November 15, 2024
What You Need to Know Today:
Today’s GDP revision unchanged at 3% growth–and that’s the news
The Bureau of Economic Analysis’s third estimate of second quarter US gross domestic product (GDP) was unchanged from the second estimate which had shown 3% annualized growth. Economists had estimated the reading to show annualized growth of 2.9%. Add in a separate report on initial claims for unemployment the Labor Department that showed 218,000 new claims for unemployment were filed in the week ending September 21–Wall Street had been expecting 223,000 new claims for the week–and the data clearly show that the economy is, as Fed chair Jerome Powell said last week when the Fed cut interest rates, in good shape.
China needs more stimulus as housing slump drag on economy continues
Data Monday, June 17, show that China’s economy needs more stimulus to overcome the persistent drag from China’s housing slump. The most recent bit of bad news is that industrial output—-which has made up for slow consumer spending lately-—fell short of forecasts.
Is this the best the most bullish can do? A 3% upside for the S&P 500 by the end of the year?
On Friday, June 14, Goldman Sachs upped its year-end target for the Standard & Poor’s 500 to 5,600 points from 5,200. The idea closed at 5473 on Monday, June 17, for the 30th record high of 2024. Goldman’s forecast puts the investment company at the same expected price level as UBS Investment Bank and BMO Capital Markets. They’r talking about a roughly 3% gain from here through the end of the year. Three points to consider about the forecast.
Saw that coming, yes? China launches probe on EU pork imports
China has launched an anti-dumping probe on pork imports from the European Union. The move sure looks to me like retaliation for investigations launched by the EU into Chinese subsidies across a range of industries and will impose tariffs on electric car imports from July. The move isn’t small trotters. China is the EU’s biggest overseas market for pork. The trade was valued at $1.83 billion last yea
Saturday Night Quarterback (on a Sunday) says, For the week ahead expect…
I expect questions about animal spirits and their effect on the financial markets to step forward as the Federal Reserve stays on the sidelines and as election anxiety ratchets higher.
Buy the dollar! After Italy’s triumph leading this week’s G7, the country will cause another euro crisis
This is Giorgia Meloni’s time in the sun. I hope she enjoys it. The pasta is about to hit the fan. Which will lead the dollar to rally against the euro. Some more. And which gives me Step #6 in my Special Report: 7 Steps to Take Now to Protect Your Portfolio While You Still Reap Market Gains Step #6 in my strategy for protection and profit for the rest of 2024 is Buy the Invesco DB US Dollar Bullish ETF (UUP).
Special Report: My 10 Picks for how to invest in climate change NOW–3 first 3 picks, LAZR, PLBF and GWH
Here’s how I characterize developments in the global climate crisis in 2023: It was the year when hot air confronted cold cash. And as you might expect cold cash won.
Which gives me the framework for how to invest in the global climate crisis over the next 12 to 24 months. I’m going to use natural gas to develop my investing paradigm. And then I’m going to give you four sectors in which to concentrate your investments. And 10 specific picks for your money. I expect that I’ll be revisiting the topic of how to invest in the global climate crisis again before too long–because I think today’s paradigm will need substantial revision not all that far down the road.
In Part 1 today, I’m going to develop that paradigm. In Part 2 I’m going to tell you why I think nuclear energy, utility scale battery storage, wind and solar are the sectors that deserve your investment cash and attention (and why electric vehicles don’t make the cut now.) In Part 3, I’ll give you the ten stocks and ETFs I’d pick for these four sectors.
Live Market Report (20 minute delay)
What comes after Goldilocks?
Investors and traders have been riding a Goldilocks market that has rested on a belief that all news is good news. There are signs that belief is facing challenges that might, just might, lead to a replacement of Goldilocks with some other narrative. Right now, the golden child is still resting peacefully at the Three Bears’ house with a stomach full of “just right” porridge, but sentiment in the last week has at least been willing to countenance the possibility that some bad news is bad news. And, I can see a lurking suspicion in the market that may be in the weeks to come all news if bad news.
U.S. heat wave to expand–but it’s not just a U.S. problem
Heat advisories now stretch from northern Florida to southern New Mexico, and excessive-heat warnings have been issued for much of Texas and parts of New Mexico and Arizona and along the Gulf Coasts of Louisiana, Mississippi and Alabama. New Orleans is included in the zone of greatest heat risk, with actual air temperatures around 100 degrees and humidity that will push heat indexes to 115 degrees. Excessive-heat watches have been posted for the lower Mississippi Valley and include Memphis and Nashville; Huntsville and Birmingham; Jackson, Mississippi; Little Rock, Arkansas; and Poplar Bluff, Missouri. “Extreme heat and humidity will significantly increase the potential for heat-related illnesses,” cautioned the National Weather Service, “particularly for those working or participating in outdoor activities.” The heat will relent somewhat into early next week for portions of the Southeast and Mid-South, but there is no immediate end in sight for Texas, where blistering and brutal conditions look to continue as a heat doe lingers over Texas. And this is only the latest U.S. manifestation of a global problem.
Please Watch My New YouTube Video: China’s Troubling Economic Trend
Today’s Trend of the Week is China’s Troubling Economic Trend. This graduation season is highlighting the economic problems China is facing. The 16-24-year-old Chinese demographic went to college as a way of delaying entering the job market during COVID, with the expectation of a guaranteed job upon graduating. The bad news is those jobs have not materialized. Unemployment for the 16-24 year age group was up to 20.8% in May, even higher than April’s shocking number. These Chinese college graduates have recognized this problem and have started a movement called “lying flat.” These potential consumers, they say, will not be buying houses, or cars but instead, will cut consumption. This negative view of the future trend in the economy has spread to all demographics and has led to people hoarding cash. The People’s Bank of China has cut short-term interest rates and the state council has suggested another stimulus package is coming. These factors could give Chinese stocks a bump up, but won’t get to the heart of the economic problem or bring the country’s growth above 5%. I’ve switched my international diversification to South Korea from China on JubakAM.com because I believe this economic trend is a long-term issue and that these problems are deeply embedded in the Chinese economy.
Is Adobe an artificial intelligence stock? Market certainly thinks so
Adobe’s recent earnings report and guidance leave investors, at least those of us still paying any attention at all to valuation, in a bit of a quandary. Do we sell Adobe on that lackluster forecast for earnings and revenue growth over the next two quarters (and what looks like a stretch, very stretched valuation) or do we hold on with the hope that the market continues its love affair with everything AI?
Saturday Night Quarterback says, For the week ahead watch…
Watch to see if/when the collapse of asset prices in the commercial real estate sector starts to create problems for the banking system as a whole. About $18 billion of office buildings were considered distressed at the end of March, MSCI Real Assets said in a report Thursday, estimating almost $43 billion of offices are at risk of default. U.S. office buildings are unlikely to regain their peak pre-pandemic values until at least 2040 as demand for desk space weakens, according to a forecast by Capital Economics. Values are expected to plunge 35% from the peak by the end of 2025 and take an additional 15 years or more to recover as hybrid and remote work reshape real estate, the London-based research firm reported Thursday. As extreme as that projection may seem it mirrors the collapse in the real estate market for shopping malls as e-commerce gobbled up consumers’ dollars. The grimmest part of that projection of a continued decline in building prices and for a long, long recovery is that it argues that the current extend and pretend strategy won’t be enough to carry the sector over the abyss. Many owners of distressed buildings have adopted extend and pretend–a strategy of rolling over the loans on a building while everyone pretends that the value of the building is still high enough to support the new loan.
There’s a huge debate on the direction of lithium prices for the rest of 2023
Spot lithium carbonate prices (for battery-grade lithium) in China are up 92% from a 19-month low in April. So now what?
Adding Generac as a short-term trade to my Volatility Portfolio
I’ve got major questions about Generac’s (GNRC) long-term growth. The company, the dominant player in the market for residential backup electric generators (with about 4 times the market share–or about 75% of the market–of its nearest competitor) faces big questions, in my opinion, about its long-term strategy and its ability to grab significant revenue in the clean energy market where it faces competition from larger companies, more established in the market, such as SolarEdge (SEDG) and Enphase (ENPH). But in the short run? Say, the next two or maybe three (at the outside) months, I say this is a stock that will ride summer storms and heat waves to gains. Especially, if as I project, the company delivers lackluster quarterly earnings when it reports on August 2, but gives very positive guidance for the next quarter or two
Please Watch My New YouTube Video: Quick Pick First Quantum Minerals
This week’s Quick Pick is First Quantum Minerals (FQVL). I’ve talked about copper as an equity kicker in gold mining stocks in a previous video. Barrick, a huge gold producer, is also a significant copper producer and is looking to expand its copper production. The company is currently in “informal talks” with First Quantum Minerals. Year to date, First Quantum Minerals is up 21% and 34% in the last three months, so it definitely shows good short-term momentum. In the long term, copper demand will see tremendous growth in the global climate change economy, including in electric vehicle production. The other benefit here is copper and, of course, gold is a good hedge against inflation which I predict will continue higher than the Federal Reserve and consumers would like for quite some time. Put copper, with its growth potential, together with gold, with its role as an inflation hedge, in one mining stock and you’re starting to look at something good.
Please Watch My New YouTube Video: Inflation Deserves a Bigger Role in Your Portfolio
Inflation deserves a bigger role in your portfolio. This vase of peonies reminds me of my first summer job: picking Japanese beetles off of my uncle’s peonies. He would offer what sounds like a not-so-generous salary of 25 cents per jar of dead beetles. But remember that’s 25 cents in 1960 or so. In thinking about inflation, I researched how much 25 cents in 1960 would be equivalent to today. 25 cents in 1960 amounts to $2.53 a jar. Still not terribly generous, but better. $100 in 1960 would be worth $1009 today, a ten-fold increase due to inflation. The Fed is still at work to stem inflation, but investors should note that there are some prices that the central bank can’t control. Inflation is built into the global climate economy with disruptions in agriculture, and new kinds of energy production (which will require higher costs), supply chain issues, not to mention that climate change is making some previously habitable places uninhabitable. All these problems will lead to extraordinary sources of inflation that are not susceptible to central bank policies. In order to hedge that inflation, make sure your portfolio, especially if it’s a long-term portfolio, has positions in things like gold or copper and lithium which will be in high demand and short supply in the next decade (at least.)
Did a Powell deal with the inflation hawks on a June pause guarantee a a 25 basis point increase in interest rates at the July 26 meeting?
Recently former Treasury Secretary Larry Summers has been saying that the June pause in interest rates and a simultaneous increase in the end of the year DotPlot interest rate projections to 5.6% only makes sense if Fed chair Jerome Powell cut a deal with the central bank’s inflation hawks that guarantees a 25 basis point interest rate increase at the July 26 meeting.
Buying Zimmer Biomet for the long-term 50 Stocks Portfolio tomorrow
I made Zimmer Biomet (ZBH) Pick #6 in my “10 Stocks for Your Core Portfolio.” Tomorrow, June 21, I’ll add it to my long-term 50 Stocks Portfolio.
Please Watch My New YouTube Video: Trend of the Week Which is it? OK Growth in the U.S. or Not Great Growth Globally?
Today’s Trend of the Week is Which is it? OK Growth in the U.S. or Not Great Growth Globally? The U.S. market is rallying and the rally even expand from the narrow nine stocks that have been driving up the indexes. The consensus is the U.S. economy will avoid a recession, the Fed will continue to pause rate hikes, and the U.S. economy as a whole is in decent shape. The problem is that the global economy presents a completely different story with asset values pricing in slowing growth. This shows up most clearly in oil prices, which have been in a downward trend. On June 13, West Texas Intermediate was selling below $70 a barrel, and Brent was down to 74.57. Goldman Sachs has cut its end-of-the-year oil price forecast by about 10%. This cut assumes continued lower demand from China and a supply glut, especially from Russia, as that country produces above agreed-upon caps in an effort to fund its war in Ukraine. If you own oil stocks right now, confirm that the ones in your portfolio can continue to make money at $70 a barrel (at least enough to cover dividends). I’d note the lowest cost source in the United States is in the Permian Basin. Companies like Pioneer National Resources and Devon Energy are focused on production from that region.
Look for end of the quarter “window dressing”/rebalancing wars
I expect the end of the second quarter to be volatile as two contrary trends battle it out to set market direction.
Selling ConocoPhillips tomorrow on increased Russian oil refinery production
I’m holding onto oil stocks that pay big dividends such as Pioneer Natural Resources (PXD), at 11.22%, and Devon Energy (DVN), at 9.06%, but I lightening up on my oil exposure by selling ConocoPhillips (COP) out of my Jubak Picks Portfolio tomorrow, June 20. The stock pays a dividend of just 2.29%.
Please Watch My New YouTube Video: Quick Pick New Era Energy
This week’s Quick Pick is utility NextEra Energy (NEE). NextEra is focused on Florida, a state with a relatively utility-friendly regulatory scheme, and where the company’s Florida Power and Light has 5.8 million customers. NextEra operates a mix of energy sources including seven nuclear plants, 4.6 gigawatts of solar, and, recently, hydrogen as well. That’s a good mix, fortunately, or unfortunately, for this point in the climate crisis. I have owned NEE since November 2020 in my dividend portfolio. The stock price hasn’t moved a lot lately, but if the Fed continues its pause on rate hikes and the economy doesn’t slow further, I think this one will outperform. Right now you get a 2.5% dividend with the possibility of capital appreciation if the company’s alternative energy efforts continue to show growth and when/if the Fed cuts interest rates.
Please Watch My New Video: What about Core Inflation?
What about core inflation? The most recent CPI numbers have been cause for market celebration. For example, here was the headline on Bloomberg: “US Inflation Slows, Giving Room for Fed to Pause Rate Hikes.” But the excitement comes from a focus solely on the headline inflation or the all-items index. The Fed, however, generally bases its decisions on core inflation, which removes energy and food prices from the equation. All item inflation dropped to a 4% annual rate in May, down from 4.9% in April, and was up just .1% month to month. This is great news for consumers as prices start to come down. The bad news is that core inflation is still pretty high, with the May annual rate at 5.3%, above economists’ hopes for 5.2%, and up .4% month to month. One of the main differences in the rate of core and all item numbers is energy. Oil prices around the world are dropping and that’s driving the decrease in the all-items inflation number. The Fed has little control over energy and food prices, which is why its decisions are generally based on core inflation. While the Fed paused rate hikes in June, those increases may not be over if core inflation continues to disappoint.
So you knew that most of this year’s stock market gains came from just a few BIG tech stocks–but did you know the difference was this big?
So how big a difference has market cap weighting made? Remember the market cap weighted S&P 500 is up 14.77% in 2023 as of June 14. And up 12.02% for the last three months. The equal-weighted S&P 500, on the other hand, is up just 4.77% for 2023 as of June 14 and ahead 5.18% for the last three months. To understand what “weighted” and “unweighted” mean read the post
Please Watch My New YouTube Video: China Weaker Than Expected
Today’s Trend of the Week is China Weaker Than Expected. The key part here is “than expected.” In the most recent official government report, Chinese exports were down 7.5% year over year. Economists were expecting a much more modest drop of 0.4%. The semi-annual projections from the World Bank and the OECD (Organization for Economic Cooperation and Development) predicted a slowing for the global economy, but still a relatively positive outlook. However, those projections were based on solid growth from China, which the latest official figures suggest is certainly not a done deal. The World Bank and OECD reports imply that if China’s growth disappoints, world economic growth projections of 1%-2% will be high. At this point, the global economy is leveraged to Chinese economic growth, so if China doesn’t do well, that spreads throughout the world. Low-income countries that cannot pay their debts and are facing higher interest rates are sounding the alarm that they may soon be unable to feed their people. A slowing global economy would essentially amount to a run on low-income countries, which could spread to the rest of the economy. This is a trend to keep an eye on and a good time to make sure your investments are in dollar-denominated assets. (Not that the dollar is in such great shape.)
Please Watch My New YouTube Video: Quick Pick 2-year Treasury Buy Recommendation Follow-Up
Today’s Quick Pick is 2 Year Treasuries Follow-Up. In my last Quick Pick, I said that if the Two-Year Treasury yield got up over 4.5, it’d be a good time to buy. Well, on June 6, the yield on the Two Year Treasury hit 4.58, up 68 basis points in one month. There is still a lot of issuance to come, so you may want to go in at half now and half a little later. From June 2-June 13, the Treasury increased the supply of Treasury Bonds by $131 billion in an effort to rebuild its cash position. They’ll continue to issue more bonds through July to meet their goal of $500 billion. The peak here would be sometime in the next few weeks or in July. The reason to buy the Two Year is it’s very sensitive to the Fed and economic changes. You can get a CD with a 5% yield, but the CD won’t earn you capital appreciation. If rates go down when the Fed stops raising rates, treasury yields may go down, but the bond will go up. Right now, be looking for that peak yield, possibly 4.6 in the coming days and weeks. (After the June 14 Fed meeting the yield on the 2-year Treasury rose to 4.69%, I’d note. Looks good to me here for a half position.)
Fed, as expected, holds interest rate steady–but oh, that jawboning
As expected, the Federal Reserve’s Open Market Committee held the central bank’s benchmark interest rate steady today at 5.0% to 5.25%. But the Fed in its meeting press release and Fed chair Jerome Powell’s press conference stressed that its inflation fight isn’t over. That the market could see another interest rate increase at the July 26 meeting. And that the market should not expect a pivot to interest rate cuts anytime soon.
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