January 15, 2025
What You Need to Know Today:
Get ready for the Trump tax cuts–in the first 100 days of the new administration
President-elect Donald Trump and Republican Congressional leaders are already promising to push through a new round of tax cuts to replace the 2017 cuts that expire in 2025. New tax cuts, they say, will be the first legislative–as opposed to initiatives by executive order such as new Trump tariffs–priority after the new president is inaugurated on January 20 2025. With Republican assured of a 53 to 55 seat majority in the Senate and likely to retain a majority in the House of Representatives, there’s not much Democrats can do to stop the cuts from becoming law.
MU drop shows one market problem at these levels is beating guidance expectations
Micron Technology (MU) shares shares are down another 7.12% today, Thursday, June 27, as of the close in New York time. That’s after the stock fell 6.5% in after hours trading yesterday. The problem wasn’t the company’s third-quarter earnings report after the market close yesterday. For the period ended May 30, Micron earned an adjusted 62 cents a share. Analysts had expected the company to earn 53 cent a share. Revenue was up 82% year-over-year to $6.81 billion. Wall Street was looking for $6.67 billon in revenue. But the very solid beat for the quarter turned out not to matter as far as market reaction was concerned. The problem was guidance.
Adding ServiceNow to Picks and AI Phase 2 Special Report
I will be adding shares of ServiceNow to my 12-18 month Jubak’s Picks Portfolio tomorrow June 27.
Damn, I was hoping NVDA holders would panic so I could buy more cheaply–but there still might be a chance
I think there are reasons to worry about Nvidia’s valuation and its ability to continue to generate revenue and earnings growth at a pace that would support a forward price to earnings ratio above 40, but I think those re worries for 2025. In 2024, I don’t see anything that disrupts the AI boom story. Over the next six months or so I’d like to be buyer, especially id I can get the shares on a temporary drop. So yesterday’s drop to $118 was a promising development. There was technical support at the 50-day moving average near $100 so there was a chance the stock would move lower. Today, Tuesday, June 25, though, shares of Nvidia rallied, closing ups 6.76% at $126.09. This doesn’t mean the drop is over or the opportunity is lost,
Today I added Salesforce from my 5 Next Big Things Special Report to my Jubak’s Picks portfolio
At this point in the AI cycle I’d like to own shares of companies providing AI solutions in relatively “easy” data universes. (Nothing as complex as voice recognition for an interface with a diverse customer universe under uncontrolled environmental conditions. Like a family in a car at a McDonald’s drive-through.) And I’d like to focus on shares of companies with products that provide clear enhancements to customers bottom lines. Like my Pick #4 Salesforce (CRM). in my 5 Next Big Things Special Report.
Saturday Night Quarterback (on Sunday) says, For the week ahead expect…
Expect a make or break inflation report on Friday. Make or break that is for the possibility of an initial interest rate cut at the Federal Reserve’s September 18 meeting.
Please note I’ve just posted an update to my Special Report: Your 10 Best Moves for the Rest of 2023
The update to my Special Report: Your 10 Best Moves for the Rest of 2023, Part 2–10 of 10 Moves (revised on 10/22) includes the last one of my 10 picks, plus updated performance numbers for the stocks in the original post.I’m pleased to say that I think the advice is still what I would give today.
Live Market Report (20 minute delay)
So how scared were banks this week? A record $164.8 billion scared; fear like this doesn’t vanish quickly
Banks borrowed a combined $164.8 billion from two Federal Reserve backstop facilities in the most recent week. Data published by the Fed showed banks borrowed $152.85 billion from the discount window-—the traditional liquidity backstop for banks—-in the week ended March 15. That was a record high for a week. And it was up a staggering $160 billion from the $4.58 billion borrowed the previous week. And the week’s borrowing was an all-time high, easily surprising the prior all-time high of $111 billion. That high was set during the 2008 financial crisis. By this measure, at least, banks see the current threat as equal to a global financial crisis.
Please join me for a LIVE YouTube Q&A at noon on Tuesday, March 21
A live Q&A!! Watch along on my YouTube channel. Ask your questions live. Get your answers live. Post your questions in advance in the comments to this post. And get them answered live on Tuesday.
Step #2 for my Special Report: 5 Steps for the Next 5 Months
Here’s Step #2: 3 essentials to cash management now. I’ve added it to the main Special Report so you’ll find both Step #1 and Step #2 there. And I’m posting Step #2 separately so that you will be sure not to miss it. (I’ve also added links to the two earlier Sell posts with 24 stocks to sell.)
Please Watch My New YouTube Video: Quick Pick Barrick Gold
Today’s Quick Pick is Barrick Gold (NYSE: GOLD). There are three big arguments for owning gold, and Barrick Gold specifically, right now. Number one is that gold always does well when the markets are volatile and people are unsure where else to put their money. Gold is the safe haven. Second, if the Fed pauses rates, gold will be back on the upswing. Gold generally doesn’t pay dividends, so if interest rates are higher, people will put their money where they can get a return through dividends (not gold), but as the rate hikes stop, gold will become more attractive. The third reason is specific to Barrick Gold because although it’s a gold mining company, it gets about 18% of its revenue from the copper it mines alongside the gold. The market for copper has been growing with the renewable energy transition. Electric vehicles use massive amounts of copper and copper miners haven’t been investing to keep up with future demand. Year to date (as of March 10), Barrick was down about 6.81% and Morningstar calculates it as 24% undervalued. While I mentioned that most gold stocks don’t pay a dividend, Barrick actually does, at about 3.23%, and they just announced another $1 million stock buyback. As the turmoil in the market continues, Barrick will continue to go up as people look for a safe haven from the chaos.
Treasury yields jump as prices fall–What me worry?
Today at 2:30 p.m. New York time the yield on a 10-year Treasury was up 10 basis points to 3.55%. Yesterday the yield had dropped to 3.50%. The yield on the 2-year Treasury, very sensitive to sentiment on Fed interest rate policy, crossed back above 4% to 4.15%. Yesterday the yield had dipped to 3.99%. Another day like this and we’ll see some short-term yields, 6-month perhaps–above 5% again.
ECB sticks to inflation fighting with surprise 50 basis point interest rate increase today
The European Central Bank raised its benchmark short-term interest rate by another 50 basis points today. The bank said that the European banking system has strong capital and liquidity positions in spite of problems at Credit Suisse that led that bank to borrow $54 billion from the ECB yesterday. Fighting inflation remains the bank’s top priority.
Swiss National Bank says it will provide liquidity to Credit Suisse
The Swiss central bank said today that it will provide a liquidity backstop to Credit Suisse if needed.“Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks,” the Swiss National Bank said in a statement late Wednesday. “If necessary, the SNB will provide Credit Suisse with liquidity.”
Does moderation in Producer Price Index inflation give the Fed enough cover to NOT raise interest rates next week?
U.S. prices at the wholesale level, the producer-price index, fell in February from January, the Bureau of Labor Statistics reported this morning. The producer-price index fell 0.1% in February from January after a 0.3% month-to-month increase in January. Will that be enough so that the Fed has an argument for NOT raising interest rates next week?
Please Watch My New YouTube video: The Fed’s Impending Disaster
Today’s topic is The Fed’s Impending Disaster. The CPI inflation numbers for February looked good from an annual perspective–headline at 6% and core at 5.5%–but if you look month to month, inflation ticked up slightly. In the big picture, inflation is lower, but we’re not seeing it fall at the speed the Fed would hope. The Fed wants to get inflation down to 2% and we’re currently around 5.5% core inflation–a long way off. If you look at those numbers alone, you’d expect the Fed to continue raising their rates. This is what the market was expecting just last week, projecting a 25-50 basis point increase for the March 22 meeting. The thing that puts the Fed between a rock and hard place is the Silicon Valley Bank collapse and additional banking stressors that could lead to more disasters inside the Treasury market. In February the FDIC said that insured banks had about $620 billion in undeclared losses. With $23 trillion in the banking system, $620 billion is less than 10% overall, but if it’s concentrated in certain areas, it could cause more blow-ups. We don’t know if we’ll see any big Wall Street banks go down, like Lehman Brothers back in 2008, but I am watching Credit Suisse closely, especially after the big hit to its share price this morning, March 15. Essentially, the rapid hikes in interest rates have put strains on the banking industry and the Fed will have to decide whether they will continue raising rates to fight inflation, or stop in favor of supporting banks while inflation is still high at 5.5%.
Now it’s Credit Suisse–the banking crisis goes international
Shares of Credit Suisse (CS) fell this morning–if a 31% drop at the worst moment can be called “falling”–after the bank’s biggest shareholder said it would NOT put more money into the challenged bank. As of noon New York time, shares of Credit Suisse were down 24.1%. The bank’s bonds fell to levels that signal deep financial distress, with securities due in 2026 dropping 17.75 cents to 70 cents on the dollar in New York. That puts their yield at about 20 percentage points above U.S. Treasuries.
Sure smaller regional banks are most at risk from big unrealized bond losses, but the biggest losses are at much bigger banks–like Bank of America
Yesterday, March 14, Moody’s Investors Service placed First Republic Bank (FRC) and five other US lenders on review for downgrade because of worries over uninsured deposit funding and unrealized losses in their asset portfolios. (the other banks include Western Alliance Bancorp (WAL), Intrust Financial, UMB Financial (UMBF)., Zions Bancorp (ZION), and Comerica (CMA).) But these smaller banks aren’t the companies in the sector sitting on the biggest bond portfolios with unrealized losses.
Where’s the contagion? Signature Bank’s shutdown was due to its crypto exposure but the biggest negative effects will be in the commercial real estate market
One of the lessons of the subprime mortgage crisis is that it’s hard to predict exactly how problems will ripple out from bad bets on one asset class to a crisis in a seemingly unrelated part of the financial market. That’s one reason that the current set of bank collapses–Silvergate Capital, Silicon Valley Bank, and New York’s Signature Bank–is so unsettling. We know–we think–how these institutions got into trouble. But we don’t know what other banks or sectors of the financial markets might be dragged into the problem.
CPI inflation numbers put Fed between a rock and a hard place next week
February core inflation, measured by the Consumer Price Index, climbed from January at a faster month-to-month pace, according to this morning’s report from the Bureau of Labor Statistics. Core inflation, which excludes theoretically more volatile food and energy prices, rose at a 0.50% month-to-month rate in the month after climbing at a 0.40% month-to-month rate in January. That put core inflation on a 5.5% annual pace. This wasn’t what the Federal Reserve needed to hear as it wrestles with the problem of what to do to contain inflation still running at well above the central bank’s 2% target (and which threatens to edge higher again) at a time when the banking system is showing systemic stress brought on by the Fed’s aggressive interest rate increases. Here are the Fed’s choices.
The consensus on peak interest rates goes forward into the past
Remember the financial market consensus that the Federal Reserve would raise interest rates by 50 basis points at its March 22 meeting and that we should expect to see peak short-term rates from the Fed above 5.5% and maybe even as high as 6%. Not any more. The collapse of Silicon Valley Bank and the exposure of exactly how fragile the banking system is has led to a return of the earlier (as in a month or two ago) consensus.
Please Watch My New YouTube Video: Voter Suppression…in China
This week’s Trend of the Week is Voter Suppression…in China. During the most recent National People’s Congress in China, two people were notably not invited–entrepreneurs Tony and Pony Ma, the heads of Alibaba and Tencent. Other entrepreneurs were also notable for their absence. Xi Jinping has made it clear that entrepreneurs have a much smaller role in his economy going forward, as he looks to consolidate power in the hands of the Chinese Communist Party and prevent any potential competition from power centers. Xi’s new policies, coming out of the National People’s Congress, focus on spending by state-run businesses and emphasize consumer spending, as opposed to infrastructure, as a source of economic stimulus. So how should you invest in China? Despite Pony Ma’s absence at the People’s Congress, Tencent Holdings (OTCMKTS: TCEHY) remains at the forefront of Chinese innovation and technology. It’s clear that China will not adopt US-made chatbots and will develop its own. Tencent looks likely to take a leading role in that effort. The company is also the dominant game producer in the world and gets a lot of its revenue from outside of China. It’s the China stock I’d look at for the long term. In the short term, I’d look at JD.com, which is well-suited to get a bounce from the emphasis on consumer spending. The current price is a good entry point. I’ll be adding it to my JubakPicks.com portfolio tomorrow.
Don’t forget tomorrow’s CPI inflation report for February
Tomorrow’s CPI inflation report for February will show whether the Federal Reserve faces a very difficult task in bringing down inflation without crashing the economy (and/or the banking system) or whether the job is simply impossible. Right now economists are pointing toward impossible. The annual inflation rate is likely to have come down in February from January but the month-to-month trend is likely to be flat. Which means that inflation has stopped declining with the annual rate well above the Fed’s 2% target rate.
Is today (or maybe tomorrow?) the moment of maximum short-term fear? I’m selling one of my Call Options on the VIX fear index today
Back on March 6, I bought Call Options on the CBEO S&P 500 Volatility Index (VIX) at a strike of 23 for the May 17 and June 21 expirations. My logic was that at 18 or so, the VIX was trading at a level that basically ignored all of the potential negative news and trends visible in the financial market for the next couple of weeks. I certainly didn’t count on the collapse of Silicon Valley Bank or the wave of fear that has today overwhelmed shares of every regional and fintech bank. I think the odds are that the crisis won’t go away, but that the extreme fear of today will turn into something less extreme over the next day or so. Fear tends to work like that in the financial markets: When investors and traders discover the sky has fallen today, they get more optimistic (not always reasonably) about tomorrow. So I’m selling the May 17 Call Option on the VIX that I bought on March 6. The purchase price that day was $$94 per contract. The price today closed at $420 per contract. That’s a gain of 116%.
What does the collapse of Silicon Valley Bank mean for your portfolio?
The collapse of Silicon Valley Bank means both a whole lot for your portfolio and very little. It depends. I’ll explain.
Saturday Night Quarterback (on a Sunday) says, For the week ahead expect…
Truthfully no one knows what’s going to happen as a result of the collapse of Silicon Valley Bank. Expect a lot of volatility, though, as the “smart money” tries to talk specific scenarios (watch out for shorts bearing expert commentary) and as the most likely scenario shifts from hour to hour.
Mixed news from February jobs report–jobs up more than expected, wage growth slows
The U.S. economy added 311,000 jobs in February, the Bureau of Labor Statistics reported on Friday, March 10. That was an expected drop from the January blowout of 504,000 new jobs. But it was significantly above the 225,000 jobs expected by economists surveyed by Bloomberg.
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