Videos
April 27, 2023 | Daily JAM, Videos |
Today’s Quick Pick is Procter & Gamble (NYSE: PG). P&G’s first quarter earnings were good and a bit of a surprise. Reporting at $1.37 for the quarter, they beat Wall Street expectations ($1.32) by five cents and they were up 4 cents year over year. The company also raised guidance for revenue growth to 4% in 2023, higher than the prior 1%. While the report was good, it wasn’t that much better–it was a modest beat. What interests me is the market’s reaction to the report. The stock has been rallying since early March, but when P&G released the report, the stock jumped 3.7%. To me, this shows a hunger in the market for the (supposed) safety of blue chip stocks. As worries of a slowing economy and a possible recession grow, stocks that produce reliable, regular growth become more valuable. As I mentioned in my 10 Picks to prepare for a recession on JubakAM.com, P&G is a good place to be during a mild recession. Different story in a major downturn. Then everything falls.
April 26, 2023 | Daily JAM, Videos |
Today’s topic is Look Out Below! Central Banks to Take Away $1 Trillion in Cash. Citigroup recently reported that central banks pumped about $1 trillion into the financial markets during the recent bank-collapse crisis. While investors are currently focused on interest rates and inflation and how that affects the price of money, they may be overlooking this important liquidity story. Citigroup projects that this much liquidity injected into the financial system is equal to a rate cut of 50 basis points. The market indeed has received the rate cut it was looking for, just not where it was expected. We’ve now seen peak liquidity. Central banks will not keep putting this kind of liquidity into the market, and in fact, will try to take some of it back. Citigroup says we’ve gone through a risk-on rally fueled by extra cash from central banks, making junk bonds and high-risk investments very attractive. We also had a rally in corporate debt, as investors felt they could take on more risk with more cash in the market. Taking all this out of the market will make risk less attractive.
April 24, 2023 | Daily JAM, Videos |
This week’s Trend of the Week is Consumers Are Falling Behind on Debt Payments. Although the economy has been slowing for some time, there’s been a lag in consumers falling behind on debt payments. Until recently, consumers seem to have been relying on funds saved during the Covid crisis, but we’re now starting to see that life raft disappear as consumers start to sink underwater on debt payments. This isn’t a good sign for banks that may already be struggling with unrealized losses from the banking crisis. Wells Fargo recently put aside $1.2 billion for potential loan losses and other banks are following suit. About 20% of consumers are using “buy now, pay later” credit card features for things like groceries, showing that the slowing economy and slowing wage growth are finally catching up with consumers. Watch those delinquency rates going forward.
April 20, 2023 | Daily JAM, Jubak Picks, NEM, Videos |
Today’s Quick Pick is Newmont Corporation (NYSE: NEM). Newmont is the world’s largest gold miner but the stock hasn’t benefited very much from the recent rallies in gold. Unlike Barrick Gold, Newmont is not a low-cost miner, but it does have huge reserves as well as promising joint ventures–including one with Barrick in Nevada. The company is growing production and produced about 2.2 million ounces of gold in 2022, with production going up to a forecasted 2.7 million by 2027. Newmont likely hasn’t seen a huge rally yet because of the cost of energy. Mining gold takes a lot of energy and with recently higher gas/diesel prices, costs of mining and production have gone up and margins have been squeezed. However, looking forward to mid or late 2023, those margins will, in my opinion, start to look a lot better. If we hit a recession while inflation remains relatively high and energy prices come down, Newmont will benefit from lower costs and recession gold rallies. I would call Newmont my second choice gold stock to Barrick. Morningstar rates Newmont at 10% undervalued right now. This is a good time to buy and look for it to outperform in the second half of 2023.
April 19, 2023 | BABA, Daily JAM, FXI, JD, Videos |
Today’s topic is China’s Economy is Back. On April 18, China reported 4.5% year-over-year GDP growth for the first quarter. While it wasn’t the 5% growth rate that the Chinese government has set as a target, it was better than the 4% forecast by economists. This growth rate comes on the heels of a 4th quarter with only 2.9% year-over-year growth. Other numbers showed strength too. For example, retail sales rose 10.6% year-over-year beating forecasts of 7.4%. But the economy isn’t cooking on all burners: Industrial production was up only 3.9%, just missing the forecasts of 4%. The iShares China Large-Cap ETF (FXI) is a good way to buy into China’s economy. There was a big rally from November to December as investors anticipated China’s economy speeding out of its Covid slump. But that rally was followed by a drop as the Chinese economy struggled with a resurgence in Covid cases. Now we’re seeing that drop start turn around. Individual stocks like Alibaba (BABA) and JD.com (JD) show charts with a similar pattern and can be expected to start to climb as the economy continues to pick up.
April 18, 2023 | Daily JAM, Videos |
This week’s Trend of the Week is Banks: It Can Still Get Worse. First Republic (FRC) is an example of a really hammered regional bank. They have about $4.2 billion in unrealized losses and the bank doesn’t look viable. On March 6, FRC stock was at $122, and by March 20, it had dropped to $12 and hasn’t really gone up since. Most recently, on April 10, the bank announced it will no longer pay the dividend for preferred shares–a surprising move as preferred shares are generally safe from such dividend cuts. This is just one example of how it’s still possible for things to get worse in the sector. As bank earnings season gets underway, you can expect a lot more bad news, with banks reporting high amounts of unrealized losses. In some cases, those unrealized losses could truly imperil the banks. I’m not sure where the worst problems will be and which banks are most affected, but we’ll see them start to pop up as earnings reports come out and banking Whac-A-Mole begins.
April 13, 2023 | Daily JAM, Jubak Picks, MRNA, Videos |
Today’s Quick Pick is Moderna (NASDAQ: MRNA). You’re familiar with Moderna as the developer of one of the RNA-Covid vaccines. The stock market has been treating the stock like the company was a one-trick pony with sales dependent totally on the demand for Covid-19 vaccines. But I think of the MRNA Covid-19 vaccine as proof of the validity of Moderna’s technology platform which takes a lot of the risk out of what is still an early-stage biotech stock. The company now has 36 other vaccines in its development pipeline using the mRNA technology that was proven effective in the Covid vaccines. Around six of those are expected to launch in the next few years. The huge jump in revenue from the Covid vaccines “shot” the stock up around 900%. (The company’s revenue was $155 million in 2018, and at the end of 2022 its revenue was $19.3 billion.) But more recently, the shares have been in a steep decline and Morningstar now calls them 40% undervalued. The stock has pulled back further in the last week or so on news that results from some trials have not been positive enough to lead to early termination of the trials. The huge revenue–and the resulting profitability–from the Covid-19 vaccines put Moderna in a unique position for such a young biotech company. They’re able to fund their own research, clinical trials, and the development of new products internally. That means the company doesn’t have to sell off a share of future profits and revenue on new drugs or vaccines in order to fund research and development. I’ll be adding the stock to my Jubak Picks portfolio tomorrow, April 14.
April 12, 2023 | Daily JAM, Videos |
Today’s topic is Earnings Season Blues. We’re looking at an earnings recession. First-quarter earnings reports will start dropping Friday with the big banks reporting numbers. And the projection from Wall Street analysts is for a 6.8% year-over-year drop in earnings from the companies in the Standard & Poor’s 500. This comes on the heels of a drop of 4.6% year over year for the fourth quarter. That would mark two negative quarters in a row. The second quarter 2023 projection is another year-over-year decline of 4.6%. These drops reflect higher inflation, higher costs, and slowing demand. Interestingly, the stock market has stayed within a range since December 2022–with stock prices not really reacting to negative earnings news. The market is showing investors and traders still hope the Fed will bail out the market by cutting rates in 2023 or 2024. This hope balances out the negative news coming from earnings reports and projections. That balance could start to falter if we continue to get negative earnings (which we will), and the Fed disappoints by continuing to raise interest rates. The most recent inflation numbers show that inflation is coming down (slowly) overall, but core inflation was actually up slightly, leaving the Fed’s decision on when to stop the hikes up in the air.
April 10, 2023 | Daily JAM, Videos |
This week’s Trend of the Week is Houston, We Have a Trend Problem. The problem with trends is that the data is always old. There is always a lag. Inflation numbers for March will come out on April 28, jobs numbers for March came out on April 7, and GDP first quarter numbers will be in around April 27. These month-old numbers tell us where we’ve been, but we need to know where we’re going–and importantly, the speed at which we’re moving. It’s not just the trend, it’s the momentum of the trend. Inflation is undoubtedly coming down. What we don’t know is how the combination of Fed actions, a slowing economy, and the banking crisis are affecting inflation and economic growth. Currently, core inflation numbers are around 4.5%, and the Fed still wants those numbers closer to 2%, but for how long will the Fed continue to raise rates, and how close will the central bank actually get to 2%?m All that is still up in the air. At the time of filming, the consensus (56%) was that the Fed will raise rates another 25 basis points in May, and then pause. The decision is data-dependent, but the problem with that is that the data right now is all past data. The data doesn’t show real-time momentum. Forward-looking data doesn’t actually exist, but boy, would it be great if it did!
April 6, 2023 | Daily JAM, Mid Term, Videos |
Today’s topic is The Problem With Goldilocks. This Goldilocks market is dependent on three things: there will be no recession, interest rates will stabilize after one more May hike from the Fed, and we’ll get falling inflation. These three factors are necessary for the porridge to be not too hot and not too cold. The problem? I don’t see how these three factors exist simultaneously. Falling inflation but no recession? I don’t see how we get to lower inflation without something at least close to a recession. I think we need a recession in order for the Fed to stop rate hikes. Oil isn’t helping the situation as OPEC+ voted to cut oil production for a year, and energy-reliant stocks are already showing the effects. Energy prices don’t immediately factor into the Fed’s decision-making, since the Fed focuses on core inflation, which excludes oil and food, but eventually, oil prices affect the market as a whole. Goldilocks may not be in immediate danger of being eaten by the bear, but I wouldn’t sell her an insurance policy.
March 30, 2023 | Daily JAM, SCHW, Videos, Volatility |
Today’s Quick Pick is Charles Schwab (NYSE: SCHW) Put Options. Put options will become more valuable as the stock goes down in price. This has been a lousy year for Schwab with the stock currently down about 34% YTD. The reason for this is Schwab makes most of its money on the interest rate spread. Schwab stashes “excess” cash in customer accounts in sweep accounts that pay a very low rate of interest, and Schwab invests that cash in Treasuries, mortgage-backed assets, etc. at higher yields. This works when the overall rate of interest is low because customers have a relatively small incentive to actively move their cash to higher-yielding vehicles. When the Fed raises interest rates, however, some people who had formerly kept their money in these low-return accounts will move their cash to higher-yielding alternatives (often still within Schwab.) This reduces the interest spread that Schwab collects since the company now has to pay more in interest to retain those customers. In addition, Schwab invested that cash in long-term Treasuries and mortgage-backed assets, leaving the company sitting on a lot of unrealized losses in its bond portfolios as bond prices fell as interest rates moved higher. I question whether or not Schwab will be able to meet analysts’ expectations and/or warn on future results when it announces earnings on April 17. I would suggest Put options before the announcement. I added the May 19 Put to my Volatility Portfolio yesterday. For more options plays, subscribe to JubakAM.com.
March 29, 2023 | Daily JAM, Videos, VIX |
Today’s topic is: Complacency is Rising – Again. I’ve been following the VIX closely throughout the recent market turmoil. The VIX is often called the “Fear Index” as it measures how much people are willing to hedge against the S&P. As you can imagine, the VIX shot up with the recent bank scare but has been coming back down again recently. The market has decided very quickly that the banking crisis is no longer a problem and they just aren’t all that worried. Similarly, the ICE Bank of America Merrill Lynch MOVE Index (^MOVE), considered the “VIX of the bond market,” showed a big jump during the Silicon Valley Bank and Credit Suisse problems, but has quickly started to come back down. These are two areas where I would buy a call option if they get low enough. I will not buy puts on these because I don’t think this volatility is over. Go to JubakAM.com to follow my volatility and options portfolios.
