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The crisis in the Florida citrus industry is an example of how we’re still underestimating the effects of the global climate crisis–especially in agriculture (This is my warm up to my Special Report on Investing in a Global Climate Catastrophe)
As cities like Phoenix bake–the city has recorded a record 19 straight days of temperatures above 110 as of July 18–and as 58 million people in the United States are forced to face 3-digit temperatures this week, and as researchers in Europe estimate that the 2023 death toll from extreme heat is likely to surpass the 2022 record to 61,000 (up from 40,000 in 2018 and 2019), you’d think it’s impossible to underestimate the climate disaster now facing us. But it is. The stories about extreme heat (and the deaths from it) and about deaths in flash floods (because hotter air can carry a larger load of water) and in the first recorded tropical storm to hit Los Angeles and about the likelihood that polar bears face extinction focus on what I’d call primary effects of global climate change. But the secondary and tertiary effects of climate change look to be even bigger, more far-reaching, and to have a bigger impact on the daily lives of billions of human beings.The terrifying truth is that our civilization is a lot more vulnerable than we realize because of these secondary effects. The crisis in the Florida citrus industry is a good, if very depressing, example of the power of these secondary (and beyond) effects.
Please Watch My New YouTube Video: Quick Pick Eli Lilly
Today’s Quick Pick is Eli Lilly And Co (LLY). Lilly is my favorite big drug stock right now. The company recently announced second-quarter earnings and showed 22% year-over-year sales growth. The company has a promising pipeline of new drugs. Mounjaro, Lilly’s diabetes drug, is likely to get weight-loss approval from the FDA. They also have new products for Alzheimers, and Cardio Metabolic drugs coming out soon. The growing enthusiasm for diabetes and weight-loss drugs has the stock overvalued by about 46% according to Morningstar. Their competitors are in similar situations. Novo Nordisk (NVO) is 28% overvalued according to Morningstar. At this point, if you’re looking for somewhere to immediately put some money to work, I’d still go with Eli Lilly. In this case, you have to consider not just the absolute valuation but also weigh the prospects of both companies. In my opinion, Eli Lilly outshines Novo Nordisk if you look at the pipelines at the two companies
Watch out for more Treasury market volatility this week ahead of auctions
The Treasury will auction a literal truckload of debt this week. And that’s making the bond market nervous. We’ve already had major volatility that wiped out this year’s 4% gain in Treasury bonds. The worry is focused on the long end of the yield curve where demand for 20- and 30-year Treasuries has been light. The Bloomberg index of Treasuries maturing in 10 years and more has slumped 5.7% so far in August.
Saturday Night Quarterback says, for the week ahead expect…
A nervous global financial market will hope that Federal Reserve chair Jerome Powell’s Friday talk at the annual Jackson Hole conference hosted by the Kansas City Fed will add clarity after the Fed’s minutes of its July policy meeting that showed most Fed officials saw significant upside risk to inflation.
Is the worst behind chip makers? Applied Materials earnings say Yes
After the close, yesterday, August 17, semiconductor equipment gorilla Applied Materials (AMAT) reported a 2% year-over-year drop in fiscal third-quarter revenue. At $6.43 billion revenue still beat Wall Street estimates of $6.15 billion. Gross margins of 46.3% were up 0.2% from the year-earlier period. The company reported operating income of $1.8 billion, with earnings per share of $1.85. And the future looks solidly better.
Negative technicals build on each other for another down day
The Dow Jones closed down 291 points, or 0.84%. That moved the index below its 50-day moving average.
The Standard & Poor’s 500 was off 0.77% and the NASDAQ Composite fell 1.17%. Both indexes were already below their 50-day moving averages. The 50-day moving average is a key support level for technical analysts. All things being equal, a drop below a support level like this is usually enough to keep stock prices falling until they find the next support level or until something fundamental changes. Stocks had been up so strongly since May that the next support level for the S&P 500 is down at the 200-day moving average, off another 250 points at 4127 from today’s close at 4370. I’d note that to my eye this would still leave stocks in a trading range of 4,000 to 4,500. No nothing to panic about if that’s the extent of the decline. But all things aren’t equal. The global financial markets are coping with a big increase in bond yields. The yield on the 10-year Treasury rose to 4.28%. That was up another 3 basis points today (and an increase of 47 basis points in the last month.)
Please Watch My New YouTube Video: The Fed’s Dollar Currency Ripples
Today’s video is The Fed’s Dollar Currency Ripples. Monday, August 14 was a big day in the currency market with the currencies of China, Argentina, and Russia all making headlines. China’s yuan fell to its lowest level against the dollar since November. The Argentine peso collapsed as the government looks like it is losing its fight against inflation. The Argentine government raised rates by 21 percentage points to 118% and devalued the peso by another 18%. This immediate cause of the drop in the Peso was a surprise victory by a libertarian in a recent primary race for president. Argentine debt due in 2046 fell $0.04 to $0.28 on the dollar. Russia had an emergency rate increase of 350 basis points to a benchmark interest rate of 12%. Of course, none of these things are solely attributable to the dollar’s strength. China’s economy is slowing, Argentina is dealing with economic chaos, and Russia is feeling the effects of international sanctions due to the war in Ukraine. But, the dollar is very strong because it’s safe. The U.S. economy is showing surprising signs of growth with inflation going down and interest rates expected to remain high for some time. The popularity of the dollar in currency markets is creating big economic ripples. China, Argentina, and Russia are the tip of a very large iceberg. The World Bank and IMF say that 40% of the world’s poorest countries are on the verge of default. It’s time to watch your dollars, yuan, pesos, and developing country currencies closely.
Please Watch My New YouTube Video: Quick Pick Alphabet
Today’s Quick Pick is: Alphabet Inc (NASDAQ: GOOGL) or as most people know it, Google. Google is an extraordinarily good stock with pricing power. At 85% of the search market, Google is pretty close to having a monopoly. The good time to buy a stock like this is when there have been doubts about it. The recent worries were Microsoft’s addition of AI to their search engine, possibly having a huge impact on Google and a decrease in Google’s advertising market. These factors caused the stock to plateau for a time, but we’re now seeing the stock shoot upward. This has been solidified by second quarter earnings. Revenue growth returned to YouTube, searches increased, and second quarter revenue was up 7% year to year, cloud revenue grew 28% and operating margins grew to 29% from 28%. Morningstar says Google is about 17% undervalued. Google is a part of my long term 50 stocks portfolio, but I’ll be adding it to my 12-18 month JubakPicks portfolio as well.
Saturday Night Quarterback (on a Sunday) says, For the week ahead expect…
The key sentiment barometer I’m watching is Palo Alto Networks (PANW), down 13% in the last month on fears that Microsoft (MSFT) is going to gobble up the revenue growth in the cybersecurity space. I think that fear is overblown, at least when it comes to Palo Alto Networks. The stock has long been a favorite of growth stock investors and, if sentiment on market direction for the rest of 2023 is positive I’d expect strong buying in the shares ahead of the Friday, August 18, earnings report. The Wall Street consensus calls for the company to report earnings of 54 cents a share against 15 cents a share in the fiscal quarter a year ago.
Watch the credit crisis at work: Moody’s cuts ratings on 10 regional banks
On Monday Moody’s Investors Service Ratings cut the credit ratings of 10 small and midsized banks. The company also put six big lenders on notice for a future downgrade assigning them a negative outlook.
Credit card balances hit record $1.03 trillion–and remember student loan payments resume in October
Credit card balances hit $1.03 trillion in the second quarter, up 4.6% from $986 billion in the preceding quarter, according to the Federal Reserve Bank of New York.
CPI inflation ticks up but stays tame–Markets convinced Fed will stand pat in September (But then what?)
CPI headline, all-items inflation rose at a 3.2% annual rate in July. That was up from the 3% annual rate in June and the first increase after 12 months of steady declines. But the uptick seems mostly an artifact of higher housing costs, an item that shows a longer-term downward trend in prices. The market read this morning is, therefore, that this is continued good news on inflation and that it cements the likelihood that the Fed will stand pat on interest rates at its September 20 meeting. The CME FedWatch tool put the odds of no increase from the Fed on September 20 at 90.5% today. That’s up from odds of 86% yesterday, August 9. But if the question of what the Fed will do in September is settled (in the market’s mind at least), the issue of what the Fed will do (or say) about the future direction of interest rates remains uncertain.
Please Watch My New YouTube Video: Quick Pick Visa
Today’s Quick Pick is Visa (NYSE: V). Shares of Visa are showing a good trend reversal. From June through July, Visa’s stock began to pick up after sitting flat for some time. The reason for this jump? The company’s second-quarter report included a 13% increase in net revenue, a 9% increase in payment volume, and an increase in margins to 67.5% from 66.9% in the previous quarter. Visa is so embedded in the economy that it can actually outperform the economy. For example, Visa recently went to war with small merchants by lowering the permissible surcharge on credit card payments from 4% to 3% and the company has deployed inspectors to ensure merchants are abiding by that rule. That’s even though back in 2017, the Supreme Court decided that laws that regulate surcharge amounts were unconstitutional. Visa isn’t making a law, but they clearly have the market clout to put this kind of pressure on small businesses. The 20% of merchants that have imposed a surcharge on credit card use don’t seem to be affecting profit margins or growth for Visa. Morningstar calculates that Visa is trading at a 17% discount to fair value, although the trailing twelve-month PE is 30.2. Visa always trades at higher than a market multiple. The 5-year average PE is 35.6, so 30.2 actually looks like a discount. I own it in my 12-18 month Jubak Picks portfolio and will continue to hold it there. I am also adding it to my long-term 50 Stocks Portfolio.
Please Watch My New YouTube Video: Is Bank Lending Finally Starting to Get Tighter?
Today’s video Is Bank Lending Finally Starting To Get Tighter? The Federal Reserve regularly does an opinion survey of bank lending officers to ask if they’re seeing a tightening of credit standards on loans at their banks. In the most recent survey, 50.8% of banks reported tightening lending terms for medium and large business loans in the second quarter-up from 46% in the first quarter. They’re also reporting a rise in demand for loans. In the second quarter, 51.6% reported weaker demand, down from 55% in the previous quarter. We’re seeing the Fed’s policies slowly start to work. Eventually, this tightening will also hit the consumer level, making it more difficult to get a personal loan or a new credit card. This trend is something to watch as banks tighten their lending while demand remains steady.
Please Watch My New YouTube Video: Trend of the Week Are We Looking at a Supply Crisis for Treasuries?
Today’s Trend of the Week is Are We Looking at a Supply Crisis for Treasuries? The federal deficit grew by $1.39 trillion in the first nine months of fiscal year 2023. That’s a huge addition to the deficit, an increase of 170% compared to the first nine months of 2022. The Treasury also recently increased its forecast for borrowing in the July-September quarter to another $1 trillion. This fast increase in the supply of Treasuries has been tough on the market. The Fed is trying to shrink its balance sheet and not buy as many new Treasuries. Private sector investors at auction are demanding a bigger discount. And because of the debt ceiling shutdown in new debt and the drawdown on the Treasury’s cash balances, the treasury has been issuing a lot of short-term bills to rebuild its buffer. Right now, however, Treasury is trying to move away from the short bills and looking to selling longer maturities. The market has little appetite for longer maturities as inflation seems to have staying power. Recent auctions on 7-20 year treasuries have been pretty weak. If you’re looking to buy 10-year Treasuries, look for an extra yield premium around 5% or so before the market is down dealling with as with this supply issue.
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