August 5, 2021
What You Need to Know Today:
Markets increasingly think Fed’s end of bond buying will be no big deal
I wouldn’t call it the consensus yet, but financial market thinking seems headed toward a belief that the end of the Fed’s $120 billion a month in purchases of Treasuries and mortgage backed assets won’t be a big deal. Certainly not enough to upset the bond market or produce another temper tantrum. The belief hinges on forecast of demand and supply that sees them roughly in balance even after the Fed stops its buying. An end to Fed purchases would be a significant hit to demand. But it looks like the U.S. Treasury will be cutting back on bond auctions as about the same time. And that would leave demand and supply roughly where they are now.
Replacing iShares China Large Cap ETF with IShares MSCI Europe in Perfect 5 ETF Portfolio
It’s the problem that won’t go away if you’re looking to build a diversified portfolio of ETFs (or any other asset) to manage the risk that some one asset class will implode unexpectedly. Given the continued outperformance of U.S. stocks, How do you diversify toe manage risk without giving up too much in current performance?
Markets increasingly think Fed’s end of bond buying will be no big deal
I wouldn’t call it the consensus yet, but financial market thinking seems headed toward a belief that the end of the Fed’s $120 billion a month in purchases of Treasuries and mortgage backed assets won’t be a big deal. Certainly not enough to upset the bond market or produce another temper tantrum. The belief hinges on forecast of demand and supply that sees them roughly in balance even after the Fed stops its buying. An end to Fed purchases would be a significant hit to demand. But it looks like the U.S. Treasury will be cutting back on bond auctions as about the same time. And that would leave demand and supply roughly where they are now.
Resurgent virus takes a bite out of China’s GDP
With China closing tourist sites, cancelling flights and beginning the hard work of testing all 12 million residents of Wuhan (again), economic activity in China is taking a hit. (And don’t forget horrific flooding in parts of the country.) Securities firm Nomura lowered projections for third-quarter GDP growth to 5.1% (from a previous 6.4%) and for the fourth quarter to 4.4% growth down from 5.3%
Selling Meituan and Naspers to cut China exposure
Last Wednesday, July 28, Chinese financial regulators told big investors–banks and investment groups heavily exposed to China’s stock market–not to worry. China’s financial markets were sound and despite the fears engendered by the government’s crackdown on the country’s private, for-profit, education companies, the government was not looking to reverse decades of growth by companies in China’s private sector. The meeting worked. Stocks of companies like Meituan (MPNGF), China’s dominant food delivery company (with ambitions to become a full-range e-shopping competitor) rose to $30.07 on the day from $26.00 the day before. But the reassurance worked for only a few days. Today, August 3, for example, Meituan was back in the red, falling 4.48% to $26.95 to erase almost all of its “re-assurance” bounce. Today, I’m selling Meitun and Naspers (NPSNY), a South African company with a huge position in China’s Tencent Holding (TCEHY) out of my Volatility and Jubak Picks Portfolios, respectively.
Saturday Night Quarterback (on a Monday) says, For the week ahead expect…
I’m looking for answers to two big questions that earnings from Amazon (AMZN) and Caterpillar (CAT) left us with last week. In the case of Amazon, where the company reported a slide in revenue growth after a big bump in sales due to everybody ordering everything on line during the Pandemic shutdown, the question is What is the actual sales growth trend once you remove all the plus and minuses from the Pandemic? This isn’t a question just for Amazon, of course. It’s important for figuring out the valuation of everything from Las Vegas hotel and casino play MGM Resorts International (MGM) to streaming champion Netflix (NFLX) to Starbucks (SBUX). The other question left hanging at the end of the week is whether or not we’re about to see a string of companies forecasting lower margins due to rising prices for raw materials. That was the takeaway message from Caterpillar’s (CAT) earnings report.
10-year Treasuries: Long-term bucket pick #6 for my Special Report on how to fix your income investing crisis
Long-term bucket pick #6: 10-year Treasuries. On first (and probably second and third) look, 10-year Treasures wouldn’t seem to have a place in my long-term bucket. After all how can they fix any income investing crisis? They are the income investing crisis. The yield on the 10-year Treasury was a meagre 1.22% on July 29. Retire on that! But yield is only one part of the return you can earn if you hold a Treasury bond to maturity–if interest rates fall.
Live Market Report (20 minute delay)
| Symbol | Name | Last Price | Jubak's Gain/Loss | Jubak's Gain/Loss % |
|---|---|---|---|---|
Replacing iShares China Large Cap ETF with IShares MSCI Europe in Perfect 5 ETF Portfolio
It’s the problem that won’t go away if you’re looking to build a diversified portfolio of ETFs (or any other asset) to manage the risk that some one asset class will implode unexpectedly. Given the continued outperformance of U.S. stocks, How do you diversify toe manage risk without giving up too much in current performance?
Markets increasingly think Fed’s end of bond buying will be no big deal
I wouldn’t call it the consensus yet, but financial market thinking seems headed toward a belief that the end of the Fed’s $120 billion a month in purchases of Treasuries and mortgage backed assets won’t be a big deal. Certainly not enough to upset the bond market or produce another temper tantrum. The belief hinges on forecast of demand and supply that sees them roughly in balance even after the Fed stops its buying. An end to Fed purchases would be a significant hit to demand. But it looks like the U.S. Treasury will be cutting back on bond auctions as about the same time. And that would leave demand and supply roughly where they are now.
Resurgent virus takes a bite out of China’s GDP
With China closing tourist sites, cancelling flights and beginning the hard work of testing all 12 million residents of Wuhan (again), economic activity in China is taking a hit. (And don’t forget horrific flooding in parts of the country.) Securities firm Nomura lowered projections for third-quarter GDP growth to 5.1% (from a previous 6.4%) and for the fourth quarter to 4.4% growth down from 5.3%
Selling Meituan and Naspers to cut China exposure
Last Wednesday, July 28, Chinese financial regulators told big investors–banks and investment groups heavily exposed to China’s stock market–not to worry. China’s financial markets were sound and despite the fears engendered by the government’s crackdown on the country’s private, for-profit, education companies, the government was not looking to reverse decades of growth by companies in China’s private sector. The meeting worked. Stocks of companies like Meituan (MPNGF), China’s dominant food delivery company (with ambitions to become a full-range e-shopping competitor) rose to $30.07 on the day from $26.00 the day before. But the reassurance worked for only a few days. Today, August 3, for example, Meituan was back in the red, falling 4.48% to $26.95 to erase almost all of its “re-assurance” bounce. Today, I’m selling Meitun and Naspers (NPSNY), a South African company with a huge position in China’s Tencent Holding (TCEHY) out of my Volatility and Jubak Picks Portfolios, respectively.
Saturday Night Quarterback (on a Monday) says, For the week ahead expect…
I’m looking for answers to two big questions that earnings from Amazon (AMZN) and Caterpillar (CAT) left us with last week. In the case of Amazon, where the company reported a slide in revenue growth after a big bump in sales due to everybody ordering everything on line during the Pandemic shutdown, the question is What is the actual sales growth trend once you remove all the plus and minuses from the Pandemic? This isn’t a question just for Amazon, of course. It’s important for figuring out the valuation of everything from Las Vegas hotel and casino play MGM Resorts International (MGM) to streaming champion Netflix (NFLX) to Starbucks (SBUX). The other question left hanging at the end of the week is whether or not we’re about to see a string of companies forecasting lower margins due to rising prices for raw materials. That was the takeaway message from Caterpillar’s (CAT) earnings report.
10-year Treasuries: Long-term bucket pick #6 for my Special Report on how to fix your income investing crisis
Long-term bucket pick #6: 10-year Treasuries. On first (and probably second and third) look, 10-year Treasures wouldn’t seem to have a place in my long-term bucket. After all how can they fix any income investing crisis? They are the income investing crisis. The yield on the 10-year Treasury was a meagre 1.22% on July 29. Retire on that! But yield is only one part of the return you can earn if you hold a Treasury bond to maturity–if interest rates fall.
Deere: Long-term bucket pick #5 for my Special Report on how to fix your income investing crisis
Long-term bucket pick #5: Deere (DE). Any stock that goes into a long-term bucket for a relatively conservative portfolio like this one, faces a tough test. You want the company to be tapped into some explosive long-term trend that will drive growth–but since this is a conservative portfolio you don’t want that trend to be totally or even mostly speculative.
VISA: Long-term bucket pick #4 for my Special Report on how to fix your income investing crisis
Long-term bucket pick #4: Visa (V). Think of Visa not as a credit card but as a network. We know from watching other networks–Amazon (AMZN) and Apple (AAPL), for example that a the more customers are plugged into a network, the more attractive that network is for merchants, and therefore the more convenient the network is for consumers. All this adds up to extraordinary profitability with operating margins of 65% in 2020
Q2 GDP grew by an annualized 6.5%, which gets the economy back to where it was before the pandemic–now for the tough part
U.S. gross domestic product grew 1.6% in the second quarter of the year, the Commerce Department said today, July 29. That’s up from 1.5% growth in the first quarter of 2021. On an annualized basis, second-quarter growth was 6.5 percent. Which brings the economy back to where it was before the pandemic (adjusted for inflation.) That’s a remarkable quick rebound. After the Great Recession ended in 2009, it took two years for the economy to recover the ground that it has lost. But the recovery now faces two tougher jobs: replacing all the growth that didn’t happen because of the pandemic and fixing problems like anemic productivity growth and soaring economic inequality that troubled the U.S. economy before the pandemic recession. .
Watch my new YouTube video “QuickPick: Shimano”
I’m starting up my videos on JubakAM.com again–this time using YouTube as a platform. My thirty-seventh YouTube video “QuickPick: Shimano”-went up today.
Selling my AMD September 17 Call Options (strike price of $92.50) out of my Volatility Portfolio
I got another 50% pop (aso f 3:30 p.m. New York time) today in the price of the Advanced Micro Devices (AMD) September 17, 2021 Call Options with a strike price of $92.50 (AMD210917C0009250). I’m going to take my profits here. With the end of earnings season in the next two weeks, I think the risk/reward ratio for holding stocks is shifting toward risk. And I’d rather be more in cash rather than less as we head into what I see as a volatile fall.
Federal Reserve says it is staying the course, for now
No change. But change coming someday. (Not soon, though.) That was the message from today’s meeting of the Federal Reserve’s Open Market Committee.
Watch my new YouTube video: Is China un-investable?
I’m starting up my videos on JubakAM.com again–this time using YouTube as a platform. My thirty-sixth YouTube video “Is China un-investable?”-went up today.
Dems and Reps agree on $1 trillion infrastructure deal–now for the vote
Senate Democrats and Republicans on Wednesday appeared to clinch a deal that would invest roughly $1 trillion into the nation’s infrastructure. The new agreement — announced separately by two of its lead negotiators, Senators Rob Portman (R-Ohio) and Kyrsten Sinema (D-Ariz.), ends the wrangling over the policy specifics in a bipartisan infrastructure deal outlined back in June. The agreement puts the Senate on track to hold a key procedural vote today, July 28, that would allow the chamber to actually begin debating the contents of the infrastructure measure
Selling my AMD Call Options at $90 out of the Volatility Portfolio today
I expected the jump in the Advanced Micro Devices (AMD) Call Options (expiration of September 17 and strike at $90) before yesterday’s earnings report. Didn’t get it. Then. But today this option is up 72.17% to $9.90 on a 7.36% gain in the price of the shares to $97.74 (as of 2:20 p.m. New York time.) So I’m selling.
Special Report: Fixed income investing is facing a crisis–3 tactics and 7 picks so you can fix your income investing crisis–Part 2, The second (of three) buckets
Yesterday I started giving you specific picks so you can start to fill these buckets. I started with the short-term bucket, the most challenging of the three since it requires you to confront the current paucity of assets throwing off yields of even 2% head on. The goals for this bucket were maximum achievable safety since you don’t have much time in this bucket to recoup any temporary losses, a yield that’s as high as possible–anything over 3% these days is gravy. Remember that the higher the yield you can produce from this bucket, the less risk you’ll need to take in your portfolio, and predictable payments in actual cash (or cash equivalents). Remember that you want to be able to spend the returns from this bucket. Today I’m going to give you picks for filling out the third, the long-term, bucket.
An odd market before tech earnings #3: I’m buying Call Options on MSFT ahead of today’s report
With everything tech (just about) selling off today (along with the rest of the market) and with the shares of the tech companies due to report today dropping as well, I think the odds have improved for a bounce in those reporting companies on earnings surprises. Microsoft (MSFT) is due to report today after the close and I think there’s a good likelihood that the company will post even better than expected numbers from its Azure Cloud business.
An odd market before tech earnings #2: Selling my October VIX Call Options
With the major indexes all down ahead of tech earnings–and fear up–I’m pulling out my VIX options trade again. The rule here, until modified by reality (pesky little thing) is to buy when complacency drives the “fear index” to 16 or below, and to sell when fear rises and pushed the CBOE S&P 500 Volatility Index (VIX) to 20 or so. This morning selling in the market sent the VIX up to 19.85, close enough for me to 20, and I’m selling the October 20, 2021 Call Options
An odd market before big tech earnings #1–I’m holding onto my AMD and APPL options until after earnings
As of 12:15 p.m. the Standard & Poor’s 500 was down .01% and the Dow Jones Industrial Average was lower by 0.75%. Tech stocks were down much more with the NASDAQ Composite off 1.85% and the NASDAQ 100 lower by 1.82%. The tech companies due to report earnings today after the close were all down. Apple (AAPL) was lower by 1.68%. Advanced Micro Devices (AMD) had dropped 2.01%. And Microsoft (MSFT() was off 1.66%.
Special Report: Fixed income investing is facing a crisis–3 tactics and 7 picks so you can fix your income investing crisis–Part 2, The first (of three) buckets
Today, I’m going to begin to give you specific picks so you can start to fill out the three buckets I recommended in Part 1 of this Special Report. Filling the long-term bucket is probably the most fun–who doesn’t like imagining the wealth that will roll in from finding the next Nvidia (NVDA) or from investing in the current Nvidia. The short-term bucket is the most challenging since it requires you to confront the current paucity of assets throwing off yields of even 2% head on.But let’s start there since the other buckets hang off the short-term bucket.
Jim’s Stock Alerts
Dip-O-Meter
