many investors expect China will resolve the distressed property developer’s problems rather than let them spill over into an echo of 2008’s Lehman crisis. Japanese equities closed lower, erasing an earlier gain, as concerns grew over valuations following recent strength in the local market and turmoil in China. Machinery and electronics makers were the biggest drags on the Topix, which fell 0.1%. Daikin and Bandai Namco were the largest contributors to a dip of less than 0.1% in the Nikkei 225. Both gauges had climbed more 0.5% in morning trading. Meanwhile, the Shanghai Composite Index fell as much as 1.5% as industrials tumbled amid a power crunch. “Seeing Shanghai shares extending declines, investors’ sentiment has turned weak, leading to profit-taking on individual stocks or sectors that have been gaining recently,” said Shoichi Arisawa, an analyst at Iwai Cosmo Securities Co. “The drop in Chinese equities is reminding investors about a potential slowdown in their economy. That’s why marine transportation stocks, which are representative of cyclical sectors, fell sharply.” Shares of shippers, which have outperformed this year, fell as investors turned their attention to reopening plays. Travel and retail stocks gained after reports that the government is making final arrangements to lift all the coronavirus state of emergency order in the nation as scheduled at the end of this month. Australia's commodity-heavy stocks advanced as energy, banking shares climb. The S&P/ASX 200 index rose 0.6% to close at 7,384.20, led by energy stocks. Banks also posted their biggest one-day gain since Aug. 2. Travel stocks were among the top performers after the prime minister said state premiers must not keep borders closed once agreed Covid-19 vaccination targets are reached. NextDC was the worst performer after the company’s CEO sold 1.6 million shares. In New Zealand, the S&P/NZX 50 index. In FX, the U.S. dollar was up 0.1%, while the British pound, Australian dollar, and Canadian dollar lead G-10 majors, with the Swedish krona and Swiss franc lagging. •    The Bloomberg Dollar Spot Index was little changed and the greenback traded mixed versus its Group-of-10 peers o    Volatility curves in the major currencies were inverted last week due to a plethora of central bank meetings and risk-off concerns. They have since normalized as stocks stabilize and traders assess the latest forward guidance on monetary policy •    The yield on two-year U.S. Treasuries touched the highest level since April 2020, as tightening expectations continued to put pressure on front-end rates and ahead of debt sales later Monday •    The pound advanced, with analyst focus on supply chain problems as Prime Minister Boris Johnson considers bringing in army drivers to help. Bank of England Governor Andrew Bailey’s speech later will be watched after last week’s hawkish meeting •    Antipodean currencies, as well as the Norwegian krone and the Canadian dollar were among the best Group-of-10 performers amid a rise in commodity prices •    The yen pared losses after falling to its lowest level in six weeks and Japanese stocks paused their rally and amid rising Treasury yields   In rates, treasuries extended their recent drop, led by belly of the curve ahead of this week’s front-loaded auctions, which kick off Monday with 2- and 5-year note sales.  Yields were higher by up to 4bp across belly of the curve, cheapening 2s5s30s spread by 3.2bp on the day; 10-year yields sit around 1.49%, cheaper by 3.5bp and underperforming bunds, gilts by 1.5bp and 0.5bp while the front-end of the curve continues to sell off as rate-hike premium builds -- 2-year yields subsequently hit 0.284%, the highest level since April 2020. 5-year yields top at 0.988%, highest since Feb. 2020 while 2-year yields reach as high as 0.288%; in long- end, 30-year yields breach 2% for the first time since Aug. 13. Auctions conclude Tuesday with 7-year supply. Host of Fed speakers due this week, including three scheduled for Monday. In commodities, Brent futures climbed 1.4% to $79 a barrel, while WTI futures hit $75 a barrel for the first time since July, amid an escalating energy crunch across Europe and now China. Base metals are mixed: LME copper rises 0.4%, LME tin and nickel drop over 2%. Spot gold gives back Asia’s gains to trade flat near $1,750/oz In equities, Stoxx 600 is up 0.6%, led by energy and banks, and FTSE 100 rises 0.4%. Germany’s DAX climbs 1% after German elections showed a narrow victory for social democrats, with the Christian Democrats coming in a close second, according to provisional results. S&P 500 futures climb 0.3%, Dow and Nasdaq contracts hold in the green. In FX, the U.S. dollar is up 0.1%, while the British pound, Australian dollar, and Canadian dollar lead G-10 majors, with the Swedish krona and Swiss franc lagging. Base metals are mixed: LME copper rises 0.4%, LME tin and nickel drop over 2%. Spot gold gives back Asia’s gains to trade flat near $1,750/oz Investors will now watch for a raft of economic indicators, including durable goods orders and the ISM manufacturing index this week to gauge the pace of the recovery, as well as bipartisan talks over raising the $28.4 trillion debt ceiling. The U.S. Congress faces a Sept. 30 deadline to prevent the second partial government shutdown in three years, while a vote on the $1 trillion bipartisan infrastructure bill is scheduled for Thursday. On today's calendar we get the latest Euro Area M3 money supply, US preliminary August durable goods orders, core capital goods orders, September Dallas Fed manufacturing activity. We also have a bunch of Fed speakers including Williams, Brainard and Evans. Market Snapshot S&P 500 futures down 0.1% to 4,442.50 STOXX Europe 600 up 0.3% to 464.54 MXAP little changed at 200.75 MXAPJ little changed at 642.52 Nikkei little changed at 30,240.06 Topix down 0.1% to 2,087.74 Hang Seng Index little changed at 24,208.78 Shanghai Composite down 0.8% to 3,582.83 Sensex up 0.2% to 60,164.70 Australia S&P/ASX 200 up 0.6% to 7,384.17 Kospi up 0.3% to 3,133.64 German 10Y yield fell 3.1 bps to -0.221% Euro down 0.3% to $1.1689 Brent Futures up 1.2% to $79.04/bbl Gold spot little changed at $1,750.88 U.S. Dollar Index up 0.15% to 93.47 Top Overnight News from Bloomberg House Speaker Nancy Pelosi put the infrastructure bill on the schedule for Monday under pressure from moderates eager to get the bipartisan bill, which has already passed the Senate, enacted. But progressives -- whose votes are likely vital -- are insisting on progress first on the bigger social-spending bill Olaf Scholz of the center-left Social Democrats defeated Chancellor Angela Merkel’s conservatives in an extremely tight German election, setting in motion what could be months of complex coalition talks to decide who will lead Europe’s biggest economy China’s central bank pumped liquidity into the financial system after borrowing costs rose, as lingering risks posed by China Evergrande Group’s debt crisis hurt market sentiment toward its peers as well Global banks are about to get a comprehensive blueprint for how derivatives worth several hundred trillion dollars may be finally disentangled from the London Interbank Offered Rate Economists warned of lower economic growth in China as electricity shortages worsen in the country, forcing businesses to cut back on production Governor Haruhiko Kuroda says it’s necessary for the Bank of Japan to continue with large-scale monetary easing to achieve the bank’s 2% inflation target The quant revolution in fixed income is here at long last, if the latest Invesco Ltd. poll is anything to go by. With the work-from-home era fueling a boom in electronic trading, the majority of investors in a $31 trillion community say they now deploy factor strategies in bond portfolios A more detailed look at global markets courtesy of Newsquawk Asian equity markets traded somewhat mixed with the region finding encouragement from reopening headlines but with gains capped heading towards month-end, while German election results remained tight and Evergrande uncertainty continued to linger. ASX 200 (+0.6%) was led higher by outperformance in the mining related sectors including energy as oil prices continued to rally amid supply disruptions and views for a stronger recovery in demand with Goldman Sachs lifting its year-end Brent crude forecast from USD 80/bbl to USD 90/bbl. Furthermore, respectable gains in the largest weighted financial sector and details of the reopening roadmap for New South Wales, which state Premier Berijiklian sees beginning on October 11th, further added to the encouragement. Nikkei 225 (Unch) was kept afloat for most of the session after last week’s beneficial currency flows and amid reports that Japan is planning to lift emergency measures in all areas at month-end, although upside was limited ahead of the upcoming LDP leadership race which reports noted are likely to go to a run-off as neither of the two main candidates are likely to achieve a majority although a recent Kyodo poll has Kono nearly there at 47.4% of support vs. nearest contender Kishida at 22.4%. Hang Seng (+0.1%) and Shanghai Comp. (-0.8%) were varied with the mainland choppy amid several moving parts including back-to-back daily liquidity efforts by the PBoC since Sunday and with the recent release of Huawei’s CFO following a deal with US prosecutors. Conversely, Evergrande concerns persisted as Chinese cities reportedly seized its presales to block the potential misuse of funds and its EV unit suffered another double-digit percentage loss after scrapping plans for its STAR Market listing. There were also notable losses to casino names after Macau tightened COVID-19 restrictions ahead of the Golden Week holidays and crypto stocks were hit after China declared crypto activities illegal which resulted in losses to cryptoexchange Huobi which dropped more than 40% in early trade before nursing some of the losses, while there are also concerns of the impact from an ongoing energy crisis in China which prompted the Guangdong to ask people to turn off lights they don't require and use air conditioning less. Finally, 10yr JGBs were flat but have clawed back some of the after-hour losses on Friday with demand sapped overnight amid the mild gains in stocks and lack of BoJ purchases in the market. Elsewhere, T-note futures mildly rebounded off support at 132.00, while Bund futures outperformed the Treasury space amid mild reprieve from this month’s losses and with uncertainty of the composition for the next German coalition. Top Asian News Moody’s Says China to Safeguard Stability Amid Evergrande Issues China’s Tech Tycoons Pledge Allegiance to Xi’s Vision China Power Crunch Hits iPhone, Tesla Production, Nikkei Reports Top Netflix Hit ‘Squid Game’ Sparks Korean Media Stock Surge Bourses in Europe have trimmed the gains seen at the open, albeit the region remains mostly in positive territory (Euro Stoxx 50 +0.4%; Stoxx 600 +0.2%) in the aftermath of the German election and amid the looming month-end. The week also sees several risk events, including the ECB's Sintra Forum, EZ CPI, US PCE and US ISM Manufacturing – not to mention the vote on the bipartisan US infrastructure bill. The mood in Europe contrasts the mixed handover from APAC, whilst US equity futures have also seen more divergence during European trade – with the yield-sensitive NQ (-0.3%) underperforming the cyclically-influenced RTY (+0.4%). There has been no clear catalyst behind the pullback since the Cash open. Delving deeper into Europe, the DAX 40 (+0.6%) outperforms after the tail risk of the Left party being involved in government has now been removed. The SMI (-0.6%) has dipped into the red as defensive sectors remain weak, with the Healthcare sector towards to bottom of the bunch alongside Personal & Household Goods. On the flip side, the strength in the price-driven Oil & Gas and yield-induced Banks have kept the FTSE 100 (+0.2%) in green, although the upside is capped by losses in AstraZeneca (-0.4%) and heavy-weight miners, with the latter a function of declining base metal prices. The continued retreat in global bonds has also hit the Tech sector – which resides as the laggard at the time of writing. In terms of individual movers, Rolls-Royce (+8.5%) trades at the top of the FTSE 100 after winning a USD 1.9bln deal from the US Air Force. IWG (+6.5%) also extended on earlier gains following reports that founder and CEO Dixon is said to be mulling a multibillion-pound break-up of the Co. that would involve splitting it into several distinct companies. Elsewhere, it is worth being cognizant of the current power situation in China as the energy crisis spreads, with Global Times also noting that multiple semiconductor suppliers for Tesla (Unch), Apple (-0.4% pre-market) and Intel (Unch), which have manufacturing plants in the Chinese mainland, recently announced they would suspend their factories' operations to follow local electricity use policies. Top European News U.K. Relaxes Antitrust Rules, May Bring in Army as Pumps Run Dry Magnitude 5.8 Earthquake Hits Greek Island of Crete German Stocks Rally as Chances Wane for Left-Wing Coalition German Landlords Rise as Left’s Weakness Trumps Berlin Poll In FX, the Aussie is holding up relatively well on a couple of supportive factors, including a recovery in commodity prices overnight and the Premier of NSW setting out a timetable to start lifting COVID lockdown and restrictions from October 11 with an end date to completely re-open on December 1. However, Aud/Usd is off best levels against a generally firm Greenback on weakness and underperformance elsewhere having stalled around 0.7290, while the Loonie has also run out of momentum 10 pips or so from 1.2600 alongside WTI above Usd 75/brl. DXY/EUR/CHF - Although the risk backdrop is broadly buoyant and not especially supportive, the Buck is gleaning traction and making gains at the expense of others, like the Euro that is gradually weakening in wake of Sunday’s German election that culminated in narrow victory for the SPD Party over the CDU/CSU alliance, but reliant on the Greens and FDP to form a Government. Eur/Usd has lost 1.1700+ status and is holding a fraction above recent lows in the form of a double bottom at 1.1684, but the Eur/Gbp cross is looking even weaker having breached several technical levels like the 100, 21 and 50 DMAs on the way down through 0.8530. Conversely, Eur/Chf remains firm around 1.0850, and largely due to extended declines in the Franc following last week’s dovish SNB policy review rather than clear signs of intervention via the latest weekly Swiss sight deposit balances. Indeed, Usd/Chf is now approaching 0.9300 again and helping to lift the Dollar index back up towards post-FOMC peaks within a 93.494-206 range in advance of US durable goods data, several Fed speakers, the Dallas Fed manufacturing business index and a double dose of T-note supply (Usd 60 bn 2 year and Usd 61 bn 5 year offerings). GBP/NZD/JPY - As noted above, the Pound is benefiting from Eur/Gbp tailwinds, but also strength in Brent to offset potential upset due to the UK’s energy supply issues, so Cable is also bucking the broad trend and probing 1.3700. However, the Kiwi is clinging to 0.7000 in the face of Aud/Nzd headwinds that are building on a break of 1.0350, while the Yen is striving keep its head afloat of another round number at 111.00 as bond yields rebound and curves resteepen. SCANDI/EM - The Nok is also knocking on a new big figure, but to the upside vs the Eur at 10.0000 following the hawkish Norges Bank hike, while the Cnh and Cny are holding up well compared to fellow EM currencies with loads of liquidity from the PBoC and some underlying support amidst the ongoing mission to crackdown on speculators in the crypto and commodity space. In commodities, WTI and Brent front-month futures kicked the week off on a firmer footing, which saw Brent Nov eclipse the USD 79.50/bbl level (vs low 78.21/bbl) whilst its WTI counterpart hovers north of USD 75/bbl (vs low 74.16/bbl). The complex could be feeling some tailwinds from the supply crunch in Britain – which has lead petrol stations to run dry as demand outpaces the supply. Aside from that, the landscape is little changed in the run-up to the OPEC+ meeting next Monday, whereby ministers are expected to continue the planned output hikes of 400k BPD/m. On that note, there have been reports that some African nations are struggling to pump more oil amid delayed maintenance and low investments, with Angola and Nigeria said to average almost 300k BPD below their quota. On the Iranian front, IAEA said Iran permitted it to service monitoring equipment during September 20th-22nd with the exception of the centrifuge component manufacturing workshop at the Tesa Karaj facility, with no real updates present regarding the nuclear deal talks. In terms of bank commentary, Goldman Sachs raised its year-end Brent crude forecast by USD 10 to USD 90/bbl and stated that Hurricane Ida has more than offset the ramp-up in OPEC+ output since July with non-OPEC+, non-shale output continuing to disappoint, while it added that global oil demand-deficit is greater than expected with a faster than anticipated demand recovery from the Delta variant. Conversely, Citi said in the immediate aftermath of skyrocketing prices, it is logical to be bearish on crude oil and nat gas today and forward curves for later in 2022, while it added that near-term global oil inventories are low and expected to continue declining maybe through Q1 next year. Over to metals, spot gold and silver have fallen victim to the firmer Dollar, with spot gold giving up its overnight gains and meandering around USD 1,750/oz (vs high 1760/oz) while spot silver briefly dipped under USD 22.50/oz (vs high 22.73/oz). Turning to base metals, China announced another round of copper, zinc and aluminium sales from state reserves – with amounts matching the prior sales. LME copper remains within a tight range, but LME tin is the outlier as it gave up the USD 35k mark earlier in the session. Finally, the electricity crunch in China has seen thermal coal prices gain impetus amid tight domestic supply, reduced imports and increased demand. US Event Calendar 8:30am: Aug. Cap Goods Ship Nondef Ex Air, est. 0.5%, prior 0.9% 8:30am: Aug. Cap Goods Orders Nondef Ex Air, est. 0.4%, prior 0.1% 8:30am: Aug. -Less Transportation, est. 0.5%, prior 0.8% 8:30am: Aug. Durable Goods Orders, est. 0.6%, prior -0.1% 10:30am: Sept. Dallas Fed Manf. Activity, est. 11.0, prior 9.0 Central Banks 8am: Fed’s Evans Speaks at Annual NABE Conference 9am: Fed’s Williams Makes Opening Remarks at Conference on... 12pm: Fed’s Williams Discusses the Economic Outlook 12:50pm: Fed’s Brainard Discusses Economic Outlook at NABE Conference DB's Jim Reid concludes the overnight wrap Straight to the German elections this morning where unlike the Ryder Cup the race was tight. The centre-left SPD have secured a narrow lead according to provisional results, which give them 25.7% of the vote, ahead of Chancellor Merkel’s CDU/CSU bloc, which are on 24.1%. That’s a bit narrower than the final polls had suggested (Politico’s average put the SPD ahead by 25-22%), but fits with the slight narrowing we’d seen over the final week of the campaign. Behind them, the Greens are in third place, with a record score of 14.8%, which puts them in a key position when it comes to forming a majority in the new Bundestag, and the FDP are in fourth place currently on 11.5%. Although the SPD appear to be in first place the different parties will now enter coalition negotiations to try to form a governing majority. Both Olaf Scholz and the CDU’s Armin Laschet have said that they will seek to form a government, and to do that they’ll be looking to the Greens and the FDP as potential coalition partners, since those are the most realistic options given mutual policy aims. So the critical question will be whether it’s the SPD or the CDU/CSU that can convince these two to join them in coalition. On the one hand, the Greens have a stronger policy overlap with the SPD, and governed with them under Chancellor Schröder from 1998-2005, but the FDP seems more in line with the Conservatives, and were Chancellor Merkel’s junior coalition partner from 2009-13.  So it’s likely that the FDP and the Greens will talk to each other before talking to either of the two biggest parties. For those wanting more information, our research colleagues in Frankfurt have released a post-election update (link here) on the results and what they mean. An important implication of last night’s result is that (at time of writing) it looks as though a more left-wing coalition featuring the SPD, the Greens and Die Linke would not be able for form a majority in the next Bundestag. So the main options left are for the FDP and the Greens to either join the SPD in a “traffic light” coalition or instead join the CDU/CSU in a “Jamaica” coalition. The existing grand coalition of the SPD and the CDU/CSU would actually have a majority as well, but both parties have signalled that they don't intend to continue this. That said, last time in 2017, a grand coalition wasn’t expected after that result, and there were initially attempts to form a Jamaica coalition. But once those talks proved unsuccessful, discussions on another grand coalition began once again. In terms of interesting snippets, this election marks the first time the SPD have won the popular vote since 2002, which is a big turnaround given that the party were consistently polling in third place over the first half of this year. However, it’s also the worst ever result for the CDU/CSU, and also marks the lowest combined share of the vote for the two big parties in post-war Germany, which mirrors the erosion of the traditional big parties we’ve seen elsewhere in continental Europe. Interestingly, the more radical Die Linke and AfD parties on the left and the right respectively actually did worse than in 2017, so German voters have remained anchored in the centre, and there’s been no sign of a populist resurgence. This also marks a record result for the Greens, who’ve gained almost 6 percentage points relative to four years ago, but that’s still some way down on where they were polling earlier in the spring (in the mid-20s), having lost ground in the polls throughout the final weeks of the campaign. Markets in Asia have mostly started the week on a positive note, with the Hang Seng (+0.28%), Nikkei (+0.04%), and the Kospi (+0.25%) all moving higher. That said, the Shanghai Comp is down -1.30%, as materials (-5.91%) and industrials (-4.24%) in the index have significantly underperformed, which comes amidst power curbs in the country. In the US and Europe however, futures are pointing higher, with those on the S&P 500 up +0.37%, and those on the DAX up +0.51%. Moving onto another big current theme, all the talk at the moment is about supply shocks and it’s not inconceivable that things could get very messy on this front over the weeks and months ahead. However, I think the discussion on supply in isolation misses an important component and that is demand. In short we had a pandemic that effectively closed the global economy and interrupted numerous complicated supply chains. The global authorities massively stimulated demand relative to where it would have been in this environment and in some areas have created more demand than there would have been at this stage without Covid. However the supply side has not come back as rapidly. As such you’re left with demand outstripping supply. So I think it’s wrong to talk about a global supply shock in isolation. It’s not as catchy but this is a “demand is much higher than it should be in a pandemic with lockdowns, but supply hasn't been able to fully respond” world. If the authorities hadn’t responded as aggressively we would have plenty of supply for the demand and a lot of deflation. Remember negative oil prices in the early stages of the pandemic. So for me every time you hear the phrase “supply shock” remember the phenomenal demand there is relative to what the steady state might have been. This current “demand > supply” at lower levels of activity than we would have had without covid is going to cause central banks a huge headache over the coming months. Should they tighten due to what is likely to be a prolonged period of higher prices than people thought even a couple of months ago or should they look to the potential demand destruction of higher prices? The risk of a policy error is high and the problem with forward guidance is that markets demand to know now what they might do over the next few months and quarters so it leaves them exposed a little in uncertain times. This problem has crept up fast on markets with an epic shift in sentiment in the rates market after the BoE meeting Thursday lunchtime. I would say they were no more hawkish than the Fed the night before but the difference is that the Fed are still seemingly at least a year from raising rates and a lot can happen in that period whereas the BoE could now raise this year (more likely February). That has focused the minds of global investors, especially as Norway became the first central bank among the G-10 currencies to raise rates on the same day. Towards the end of this note we’ll recap the moves in markets last week including a +15bps climb in US 10yr yields in the last 48 hours of last week. One factor that will greatly influence yields over the week ahead is the ongoing US debt ceiling / government shutdown / infrastructure bill saga that is coming to a head as we hit October on Friday - the day that there could be a partial government shutdown without action by the close on Thursday. It’s a fluid situation. So far the the House of Representatives has passed a measure that would keep the government funded through December 3, but it also includes a debt ceiling suspension, so Republicans are expected to block this in the Senate if it still includes that. The coming week could also see the House of Representatives vote on the bipartisan infrastructure bill (c.$550bn) that’s already gone through the Senate, since Speaker Pelosi had previously committed to moderate House Democrats that there’d be a vote on the measure by today. She reaffirmed that yesterday although the timing may slip. However, there remain divisions among House Democrats, with some progressives not willing to support it unless the reconciliation bill also passes. In short we’ve no idea how this get resolved but most think some compromise will be reached before Friday. Pelosi yesterday said it “seems self-evident” that the reconciliation bill won’t reach the $3.5 trillion hoped for by the administration which hints at some compromise. Overall the sentiment has seemingly shifted a little more positively on there being some progress over the weekend. From politics to central banks and following a busy week of policy meetings, there are an array of speakers over the week ahead. One of the biggest highlights will be the ECB’s Forum on Central Banking, which is taking place as an online event on Tuesday and Wednesday, and the final policy panel on Wednesday will include Fed Chair Powell, ECB President Lagarde, BoE Governor Bailey and BoJ Governor Kuroda. Otherwise, Fed Chair Powell will also be testifying before the Senate Banking Committee on Tuesday, alongside Treasury Secretary Yellen, and on Monday, ECB President Lagarde will be appearing before the European Parliament’s Committee on Economic and Monetary Affairs as part of the regular Monetary Dialogue. There are lots of other Fed speakers this week and they can add nuances to the taper and dot plot debates. Finally on the data front, there’ll be further clues about the state of inflation across the key economies, as the Euro Area flash CPI estimate for September is coming out on Friday. Last month's reading showed that Euro Area inflation rose to +3.0% in August, which was its highest level in nearly a decade. Otherwise, there’s also the manufacturing PMIs from around the world on Friday given it’s the start of the month, along with the ISM reading from the US, and Tuesday will see the release of the Conference Board’s consumer confidence reading for the US as well. For the rest of the week ahead see the day-by-day calendar of events at the end. Back to last week now and the highlight was the big rise in global yields which quickly overshadowed the ongoing Evergrande story. Bonds more than reversed an early week rally as yields rose for a fifth consecutive week. US 10yr Treasury yields ended the week up +8.9bps to finish at 1.451% - its highest level since the start of July and +15bps off the Asian morning lows on Thursday. The move saw the 2y10y yield curve steepen +4.5bps, with the spread reaching its widest point since July as well. However, at the longer end of the curve the 5y30y spread ended the week largely unchanged after a volatile week. It was much flatter shortly following the FOMC and steeper following the BoE. Bond yields in Europe moved higher as well with the central bank moves again being the major impetus especially in the UK. 10yr gilt yields rose +7.9bps to +0.93% and the short end moved even more with the 2yr yield rising +9.4bps to 0.38% as the BoE’s inflation forecast and rhetoric caused investors to pull forward rate hike expectations. Yields on 10yr bunds rose +5.2bps, whilst those on the OATs (+6.3bps) and BTPs (+5.7bps) increased substantially as well, but not to the same extent as their US and UK counterparts. While sovereign debt sold off, global equity markets recovered following two consecutive weeks of declines. Although markets entered the week on the back foot following the Evergrande headlines from last weekend, risk sentiment improved at the end of the week, especially toward cyclical industries. The S&P 500 gained +0.51% last week (+0.15% Friday), nearly recouping the prior week’s loss. The equity move was primarily led by cyclicals as higher bond yields helped US banks (+3.43%) outperform, while higher commodity prices saw the energy (+4.46%) sector gain sharply. Those higher bond yields led to a slight rerating of growth stocks as the tech megacap NYFANG index fell back -0.46% on the week and the NASDAQ underperformed, finishing just better than unchanged (+0.02). Nonetheless, with four trading days left in September the S&P 500 is on track for its third losing month this year, following January and June. European equities rose moderately last week, as the STOXX 600 ended the week +0.31% higher despite Friday’s -0.90% loss. Bourses across the continent outperformed led by particularly strong performances by the IBEX (+1.28%) and CAC 40 (+1.04%). There was limited data from Friday. The Ifo's business climate indicator in Germany fell slightly from the previous month to 98.8 (99.0 expected) from 99.4 on the back a lower current assessment even though business expectations was higher than expected. In Italy, consumer confidence rose to 119.6 (115.8 expected), up just over 3pts from August and at its highest level on record (since 1995). Tyler Durden Mon, 09/27/2021 - 08:09.....»»

Category: personnelSource: nytSep 27th, 2021

Shell (RDS.A) Ends Permian Asset Sale, Begins Stock Buyback

Shell (RDS.A) to use the cash proceeds from the Permian asset sale to buy back up to $1.5 billion of shares from Dec 2, 2021 through Jan 28, 2022. Royal Dutch Shell plc’s (RDS.A) subsidiaryShell Enterprises LLCrecently announced the completion of the sale of all its assets in the Permian, the most prolific basin in the United States, to competitor ConocoPhillips COP.The divesture worth $9.5 billion, announced in September 2021, involves Shell's 225,000 net Permian acres with current production of nearly 175,000 barrels of oil equivalent per day. The divested assets involve 600 miles of operated oil, natural gas, water pipelines and other energy infrastructure. The acquisition makes ConocoPhillips one of the leading producers in the Permian Basin.For Shell, the asset sale was a more attractive option for its shareholders instead of acquiring additional assets to boost its Permian footprint. RDS.A planned to use the cash proceeds from the transaction to fund $7 billion of additional shareholder distributions, most likely through share repurchases. The distributions were expected in addition to RDS.A's shareholder distributions of 20-30% of cash flow from operations. The remaining amount was intended to be used in strengthening RDS.A's balance sheet.Shell’s Stock Buyback CommencementWith the closure of the Permian asset divestment, management announced that it will buy back up to $1.5 billion of shares from Dec 2, 2021 to Jan 28, 2022. This will be the first instalment of the $7-billion dividends due to its shareholders following the sale of Shell's Permian operation to COP. In early 2022, the form and the date for releasing the remaining $5.5 billion will be disclosed.What Makes ConocoPhillips' Permian Acquisition So Special?The Permian assets acquisition will help COP generate massive cash in the coming days. It expects to generate $1.9 billion of free cash flow in 2022. Rising cash from operations owing to the deal will help COP provide higher returns to its shareholders, in line with its plan to return 30% cash from operations to its shareholders.ConocoPhillips' Permian footprint expanded significantly over the past year. Due to the changing perspectives on fossil fuels, oil and gas producers were often skeptical about focusing on hydrocarbons. The shifting approach among the industry's leading producers created opportunities for ConocoPhillips, which remains more aligned with regular oil and gas production.Why Did Shell Exit America’s Hottest Shale Play?Even last year, the Anglo-Dutch oil supermajor had named the Permian one of its key oil and gas-producing locations. However, it is under tremendous pressure to expedite its departure from fossil fuels.In May, the District Court in The Hague issued a major verdict on a climate dispute brought forth by environmentalists that might set a precedent for other oil firms. It ordered Shell to trim its carbon emissions by 45% within 2030 from its 2019 baseline.The Permian asset divestment underlines the growing divide between the European oil firms like Shell, BP and TotalEnergies, which are striving to shift toward renewable energy and low-carbon power, and their American counterparts, who continue to rely on oil and gas as a long-term investment.Shell belongs to a global group of energy and petrochemical companies. It is involved in all phases of the petroleum industry, right from exploration to final processing and delivery. RDS.A is scheduled to release fourth-quarter 2021 earnings results on Feb 3, 2022. The current Zacks Consensus Estimate for earnings is pegged at $1.59 per share for the December quarter.Zacks Rank & Key PicksShell currently has a Zack Rank #3 (Hold). Investors interested in the energy sector might look at the following stocks worth considering with a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.Range Resources Corporation RRC, based in Fort Worth, TX, is an independent energy company that engages in exploring, developing and acquiring oil and gas properties, primarily in the Appalachian Basin and North Louisiana. RRC is among the top 10 natural gas producers in the United States. It is among the top NGL producers in the domestic market. As of 2020 end, RRC’s total proved reserves were 17.2 trillion cubic feet equivalent.In the past year, shares of Range Resources’ have increased 169.7% compared with the industry’s growth of 102.3%. In the past 60 days, the Zacks Consensus Estimate for RRC's 2021 earnings has been raised 24%. RRC’s 2021 earnings are expected to surge 2,511.1% from the year-ago reported figure. RRC has witnessed five upward estimate revisions in the past 30 days.Occidental Petroleum Corporation OXY is an integrated oil and gas company with significant exploration and production exposure. OXY is also a producer of a variety of basic chemicals, petrochemicals, polymers and specialty chemicals. As of 2020 end, Occidental Petroleum's preliminary worldwide proved reserves totaled 2.91 billion BOE compared with 3.9 billion BOE at the end of 2019.In the past year, shares of Occidental Petroleum have surged 99% compared with the industry's growth of 96.6%. OXY's 2021 earnings are expected to soar 151.4% from the year-ago reported figure. Occidental Petroleum has also witnessed eight northward estimate revisions in the past 60 days. In the third quarter, OXY achieved its planned divestiture target of $10 billion by inking a deal to sell its interest in two offshore Ghana assets for $750 million. Zacks' Top Picks to Cash in on Artificial Intelligence In 2021, this world-changing technology is projected to generate $327.5 billion in revenue. Now Shark Tank star and billionaire investor Mark Cuban says AI will create "the world's first trillionaires." Zacks' urgent special report reveals 3 AI picks investors need to know about today.See 3 Artificial Intelligence Stocks With Extreme Upside Potential>>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report ConocoPhillips (COP): Free Stock Analysis Report Royal Dutch Shell PLC (RDS.A): Free Stock Analysis Report Occidental Petroleum Corporation (OXY): Free Stock Analysis Report Range Resources Corporation (RRC): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksDec 3rd, 2021

Bonhoeffer 3Q21 Commentary: Case Study – Millicom

Bonhoeffer Capital Management commentary for the third quarter ended September 2021, providing a case study for Millicom International Cellular SA (NASDAQ:TIGO). Q3 2021 hedge fund letters, conferences and more Dear Partner, The Bonhoeffer Fund returned -2.8% net of fees in the third quarter of 2021. In the same time period, the MSCI World ex-US, a […] Bonhoeffer Capital Management commentary for the third quarter ended September 2021, providing a case study for Millicom International Cellular SA (NASDAQ:TIGO). if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Walter Schloss Series in PDF Get the entire 10-part series on Walter Schloss in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues. (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more Dear Partner, The Bonhoeffer Fund returned -2.8% net of fees in the third quarter of 2021. In the same time period, the MSCI World ex-US, a broad-based index returned -0.7% and the DFA International Small Cap Value Fund, our closest benchmark, returned -2.5%. Year to date, the Bonhoeffer Fund has returned 22.9% net of fees. As of September 30, 2021, our securities have an average earnings/free cash flow yield of 14.3% and an average EV/EBITDA of 4.7. The DFA International Small Cap Value Fund had an average earnings yield of 11.1%. These multiples are lower than last quarter primarily due to increasing earnings and declining share prices. The difference between the portfolio’s market valuation and my estimate of intrinsic value is greater than 100%. I remain confident that the gap will close over time and the portfolio quality will continue to increase as we increase allocations to faster-growing firms. Bonhoeffer Fund Portfolio Overview Our investment universe has been extended beyond value-oriented special situations to include growthoriented firms using a value framework, including companies that generate growth through consolidation. There have been modest changes within the portfolio in the last quarter in line with our low historical turnover rates. We have sold Cambria Automotive which is in the process of being acquired and used the proceeds to increase our holdings in Asbury Automotive, Countryside Properties, and Millicom. As of September 30, 2021, our largest country exposures include: South Korea, United States, United Kingdom, Italy, South Africa, and Philippines. The largest industry exposures include: distribution, telecom/media, real estate/infrastructure, and consumer products. We added to some smaller positions within the portfolio and are investigating additional consolidation plays with modest valuations in industries that have nice returns on invested capital such as fiber rollouts, convenience stores, and IT services. Compound Mispricings (37% of Portfolio; Quarterly Average Performance -8%) Our Korean preferred stocks, the nonvoting share of Telecom Italia, Wilh. Wilhelmsen, and some HoldCos all feature characteristics of compound mispricings. The thesis for the closing of the voting, nonvoting, and holding company valuation gap includes evidence of better governance and liquidity. We are also looking for corporate actions such as spinoffs, sales, or holding company transactions and overall growth. Throughout the year, Net1 UEPS has been accumulating cash from the sale of its non-core assets including a Korean transaction processing network and its stake in a crypto bank. This cash, in addition to issuing some debt, was used to purchase Connect, a merchant transaction processor catering to small and medium businesses. This acquisition will complement its consumer fintech EasyPay transaction and ATM network and expand Net1 UEPS’s total addressable market to include small and midsized businesses and lead to profitability. The Korean preferred discounts in our portfolio are still large (25% to 73%). The trends of better governance and liquidity have reduced the discount in names like Samsung Electronics, and more preferred names trade at a premium to common shares. We continue to like the prospects for LG Corp preferred post LX Holdings spinoff from both a business and discount perspective. The current discount to NAV is 74% for the LG Corp preferred. In addition, this discount is based upon a base value of LG Corp with reasonable implied EV/EBITDA multiples of LG Corp subsidiaries of 4.7x for LG Electronics, 13.6x for LG Chemical (including LG’s EV battery division), and 16.7x for LG Household & Health Care. Public LBOs (37% of Portfolio; Quarterly Average Performance -1%) Our broadcast TV franchises, leasing, building products distributors, and roll-on/roll-off (RORO) shipping fall into this category. One trend I’ve noted in these firms is growth creation through acquisitions which provide synergies and operational leverage associated with vertical and horizontal consolidation and the subsequent repurchasing of shares with debt. The increased cash flow is used to pay the debt and the process is repeated. Millicom, this quarter’s case study, is a public LBO that has financed many of its investment opportunities with debt. The recently announced buyout of its Guatemalan JV partner illustrates this. The debt, when used in situations like this, has been paid down over time as Millicom generates a lot of free cash flow and can increase returns like leveraged rollups, as described below. Distribution Theme (41% of Portfolio; Quarterly Performance +3%) Our holdings in car and branded capital equipment dealerships, convenience stores, building product distributors, and capital equipment leasing firms all fall into the distribution theme. One of the main KPIs for dealerships and shopping is velocity or inventory turns. We own some of the highest-velocity dealerships in markets around the world. There have been challenges in some markets hit by COVID, like South Africa and Latin America; but there should be recovery now that vaccines have been approved and distributed. GS Retail, the second largest convenience store operator in Korea (with 14,600 convenience stores and 320 grocery stores), is the security we received for the buyout of GS Home Shopping. We have applied our growth methodology described in the last quarterly report. The following is a summary: The convenience store business is growing and consolidating worldwide. As a result of the acquisition, management is planning on using the younger customer data from GS Retail, the older customer data from GS Home Shopping, and the GS distribution network (42 logistics centers supporting convenience, grocery, and home shopping customers) to provide older and younger customers their products instore (convenience store) or next-day home delivery across Korea. Management expects 10% growth overall, composed of underlying convenience store growth of 4-5% and 5% from cross selling and digital commerce from the merger. Given the fixed costs in the convenience store network and distribution infrastructure, management expects cost synergies to generate net income margins of 5.0%. If these revenue and growth rates are realized, then a P/E closer to comparable convenience stores BGF Retail (Korea), Seven & I, and Alimentation Couche-Tard of 15-20x is not unreasonable. This range has significant upside from current P/E multiple of 5.9x and five-year forward P/E of 4.3x. Telecom/Transaction Processing Theme (36% of Portfolio; Quarterly Performance -2%) The increasing use of transaction processing in our firms’ markets and the rollout of 5G will provide growth opportunities. Given that most of these firms are holding companies and have multiple components of value (including real estate), the timeline for realization may be longer than for other firms. Telecom Italia continues to work with the Italian government and Fiber Corp to merge their telecommunications infrastructures together. Vivendi has called an emergency board meeting to ensure Telecom Italia will retain control of the combined telecommunication infrastructure after the merger. We view this action as a positive despite the decline in Telecom Italia’s share price. The updated sum-ofthe- parts analysis (as detailed in previous letters) implies an upside of 80–100%. In my opinion, much of the recent decline is due to concerns that Telecom Italia will give up control of the combined telecommunications infrastructure. Consumer Product Theme (10% of Portfolio; Quarterly Performance -7%) Our consumer product, tire, and beverage firms comprise this category. The defensive nature of these firms has led to lower-than-average performance due to the stronger performance from more recoverycorrelated names. One theme we have been examining is the increase in sales of adult products (tobacco, alcohol, and lottery) in convenience stores as other stores are removing these products from their product offerings. GS Retail is taking advantage of this trend in Korea. Real Estate/Construction Theme (23% of Portfolio; Quarterly Performance -3%) In my opinion, the pricing of our real estate holdings has been impacted by both a recession and the communist takeover in Hong Kong. The current cement and construction holdings (in US/Europe via BFS and Countryside and in Korea via Asia Cement) should do well as the world recovers from COVID shutdowns and governments start infrastructure programs. Asia Standard also declined during the quarter due to the concern over the decline in its Chinese real estate developer bond holdings. Asia Standard holds a large number of Chinese real estate developer bonds, including those of Evergrande and Kaisa. The Evergrande bonds have declined to about 20% of face value as of September 30 (they were at 40% of face value on July 31, 2021, the last market-to-market valuation date for Asia Standard’s bond portfolio) while the Kaisa bonds have declined to 85% of face value. I ran a stress test assuming a 25% decline in the bond portfolio from July 31, 2021. This is 2x the 13% decline in the portfolio from Evergrande and Kaisa bond prices between July 31, 2021, to September 30, 2021. The resulting NAV/share is $8.09 versus the $10.09 NAV as of July 31, 2021. The September 30 stock price of $0.85 is at a 91% discount to the stressed NAV and 92% to the July 31, 2021, NAV. Consolidation Frameworks In our Q1 letter, we described how we are examining growth opportunities associated with consolidation in fragmented industries. Growth from consolidation can be a resilient form of growth as it is dependent upon the availability of target firms and associated cost and revenue synergies versus overall market growth. When consolidation growth is combined with modest industry growth, some exciting growth can be realized. If the firms also exhibit operational leverage from economies of scale/scope, then the combined effect can be significant growth in earnings or free cash flows. The advantage of this type of growth is that it is realized over time and not recognized by the market in advance. This can be seen in the price charts of many of these firms moving from the lower left to the upper right over time as the growth is realized. Fragmented markets can have long runways associated with consolidation and economies of scale and scope which can lead to cash flow growth in excess of the market growth for many years. We try to identify these markets and firms that can ride the consolation wave over a long timeframe. Some of these firms have valuations reflecting some of the future growth and some have little to no premium reflecting future growth from consolidation. Currently, the internet (an innovation) is providing more consolidation via additional fragmentation of retail demand from offline, online, and omni-channel selling channels. An example is traditional auto dealers using an omni-channel sales approach and Carvana who is exclusively online. Bonhoeffer is looking for businesses that are adopting the innovation (internet distribution) which will enhance growth going forward but where it is not recognized by the market yet, as evidenced by the current stock price. Some analysts have developed useful frameworks to evaluate consolidation or serial acquirer situations. Scott Capital has developed a useful framework1 for categorizing consolidators, shown below: Scott has categorized these types of firms depending upon the level of target integration. Most of the firms we have been examining recently have been rollups (firms in the same industry) with scale-driven synergies and operational leverage. We also hold one platform (Wilh. Wilhelmsen) and one holding company (LG Corp). Another way to look at these firms is cross-sectionally based on total addressable market (TAM) size and integration of operations, as described by Canuck Analysts Substack2 below: Using this framework for our current areas of interest (rollups), I have been monitoring acquisition multiples in the car dealers (Asbury Automotive), local TV and radio firms (Gray Television), building supply distribution (Builders First Source), Latin American telecommunications (Millicom), cement firms (Asia Cement), equipment leasing firms (Ashtead), and network processing (Net 1 UEPS). In each of these segments, multiples have been modest. None of these firms have done international “diworsifying” deals to date and some have recently divested unrelated firms (Net 1 UEPS, Daelim Industrial and LG Corp). In each of these markets, the market share of the top firms is less than 10% except for GS Retail, where itself and FRB have a dominant share of 31% each, and Millicom, where it has a leading or number two position in eight of its nine markets where it competes. The small market shares provide a large runway for consolidation in its existing industry for years to come. Also, none have made international expansion into new markets outside their existing footprints. A return benchmark developed by the Canuck Analysts Substack3 is shown below: This framework, used in combination with calculating return on incremental capital, can illustrate where the invested capital returns can be modest. As an example, we will look at Asbury Automotive. Asbury’s returns on invested capital averaged 13%, and the return on equity averages 31% over the past 10 years plus an organic growth rate of 2 to 3% per year based upon US auto sales and maintenance service costs. This results in an ROIC plus ½ of annual organic growth of about 15%. The size of Asbury’s acquisitions has been about $1.4 billion over the past five years. Below is Asbury’s return on incremental invested capital over the past 10 years which has averaged in the upper teens during that period. For other serial acquirers like Ashtead, the organic growth rate is 6% and its ROICs over the past 10 years is 14% resulting in an ROIC plus ½ of annual organic growth of about 17%. The size of Ashtead’s acquisitions has been about $2.0 billion over the past five years. Conclusion As always, if you would like to discuss any of the philosophies or investments in deeper detail, then please do not hesitate to reach out. Until next quarter, thank you for your confidence in our work and have a safe and warm year-end holiday season. Warm Regards, Keith D. Smith, CFA Case Study: Millicom International Cellular SA (TIGO) Millicom International Cellular SA (NASDAQ:TIGO) provides mobile and broadband telecommunications services to consumers and businesses in Central America (Guatemala, Honduras, El Salvador, Nicaragua, Costa Rica, and Panama) and South America (Columbia, Bolivia, and Paraguay). TIGO provides legacy voice, wireless and data services, and fiber-based services to firms and individuals. Currently, TIGO has 43.1 million wireless subscribers, including 20.3 million 4G subscribers and 4.9 million home customers, including 8.4 million revenue generating units (RGUs) and 4.1 million broadband subscribers. In addition, TIGO’s network includes 5,400 points of presence and 300,000 business customers. TIGO is the number one or two broadband and wireless provider in eight of the nine markets in which TIGO competes. Recently, TIGO announced the purchase of its joint venture (JV) partner’s share of its JV in Guatemala for $2.2 billion. This transaction will be financed by debt and a shareholder friendly common stock rights offering. TIGO provides mobile money/banking services for five million customers in six countries. TIGO also has 10,000 towers and 13 data centers which can be sold and leased backed. TIGO is in the process of separating its towers and data centers (like Telefónica and América Móvil) and its mobile money/banking service to facilitate sales or investments by third parties. In 2017, TIGO sold 3,410 towers in Columbia, El Salvador, and Paraguay for $417 million or $122,287 per tower. Historically, TIGO operated in both Africa and Latin America. Over the past five years, TIGO has divested its African telecommunications assets and purchased additional assets in Latin America. TIGO’s network passes over 12.2 million homes (24% penetration of total homes) and covers 80% of mobile phones. The firm is in the midst of rolling out fiber to homes to provide broadband connectivity to Latin American customers. This rollout is being funded by cash flow from operations. The firm has been described as building a Charter Communications under a wireless Verizon umbrella. This is similar to our Consolidated Communications play with the additional benefit of having a wireless network and a mobile money business. In most countries in which TIGO operates, they have joint ventures or minority interest local partners. TIGO currently has an average high-speed internet (HSI) penetration rate (a take rate of HSI for homes passed) of about 39% across the countries it serves. This has increased by 1.4% since year-end 2020. To put this in context, most cable broadband penetrations are in the 50% plus range. In seven of the nine countries they serve, TIGO is the number one or two competitor in wireless and broadband in two-player markets (Guatemala, Honduras, El Salvador, Costa Rica, Panama, Bolivia, and Paraguay) and number three in two markets (Nicaragua and Costa Rica). The Q3 2021 mobile average revenue per RGU was $6.40 per month, and the broadband revenue per RGU was $28.10 per month. The largest shares of proportional EBITDA are from Guatemala (38%), Bolivia (11%), Paraguay (11%), Panama (10%), and Columbia (9%). In terms of regions, 70% of EBITDA is from Central America and 30% from South America. TIGO has developed a customer-focused culture at the corporate and country level using NPS as a metric which is collected and used as a management incentive to increase customer satisfaction. In addition, the countries that TIGO serves have stable currencies versus the US dollar. Since 2000, the EBITDA weighted average currency movements have been only 0.7% per year. Another positive trend is the movement of suppliers to US-based firms moving from China to a closer location with political and currency stability—Central America. If we look at the index of economic freedom for the Central American countries in which TIGO primarily operates, they have a moderately free ranking. For the subcategories most of interest to suppliers (tax burden and trade and business freedom), they all are ranked free or mostly free (highest ratings). Millicom and Fiber-optic Rollout The Latin American telecommunications services market is a local, fragmented market. Consolidation has occurred over the past 10 years amongst these local players, and the next generation of technology (fiber-optic connections) is being rolled out. Fiber-optic rollouts are generating organic growth and economies of scale with high incremental user profitability. Millicom has created economies of scale depending upon the geography of the acquired telecommunications firm. There is also the vertical integration across telecommunications services (like wireless, voice, data, cable, and hosting) in a given geography which can create additional economies of scale. With these rollouts, telecommunications companies compete with the local cable companies—and in some cases wireless providers—to provide HSI and other services to customers in their local footprints. Historically, telecommunications and cable firms have had poor customer service, as evidenced by low net promoter scores (NPSs). Keith Rabois, a founder of PayPal, has tweeted, “Formula for startup success: Find large highly fragmented industry w low NPS; vertically integrate a solution to simplify value product.” Part of simplifying the solution is providing multiple services and good customer service. The telecommunication services market fits this description. The new fiber rollouts are analogous to organic startups and thus can also be successful in the vertical integration into these markets. Business and Service Analysis One way to look at telecom business is to divide it into slowly growing (wireless) and quickly growing segments (HSI). The slower-growing wireless business is mature and is growing about 2% per year. The HSI business is growing at an 8% annual rate driven by fiber rollouts in TIGO’s countries. Millicom’s overall mix of wireless and HSI revenue is 33% HSI and 67% wireless, with 67% recurring subscription revenue (HSI and post-paid wireless) but varies by country. The current revenue growth rate is 4.3% and will increase to 5%, by the end of 10 years and the HSI/wireless mix approach 50%/50%. If we look at unit economics of the fiber rollout, it is also quite favorable. According to management, the estimated cost to pass each new customer is about $150; and the cost to connect a customer is $100. This is similar to the cost reported by Oi, a telecommunications firm rolling out a fiber-optic network in Brazil. If you have a final penetration rate of 45% using the current HSI monthly charge of $28/month, and a steady-state EBITDA margin of 45% (which management believes are both achievable at scale; the current margin is 40%), then the payback time is between six and seven years, and the unlevered IRR is 26% and a levered return of 52%. See Exhibit A for details. Latin America Broadband Telecommunications Market The broadband telecom business in Latin America is a fragmented market on an international basis and a concentrated market on a country-by-country basis. The market is a local market, so the smaller country markets only have a few competitors. This leads to less price competition for TIGO than in larger, more urban markets where there are more competitors. Gig speed internet and wireless are core infrastructure services that will be required in the internet service economy. Currently, broadband usage is growing at a 30-40%/year rate and is expected to increase going forward, as more bandwidthintensive applications are developed and rolled out over time. Since most of TIGO’s competition is from cable companies and incumbent telecom firms (that have low NPSs), TIGO has an opportunity to provide improved customer service versus the cable companies. This highlights the importance of the decentralized management system, incentivized and shareholding country managers, and including NPSs in management’s incentive compensation at the corporate and country levels. Of the other publicly traded Latin American telecommunications firms, TIGO has the largest potential to increase HSI organic revenue growth (by 8%) via a fiber rollout in its incumbent territories. This can be seen in the projections based upon the currently planned and financed fiber rollout shown in Exhibit B. The tilt toward the faster-growing Central American countries (which should get some opportunities to replace China as exporters to the US) versus the slower-growing South American countries will also add a nice tailwind. The countries TIGO services had an average real GDP growth rate of 3.2% per year over the past five years versus the overall 0.7% GDP growth rate for all of Latin America. Downside Protection TIGO has been reducing debt over the past few years with a current proportional debt/EBITDA of 2.7x and a goal of 2.0x. TIGO has a bond rating of Ba2 and yields 3.5% for five- to 10-year bonds. TIGO is in a defensive business—telecommunications services—which has a large amount of recurring revenue. HSI data revenues are increasing, while wireless revenues are increasing at a slower rate. See below for projections and Exhibit B for more detailed projections. Below is the proportional historical and projected revenue, EBITDA, and FCF since 2016 when the Guatemalan and Honduran JVs were deconsolidated. Management and Incentives One of the risks in emerging-markets investing is management, as they may have different incentives than those to which Western investors are accustomed. In this case, you have a management team based in the US (Miami) that has been historically influenced by the firm’s domicile, Sweden. TIGO is led by a former Liberty Latin America executive, Mauricio Ramos. He brings the Liberty Media playbook (a successful leveraged rollup strategy of cable-related properties and associated shareholder friendly corporate actions) to the markets that TIGO serves. TIGO is listed in Sweden and the United States and brings the corporate governance practices, capital allocation, and shareholder renumeration approaches to its operations throughout Latin America. In many countries, TIGO has local JV partners which provide TIGO with access to the local connections. TIGO has management incentives, including TIGO stock (with minimum levels for country managers) at both the corporate and country levels. The capital allocation is also done at both the corporate and country levels. This country-level capital allocation, incentives, and stock ownership is unusual for a Latin American company. The major categories of capital allocation for TIGO are: 1) purchasing minority interests from partners, 2) investing in the HSI broadband rollout described above, 3) selective acquisitions, 4) repurchasing shares, or 5) distributing dividends. Categories 1, 2, 3 and 4 have the most well-defined and highest returns and have been used by management in the past. In 2020, the CEO’s management compensation was 20% base salary and 80% incentive-based bonus, of which short-term incentive (STI) is 50% equity based (TIGO shares) and 50% cash based and long-term incentive (LTI) is 100% equity based (TIGO shares). The 2020 STI compensation was based on service revenue growth, EBITDA growth, operational cash flow growth, NPS, and other operational goals. The 2020 LTI compensation is based upon service and EBITDA growth and relative total shareholder return versus peers. The 2020 equity-based shares were issued at $38.09 per share, and the 2019 shares were issued at $42.70 per share. Overall, 700,000 shares were granted in 2020 (about 0.7% of shares outstanding per year). The management team owns 0.7% of TIGO common stock. TIGO has stock ownership guidelines of 5x the salary for the CEO, 3x for other senior managers, and 1x for country managers. Valuation The valuation of TIGO is an interesting exercise because its expected growth rate is accelerated by the fiber rollout and share buybacks described above. The implied growth using the Graham Formula, adjusted to today’s interest rates ((8.5 + 2g)*(4.4/AAA bond rate)) and the current P/E, is -1.8%, clearly implying that the market expects TIGO’s cash flows to continue to decline. Some benchmarks for growth are the projected sales growth rates of 4.5% per year (based upon the fiber rollout), an EBITDA growth rate of 6% per year, and an adjusted free cash flow growth of 12%. The question is whether this growth rate is sustainable over the next seven years. Given the key penetration, margin, investment, and timing assumptions in the projection model, I believe it is. TIGO is the only Latin American publicly traded telecom firm that has a rollout of this magnitude (adding 18% to revenue) scheduled over the next five to seven years. One firm that also has a Latin American footprint is Liberty Latin America (LILA). LILA has grown revenues and EBITDA at about 8% per year since 2015. The EBITDA margin is similar to TIGO, but historically the conversion to FCF from EBITDA was 50% less than TIGO—25% for TIGO and closer to 12% for LILA. The current FCF multiple of LILA is about 16x. If that multiple is applied to TIGO’s FCF, it yields a value of $74 per share, which I believe is a reasonable 12-month target. If, over the five to seven years, a 12% FCF growth is attained, then the earnings will be $8.19. Applying a 23.8x multiple to these earnings (implying a 4% growth rate over the subsequent seven years) means a value of $195 per share is obtained. Another way to look at valuation is on an enterprise basis. If we value TIGO on a forward EBITDA basis of 9x EBITDA (the current multiple of cable overbuilder WOW!), then the resulting value is $200 per share. If we consider both benchmarks, then a $200 price target is not unreasonable. See Exhibit B for details. This results in a five-year IRR of about 42%. In addition to the core assets, TIGO has about 10,000 towers (with an additional 2,000 under construction), 13 data centers, and a mobile banking division. According to management, these non-core assets are being prepared for either sale-leasebacks or investments by third parties. The estimated value of the towers and data centers is about $2 billion—$1.1 billion for the towers and $900 million for the data centers. The tower valuation of $1.4 billion is based upon an estimated value per tower of $120k based upon tower transaction values (TIGO’s historic transactions averaged $122k/tower and a 2021 Telxius transaction was $110k/tower, 9,300 Latin American towers for €900 million) and Telesites’s current valuation of $252k/tower times 12,000 towers. The data center valuation of $750 million is based upon an estimated value per data center of $58k which is based upon Latin American data center transactions (Anxel data centers were purchase by Equinix for $58k/center, three data centers for $175 million, and Telefónica data centers were purchased by Asterion for $58k/data center, nine data centers for €550 million) times 13 data center. Adding together the towers and data centers, the total valuation of these assets is $2.1 billion. The mobile banking division (TIGO Money) can be valued using a range of values based upon the value of African mobile banking firms and Latin American neobank firms. The mobile banking business had 5 million customers and 48 million transactions in 2020. If we use African mobile banking transactions (20 million Airtel customers were purchased for $2.6 billion and 46 million MTN customers were purchased for $5.0 billion), the average value per user is $121. If we use $121/customer times 5 million transactions, it implies a $600 million value for TIGO Money. If we use recent Latin American neobank transactions (40 million Nubank (Brazil) customers were purchased for a $30 billion valuation and 3.5 million Ualá (Argentina) customers were purchased for a $2.45 billion valuation), the average value per user is $750. If we use the midpoint of the African mobile banking and Latin American neobanks of $435, we get $435 times 5 million customers, and the resulting value is $2.2 billion. This is additional value of $2.7 to $4.2 billion ($27 to $42 per share) in addition to the core business value estimated above. So, for example, if you assume a 12% FCF growth rate and the value of non-core assets, you get a total value of $255 to $270 per share. Comparables Given the fiber rollout and the size of TIGO, the comparable firms include US and Italian small-cap telecommunications firms. One of the larger issues in Latin American firms versus developed markets is currency risk, however; as described above, TIGO’s currency risk is similar to developed markets’ risk. The following are the comparable firms in the US and Italian telecommunications markets. The smaller Italian telecom firms have smaller floats than the US firms and are majority controlled (70%+) by the original owners. There have been some private equity acquisitions in the US rural local exchange carriers (RLEC) space, namely Cincinnati Bell and Alaska Communications. These firms have a similar dynamic associated with their respective fiber rollouts, and private equity firms have invested in these firms for similar reasons that make CNSL attractive. Cincinnati Bell has been purchased by the private equity firm Macquarie Infrastructure Partners, which outbid an original offer from Brookfield Asset Management. Alaska Communications is also in the process of being purchased by ATN International and Freedom 3 Capital. The EV/EBITDA paid by these buyers was 6.5 to 6.9x EBITDA for assets with lower margins than the current price of TIGO (4.6x EBITDA). Benchmarking In comparison to other US and Italian firms, TIGO has above-average (but good) FCF ROE and a high EBITDA margin. With TIGO’s fiber rollout and customer take-up, the fixed asset turns and ROEs should increase. With these favorable operational metrics, TIGO has one of the lowest current and 2021 P/FCF ratios of either group. Risks The primary risks to achieving a target valuation of $72 per share for TIGO include: a lower-than-expected broadband penetration of fiber rollout communities; and a quicker-than-expected decline in the legacy telecom lines. Potential Upside/Catalysts The primary upsides/catalysts include: faster-than-expected penetration of uptake of broadband services; operational leverage due to economies of scale; and re-rating to reflect higher growth. Timeline/Investment Horizon The short-term target is $72, which is more than double today’s price. I think the investment thesis can play out over the next three to five years. By that time, TIGO’s net income and earnings should have appreciated by 75%, and the fair multiple could triple with a 4% increased growth rate. If that is the case, then TIGO will attain a 6.7x return to $235 over five years or 46% annualized. This is similar to a “Davis double,” where both underlying earnings increase along with the fair value multiple. Updated on Dec 1, 2021, 1:24 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkDec 1st, 2021

ETFs to Suffer as US Consumer Sentiment Slips to 10-Year-Low Mark

The U.S. consumer sentiment takes a hit in November from the rising concerns over surging inflationary levels. U.S. consumers are clearly worried about rising prices, as reflected by the surging inflation levels. The latest consumer sentiment readings for November look very disappointing as the metric has slipped to the lowest level in a decade compared to the previous month. The University of Michigan’s final consumer sentiment declined to 67.4 during November from 71.7 in October. However, the reading still compared favorably with the preliminary estimate of 66.8 in early November.The disappointing consumer sentiment reading might affect the consumer discretionary sector, which attracts a major portion of consumer spending amid rising inflation levels. Certain ETFs that can feel the impact are The Consumer Discretionary Select Sector SPDR Fund XLY, Vanguard Consumer Discretionary ETF VCR, First Trust Consumer Discretionary AlphaDEX Fund FXD and Fidelity MSCI Consumer Discretionary Index ETF FDIS.Going on, the measure of current economic conditions dipped to 73.6 in November from 77.7 in October. In November, a gauge of consumer expectations slid to 63.5, appearing weak compared to October’s reading of 67.9.One-year inflation is expected to rise 4.9% in November (the highest since 2008). The survey's five-to-10-year inflation outlook rose to 3% in November, as stated in a Bloomberg article.In this regard, Richard Curtin, director of the survey, said that “While pandemic induced supply-line shortages were the precipitating cause, the roots of inflation have grown and spread more broadly across the economy.” This was reported in a BloombergQuint article. Curtin also said that “Rather than gradually easing along with diminished shortages, complaints about falling living standards doubled in the past six months,” per the same article as mentioned above.Consumers seem disturbed about the rising prices of homes, vehicles, food and household durables. The Michigan survey has also highlighted that the buying conditions for household durable goods have declined to the second-lowest level since the recording of data began in 1978.Current U.S. Economic ScenarioInvestors have started worrying about the hot inflation data releases amid the Fed calling inflation levels ‘transitory’. Per the latest Labor Department report, the Consumer Price Index (CPI) in October rose 6.2% year over year compared to the Dow Jones estimate of a 5.9% rise, per a CNBC article. The metric came in at the highest level since December 1990 and it covers a basket of products ranging from gasoline and health care to groceries and rents. It also increased 0.9% for the month, surpassing the 0.6% Dow Jones estimate. The soaring food, used vehicles and energy prices might be primarily responsible for the rising inflation levels.The Federal Reserve’s more preferred inflation gauge, core personal consumption expenditures, rose 4.1% year over year for October, on par with the estimates (per a CNBC article).According to the Federal Reserve, a major part of the inflation has been triggered by the pandemic-driven supply-demand imbalance, which might get resolved in a few months (per a CNBC article).The resurging coronavirus cases in the European Union can be a concern as travel restrictions are being lifted globally and economies are reopening. Moreover, the variant, called B.1.1.529, detected in South Africawith numerous mutations to the spike protein, is also worrying investors (as stated in a CNBC article).However, the impressive third-quarter earnings results have been keeping investors busy. The earnings results have also eased investors' worries surrounding the rising supply-chain disturbances eroding corporate profit margins.In another positive development, the U.S. jobs report for November seems impressive. The nonfarm payrolls rose by 531,000 in October, surpassing the estimate of 450,000, per a CNBC article. Also, beating expectations, the unemployment rate declined to 4.6%, hitting a new pandemic low level (according to a CNBC article).Wall Street has another reason to cheer as the U.S. House of Representatives has passed the more than $1-trillion infrastructure bill on Nov 5. The bill has now moved to President Biden for his signature. The legislation was approved in a 228-206 vote.Going on, the Atlanta Fed stated that the U.S. economy will grow 8.6% (revised upwards from 8.2%) in fourth-quarter 2021 in his latest forecasts. Heading into the holiday season, given the reopening of domestic and international borders for traveling, we are enthusiastic about U.S. economic growth.ETFs That Might SufferHere we discuss in detail the four most popular funds that target the broader consumer discretionary sector (see all Consumer Discretionary ETFs):The Consumer Discretionary Select Sector SPDR FundThe Consumer Discretionary Select Sector SPDR Fund is the largest and the most popular product in the consumer discretionary space, with AUM of $23.99 billion. XLY tracks the Consumer Discretionary Select Sector Index.The Consumer Discretionary Select Sector SPDR Fund charges an expense ratio of 0.12%. XLY carries a Zacks ETF Rank #2 (Buy), with a Medium-risk outlook. Also, The Consumer Discretionary Select Sector SPDR Fund trades in three-month average volume of about 5.7 million shares (read: Home Depot Rises Post Q3 Earnings: ETFs to Buy).Vanguard Consumer Discretionary ETFVanguard Consumer Discretionary ETF currently follows the MSCI US Investable Market Consumer Discretionary 25/50 Index.Vanguard Consumer Discretionary ETF has an AUM of $7.65 billion and charges an expense ratio of 0.10%. VCR carries a Zacks ETF Rank #1 (Strong Buy), with a Medium-risk outlook. Also, Vanguard Consumer Discretionary ETF trades in three-month average volume of about 104,000 shares (read: Will ETFs Win During Thanksgiving Week Amid Virus Fears?).First Trust Consumer Discretionary AlphaDEX Fund First Trust Consumer Discretionary AlphaDEX Fund tracks the StrataQuant Consumer Discretionary Index, employing the AlphaDEX stock-selection methodology to select stocks from the Russell 1000 Index.First Trust Consumer Discretionary AlphaDEX Fund has AUM of $2.01 billion. FXD charges 63 basis points (bps) in annual fees and has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook. Also, First Trust Consumer Discretionary AlphaDEX Fund trades in three-month average volume of about 97,000 shares.Fidelity MSCI Consumer Discretionary Index ETF Fidelity MSCI Consumer Discretionary Index ETF tracks the MSCI USA IMI Consumer Discretionary Index.Fidelity MSCI Consumer Discretionary Index ETF has amassed $1.83 billion in its asset base. FDIS charges 8 bps in annual fees from investors and carries a Zacks ETF Rank #2, with a Medium-risk outlook. Fidelity MSCI Consumer Discretionary Index ETF trades in three-month average volume of about 97,000 shares. Want key ETF info delivered straight to your inbox? Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.Get it free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Consumer Discretionary Select Sector SPDR ETF (XLY): ETF Research Reports Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports Fidelity MSCI Consumer Discretionary Index ETF (FDIS): ETF Research Reports First Trust Consumer Discretionary AlphaDEX ETF (FXD): ETF Research Reports To read this article on Zacks.com click here......»»

Category: topSource: zacksNov 29th, 2021

"Nobody" in Biden"s West Wing is shutting down chatter of Buttigieg as a potential presidential successor: report

The Buttigieg talk has reportedly "frustrated" several staffers of color who see the chatter as a slight toward Vice President Harris, per Politico. Secretary of Transportation Pete Buttigieg.AP Photo/Evan Vucci Buttigieg is being openly discussed a potential Biden successor in the West Wing, per Politico. Some staffers of color feel that the chatter is a slight to Vice President Harris, per the report. Buttigieg this week on NBC's "Meet the Press" emphasized his strong work relationship with Harris. When Pete Buttigieg arrived in Washington, DC, earlier this year, the former South Bend, Ind., mayor had already become a household name through his scrappy 2020 presidential campaign that saw him soar in Iowa and New Hampshire before his eventual exit from the Democratic primaries at the hands of now-President Joe Biden.As a 39-year-old veteran who has already sought the highest office in the land, the US Transportation secretary is seen as a potential successor to Biden in 2028 — or in 2024 if the president reverses course from a planned reelection bid.Buttigieg, who was confirmed to his Cabinet post in February, recently told Politico that he likes his job and has not thought much about electioneering since getting settled in the nation's capital."I'd say the other thing that I'm really enjoying about this job, although it's very demanding and obviously requiring a lot, is that this is the least I have had to think about campaigns and elections in about a decade and that's a very good thing," he said in Phoenix late last week.However, while Buttigieg has been focused on his role — which has only become more prominent with the passage of the $1.2 trillion bipartisan infrastructure bill — some in the Biden White House have already raised his name as a future Democratic presidential nominee."Nobody in the West Wing shuts that down," an individual with knowledge of the situation told Politico. "It's very open."The Buttigieg talk has reportedly "frustrated" several staffers of color who see the conversation as a slight toward Vice President Kamala Harris — the first female, first Black, and first Indian American to hold the office — and believe that senior White House officials should work to minimize such chatter.According to Politico, some of Buttigieg's former 2020 staffers are pondering whether a potential challenge to Harris would be wise given the importance of the Black vote in the Democratic presidential primary process, while also noting his struggles in courting the pivotal group last year.Buttigieg's political action committee, Win the Era, has been quiet since he joined government earlier this year, but it is still active, with former campaign aides Maxwell Nunes and Michael Halle helping with its upkeep.However, while on NBC's "Meet the Press" on Sunday, Buttigieg brushed off any talk of a rivalry with Harris. When the secretary was asked if coverage of Harris's political standing had any effect on their relationship, he rejected the idea."No, because she and I are part of a team that is disciplined and doesn't focus on what's obsessing the commentators. We're too busy with a job to do. She, as the leader in this administration, with her leadership role, and I, and the president, and everybody else in the cabinet and across the administration, are laser-focused on getting the job done," he said."We have been assigned by the president to take on — literally — projects and legislation of generational significance. There's no room to get caught up in the parlor games, and I'm proud to be part of the Biden-Harris team," he added.While in Arizona, Buttigieg touted the newly-signed infrastructure bill, while also speaking on supply-chain issues that have been driven by the coronavirus pandemic and high consumer demand."What excites me most is that we're going to have a lot of groundbreakings and eventually a lot of ribbon cuttings," he said of future projects that are set to be approved in the coming year.Read the original article on Business Insider.....»»

Category: worldSource: nytNov 27th, 2021

U.S. Weekly Jobless Claims Drop to 52-Year Low: 5 Top Picks

We have narrowed our search to five staffing stocks that have popped in the past three months. These are: KFRC, KFY, CCRN, RHI and RGP. U.S. weekly unemployment benefit claims declined steadily over the last six months barring some minor fluctuations. The latest data released by the Department of Labor on Nov 24 showed that initial claims plunged to a 52-year low. The labor market, which was the best-performing segment of the U.S. economy before the outbreak of coronavirus, suffered the most during the pandemic. Of late, the U.S. labor market is stabilizing around the pre-pandemic level.At this stage, it will be fruitful to invest in staffing stocks with a favorable Zacks Rank. Here we have selected five such companies. These are — Korn Ferry KFY, Kforce Inc. KFRC, Cross Country Healthcare Inc. CCRN, Robert Half International Inc. RHI and Resources Connection, Inc. RGP.Signs of Systematic RecoveryThe Department of Labor reported that the weekly jobless claims plunged by 71,000 to 199,000 for the week ended Nov 20, marking the lowest level since Nov 15, 1969. The consensus estimate was 260,000 and the data for the previous week was revised upward to 270,00 from 268,000 reported earlier. Notably, initial claims were hovering around 200,000 in the pre-pandemic period.Continuing claims (those who already received government benefit) declined 60,000 to 2.05 million for the week ended Nov 13. This is the lowest reading since Mar 14, 2020. The total number of people receiving benefits under all programs fell 752,390 to 2.43 million, as of Nov 6. Notably, receivers of unemployment benefits topped more than 30 million at the pandemic high.Robust Job Additions in OctoberThe U.S. economy added 571,000 jobs in October, exceeding the consensus estimate of 442,000. Moreover, September’s job additions were revised upward to 312,000 from a disappointing 194,000 reported earlier. August’s data was also revised upward to 483,000 from 366,000 reported earlier.Total private payrolls rose 604,000 in October, partially offset by 73,000 declines in government jobs. The unemployment rate came down to 4.6% in October from 4.8% in September. The consensus estimate was 4.7%.Momentum Likely to ContinueThe U.S. economy is witnessing an impressive recovery since the beginning of 2021, faster-than-expected by a large number of market participants. The vaccination drive on a priority basis and an unprecedented stimulus helped the economy ramp up the activities level.On Nov 15, President Joe Biden signed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years. Total spending may go up to $1.2 trillion if the plan is extended to eight years.The infrastructure development project will be a major catalyst for the U.S. stock markets in 2022. Various segments of the economy such as basic materials, industrials, utilities and telecommunications will benefit immensely with more job creation for the economy.Moreover, the White House has put pressure on Congress to quickly pass legislation providing $52 billion to help computer chip manufacturers and ease a shortage of the components vital to many industries.Our Top PicksWe have narrowed our search to five staffing stocks that have popped in the past three months. These stocks have strong growth potential for the rest of 2021 and have seen positive earnings estimate revisions within the last 60 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.The chart below shows the price performance of our five picks in the past three months.Image Source: Zacks Investment ResearchKforce Inc. is a full-service, web-based specialty staffing firm providing flexible and permanent staffing solutions in the United States. KFRC operates through the Technology and Finance and Accounting segments. kforce.com offers web-based services including online resumes and job postings, interactive interviews and job placements and career management strategies.Zacks Rank #1 Kforce has an expected earnings growth rate of 35.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 10.3% over the last 30 days. The stock price of KFRC has jumped 40.3% in the past three months.Korn Ferry  is the world's leading and largest executive recruitment firm with the broadest global presence in this industry. KFY operates through four segments: Consulting, Digital, Executive Search, and Recruitment Process Outsourcing & Professional Search.Zacks Rank #2 Korn Ferry has an expected earnings growth rate of more than 100% for the current year (ending April 2022). The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 7 days. The stock price of KFY has advanced 17% in the past three months.Cross Country Healthcare Inc. provides talent management and other consultative services for healthcare clients in the United States. CCRN operates in three segments: Nurse and Allied Staffing, Physician Staffing, and Search.Zacks Rank #1 Cross Country Healthcare has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 10% over the last 7 days. The stock price of CCRN has climbed 40.2% in the past three months.Robert Half International Inc. provides staffing and risk consulting services in North America, South America, Europe, Asia, and Australia. RHI operates through three segments: Temporary and Consultant Staffing, Permanent Placement Staffing, and Risk Consulting and Internal Audit Services.Zacks Rank #1 Robert Half International has an expected earnings growth rate of 95.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.4% over the last 60 days. The stock price of RHI surged 14.3% in the past three months.Resources Connection Inc. is a multinational professional services firm that helps business leaders execute internal initiatives. RGP provides experienced accounting and finance, human resources management and information technology professionals to clients on a project-by-project basis.Zacks Rank #1 Resources Connection has an expected earnings growth rate of -0.8% for the current year (ending May 2022). The Zacks Consensus Estimate for current-year earnings has improved 19.4% over the last 60 days. The stock price of RGP has appreciated 20.1% in the past three months. Breakout Biotech Stocks with Triple-Digit Profit Potential The biotech sector is projected to surge beyond $2.4 trillion by 2028 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases. Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Recommendations from previous editions of this report have produced gains of +205%, +258% and +477%. The stocks in this report could perform even better.See these 7 breakthrough stocks now>>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report KornFerry International (KFY): Free Stock Analysis Report Robert Half International Inc. (RHI): Free Stock Analysis Report Resources Connection, Inc. (RGP): Free Stock Analysis Report Kforce, Inc. (KFRC): Free Stock Analysis Report Cross Country Healthcare, Inc. (CCRN): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksNov 25th, 2021

Offset Inflated Prices With These 3 Stocks

The Divergence of Retail Sales and Consumer Sentiment You’ve likely taken notice of higher prices in everything from gas at the pump to inflated menu pricing at restaurants. As we head into the holiday season, even that Thanksgiving turkey dinner is likely to cost more than in previous years. This past Friday, the U.S. Department of Agriculture reported that smaller 8-16 lb. frozen turkeys experienced a 27% price increase over last year. It’s a common theme for many food products and commodities that are in demand.In anticipation of the continued supply constraints we’ve seen this year, consumers have been getting their Christmas shopping done earlier than normal. In fact, domestic retail sales recently hit an all-time high. Meanwhile, consumer sentiment is at its lowest level in the last decade. The graphs below detail the divergence between retail sales and consumer sentiment.Image Sources: U.S. Census Bureau, University of Michigan, FREDFor the last ten years these measures have mainly moved in sync, with retail sales serving as a reflection of how consumers feel. This year has been different. Consumers are obviously worried about higher inflation as the sentiment graph depicts. However, that hasn’t yet caused them to reduce spending. The pent-up demand created from the pandemic is still very much in play, with retail sales continuing to soar even in the face of higher prices.Inflation has finally started to rear its ugly head after a massive amount of stimulus has poured into the global economy. The question is – what pockets of the market can we as investors profit from in order to take advantage of this environment?The answer lies in understanding which stocks have historically performed well when inflation is rising. Companies that are able to profit from increasing prices and pass on larger costs to consumers have a leg up. In the past, the sector that has the highest level of outperformance in periods of intensifying inflation is energy.Let’s examine three energy companies that are poised to outperform in this environment and are leaders within their respective industry groups.Chesapeake Utilities Corporation (CPK)CPK is a utility company that engages in natural gas distribution and transmission, propane distribution and marketing, as well as advanced information services and other related businesses. Domestic natural gas residential prices have nearly doubled this year, and economists are predicting that prices will continue to rise with winter around the corner and colder weather imminent.Chesapeake Utilities has a Zacks #2 (Buy) ranking and has advanced nearly 26% on the year. The company has produced a positive earnings surprise in each of the last four quarters with an average surprise of 12.6%.Chesapeake Utilities Corporation Price, Consensus and EPS Surprise Chesapeake Utilities Corporation price-consensus-eps-surprise-chart | Chesapeake Utilities Corporation QuoteCPK most recently reported earnings earlier this month of $0.71, reflecting a 26.7% increase year-over-year for the previous quarter. This translated to a greater than 31% surprise over the $0.54 consensus. For the year, the current Zacks Consensus Estimate for CPK stands at EPS of $4.75, which would render a 12.8% increase over 2020. Chesapeake Utilities looks to continue its strong momentum heading into next year.Oneok, Inc. (OKE)Oneok is a diversified energy company engaged in natural gas processing, gathering, storage and transmission in the United States. The company is the largest natural gas distributor in Kansas and Oklahoma, and the third largest in Texas with almost 2 million customers. OKE is also involved in oil and gas production.Oneok, currently holding a Zacks #3 ranking, has climbed over 80% this year and has produced a positive earnings surprise in each of the last three quarters. The company most recently reported quarterly earnings earlier this month of EPS $0.88, a 6% surprise over the $0.83 consensus.     ONEOK, Inc. Price, Consensus and EPS Surprise                    ONEOK, Inc. price-consensus-eps-surprise-chart | ONEOK, Inc. QuoteONEOK, Inc. Price, Consensus and EPS Surprise ONEOK, Inc. price-consensus-eps-surprise-chart | ONEOK, Inc. QuoteWhat the Zacks Model RevealsZacks Earnings ESP (Expected Surprise Prediction) looks to find companies that have recently seen positive earnings estimate revision activity. The technique has proven to be very useful for finding positive earnings surprises. In fact, when combining a Zacks #3 rank or better and a positive earnings ESP, stocks produced a positive surprise 70% of the time.Oneok’s ESP presently sits at 2.8%. The current full-year EPS Zacks Consensus Estimate stands at $3.35, which would represent a nearly 136% increase over last year. OKE is due to report earnings on February 28th, 2022.Marathon Petroleum Corporation (MPC)Marathon Petroleum, headquartered in Findlay, Ohio, is engaged in refining, transporting and marketing of petroleum products. MPC is a component of the Zacks Oil and Gas – Refining and Marketing industry group within the Oils and Energy sector.The sector as a whole, which is currently ranked #1 out of all 16 Zacks sectors, has advanced over 35% on the year. We want to target companies that are outperforming, and MPC certainly fits the bill with a greater than 60% return YTD.Marathon Petroleum is showing an impressive record of earnings surprises with a beat notched in each of the last ten quarters. The average surprise over the last four quarters is a remarkable 39.1%. Marathon Petroleum Corporation Price, Consensus and EPS Surprise Marathon Petroleum Corporation price-consensus-eps-surprise-chart | Marathon Petroleum Corporation QuoteFor the current quarter, analysts have revised their consensus estimate to EPS of $0.76, which is up over 117% from just 30 days ago. If the company matches this consensus, it would translate to over 180% growth year-over-year. MPC’s current ESP is 10.75%.On an annual basis, the current Zacks Consensus Estimate is EPS of $1.72, reflecting a 150% increase over 2020. MPC is next slated to report earnings on February 1st, 2022. Zacks’ Top Picks to Cash in on Artificial Intelligence This world-changing technology is projected to generate $100s of billions by 2025. From self-driving cars to consumer data analysis, people are relying on machines more than we ever have before. Now is the time to capitalize on the 4th Industrial Revolution. Zacks’ urgent special report reveals 6 AI picks investors need to know about today.See 6 Artificial Intelligence Stocks With Extreme Upside Potential>>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report ONEOK, Inc. (OKE): Free Stock Analysis Report Marathon Petroleum Corporation (MPC): Free Stock Analysis Report Chesapeake Utilities Corporation (CPK): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksNov 24th, 2021

Thanks to Wall Street for a Wonderful Rally YTD: 5 Top Picks

We have narrowed the search to five U.S. corporate behemoths that have skyrocketed more than 50% year to date. These are: GOOGL, TSLA, LOW, HD and XOM. Wall Street started 2021 from where it ended in 2020. Year to date, U.S. stock markets have seen an impressive rally after completing an astonishing 2020 despite being pandemic-ridden. Instead of the technology-driven rally like last year, Wall Street is witnessing a broad-based rally this year — across all segments (large, mid and small caps) and various sectors of the economy. Very few economists and financial analysts had anticipated such a powerful rally at the beginning of this year.At this stage, it will be prudent to invest in corporate giants that have popped in 2021 with a favorable Zacks Rank and strong upside left. Here are five such stocks — Tesla Inc. TSLA, Alphabet Inc. GOOGL, The Home Depot Inc. HD, Exxon Mobil Corp. XOM and Lowe's Companies Inc. LOW.Impressive 2021 So FarWall Street has had a dream run so far this year. The pandemic is not over yet and the resurgence of the Delta variant of coronavirus disrupted U.S. economic recovery this summer. To make the situation worse, inflation is currently at its peak in more than three decades thanks to prolonged global supply-chain bottleneck and acute labor shortage.Despite these headwinds, year to date, the three large-cap centric indexes — the Dow, the S&P 500 and the Nasdaq Composite — have surged 17%, 24.9% and 22.4%, respectively. The small-cap specific Russell 2000 and S&P 600 Index have advanced 17.9% and 28.1%, respectively. The mid-cap benchmark S&P 400 Index has surged 24.6% in the same period.Year to date, all 11 broad sectors of the market’s benchmark – S&P 500 Index – are in positive territory. Aside from the technology sector, cyclical sectors like energy, financials, consumer discretionary, materials and industrials have contributed significantly to the S&P 500 rally.The momentum of U.S. stocks markets is likely to continue and will pave the way for a year-end rally. Here are the reasons:Government’s Spending PlansOn Nov 15, President Joe Biden signed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years. Total spending may go up to $1.2 trillion if the plan is extended to eight years.The infrastructure development project will be a major catalyst for the U.S. stock markets in 2022. Various segments of the economy such as basic materials, industrials, telecommunications and utilities will benefit immensely with more job creation for the economy.On Nov 19, the House of Representatives passed a massive $1.75 trillion social safety net and climate bill proposed by the Biden administration. The bill will now head toward the Senate. Moreover, the White House has put pressure on Congress to quickly pass legislation providing $52 billion to help computer chip manufacturers and ease a shortage of the components vital for a range of industries.Strong Projections for Holiday SalesThe National Retail Federation has projected November/December retail sales in 2021 to go up 8.5% to 10.5% from 2020. Deloitte forecasts retail sales growth of 7% to 9% during the November-to-January period.Digital Commerce 360 has estimated that holiday retail sales through all channels, including physical stores, will likely rise 9.4% during the season. KPMG expects 2021 U.S. holiday sales to be 7% higher than last year. Mastercard SpendingPulse forecasts a 7.4% year-over-year rise in U.S. holiday sales.Solid Growth of U.S. GDP and Corporate ProfitIn its latest projection on Nov 17, the Atlanta Fed reported that the U.S. economy will grow by 8.2% in fourth-quarter 2021. U.S. GDP grew 6.4%, 6.7% and 2%, in the first, second and third quarters of this year, respectively.As of Nov 17, total third-quarter earnings of the market's benchmark — the S&P 500 Index — are projected to jump 40.3% from the same period last year on 17.2% higher revenues. Moreover, in fourth-quarter 2021, total earnings of the S&P 500 index are expected to up 19.4% year over year on 11.1% higher revenues.Our Top PicksWe have narrowed the search to five U.S. corporate behemoths (market capital > $100 billion) that have skyrocketed more than 50% year to date. These stocks still have more upside left for the rest of 2021 and have seen positive earnings estimate revisions within the last 30 days. Each of our picks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.The chart below shows the price performance of our five picks year to date.Image Source: Zacks Investment ResearchAlphabet Inc. has been strongly emphasizing AI techniques and the home automation space that should aid business growth in the long term. Solid momentum across search, advertising, cloud and YouTube businesses aided the results of GOOGL. Further, the growing proliferation of consumer online activities and rising advertiser spending remained as tailwinds.Alphabet's robust cloud division continues to be the key catalyst. Expanding data centers will continue to bolster its presence in the cloud space. Further, major updates in its search segment are enhancing the search results. Moreover, GOOGL’s mobile search is constantly gaining traction.Alphabet has an expected earnings growth rate of 84% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.9% over the last 30 days. The stock price of GOOGL has soared 66.4% year to date.Tesla Inc. has acquired a substantial market share within the electric car segment. Increasing Model 3 delivery, which forms a significant chunk of TSLA’s overall deliveries, is aiding its top line. Along with Model 3, Model Y is contributing to its revenues.In addition to increasing automotive revenues, Tesla’s energy generation and storage revenues boost its earnings prospects. The automaker said that its overall deliveries surged 20% in the third quarter from its previous record in the second quarter, marking the sixth consecutive quarter-on-quarter gain.Tesla has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 9.7% over the last 30 days. The stock price of TSLA has jumped 57.2% year to date.The Home Depot Inc. is witnessing significant benefits from the execution of the “One Home Depot” investment plan, which focuses on expanding supply chain facilities, technology investments and enhancement to the digital experience.Amid the pandemic, customers have been increasingly blending the physical and digital elements of the shopping experience, making the interconnected One Home Depot strategy most relevant. The Home Depot is effectively adapting to the demand for renovations and construction activities, driven by prudent investments. HD is gaining from growth in Pro and DIY customer categories as well as digital momentum.The Home Depot has an expected earnings growth rate of 28.2% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings has improved 5.3% over the last 7 days. The stock price of HD has surged 53.8% year to date.Exxon Mobil Corp. made multiple world-class oil discoveries at the Stabroek Block, located off the coast of Guyana. XOM has raised the estimate for discovered recoverable resources from the Stabroek Block to approximately 10 billion oil-equivalent barrels.Exxon Mobile’s bellwether status and an optimal integrated capital structure, which has historically produced industry-leading returns make it a relatively lower-risk energy sector play. The integrated oil behemoth expects to reduce greenhouse gas emissions by 30% in its upstream business. By the same time, XOM expects to reduce flaring and methane emissions by 40%.Exxon Mobil has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.2% over the last 7 days. The stock price of XOM has advanced 53.2% year to date.Lowe's Companies Inc. remains well-positioned to capitalize on the demand in the home improvement market backed by investments in technology, merchandise category and strength in Pro business. Management is committed toward expanding LOW’s market share and boosting the operating margin.Lowe's Companies new total home strategy, which includes providing complete solutions for various types of home repair and improvement, bodes well. The strategy is an extension of LOW’s retail-fundamentals approach.Lowe's Companies has an expected earnings growth rate of 33.8% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings has improved 4.2% over the last 7 days. The stock price of LOW has climbed 57% year to date. Zacks’ Top Picks to Cash in on Artificial Intelligence This world-changing technology is projected to generate $100s of billions by 2025. From self-driving cars to consumer data analysis, people are relying on machines more than we ever have before. Now is the time to capitalize on the 4th Industrial Revolution. Zacks’ urgent special report reveals 6 AI picks investors need to know about today.See 6 Artificial Intelligence Stocks With Extreme Upside Potential>>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Exxon Mobil Corporation (XOM): Free Stock Analysis Report Lowe's Companies, Inc. (LOW): Free Stock Analysis Report The Home Depot, Inc. (HD): Free Stock Analysis Report Tesla, Inc. (TSLA): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksNov 24th, 2021