Morning Briefings
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Geopolitics Matters
(1) Panic Attack #62 isn’t over just yet. (2) October has been a spooky month for stocks around the world, even in the US. (3) More geopolitical worries than usual unnerve investors. (4) Quadruple whammy for emerging markets: interest rates, the dollar, oil prices, and trade war. (5) Halloween and the mid-term elections will come and go. (6) Stocks are cheap in the US if economy continues to grow. (7) IMF report about global financial stability finds that current emerging markets crisis is relatively contained. (8) Our net capital flows proxy remains bullish for the dollar. (9) IMF sees relatively stable banking systems around the world. (10) Fed Chairman Powell says he isn’t worrying about emerging market economies.
Crouching Tiger, Hidden Dragon
(1) Trump is a tiger. (2) China’s dragon has lots of secrets hidden in plain sight. (3) China’s most obvious syndrome is aging demographics. (4) China’s Q3 real GDP growth at 5.8%, (saar), lowest since Q4-2008. (5) Getting less bang per yuan. (6) Real retail sales growth showing China’s aging demographics. (7) Breaking China: Trump team rooting for and getting lower Chinese stock prices. (8) Trump’s policies boosting US, while depressing the rest of the world. (9) Good as gold?
The Fed: Mind Games
(1) Goldilocks growth, especially on y/y basis. (2) No recession here: Both CEI and LEI at record highs during September. (3) Yield curve spread still positive contributor to LEI. (4) Two identical strangers: The yield curve spread and the unemployment rate. (5) Stock market confused by conflicting fiscal and monetary policies and mixed Q3 corporate earnings reports. (6) Fed’s confidence in the economy spooking investors, who now fear that 3.40% fed funds rate is more likely in 2020. (7) Fed replaces “accommodative” with “restrictive” lingo. (8) FOMC remarkably gloomy about long-run economic growth. (9) We pick a quarrel with Fed Governor Quarles.
Bankers, Truckers & Fakers
(1) Taking it to the Street: JPM’s Dimon and BAC’s Moynihan have much good to say about their banks’ Q3s. (2) Expanding bank behemoths with cheery CEOs can’t be bad for the rest of us. (3) S&P 500 Diversified Banks’ earnings expectations are up and share prices down: Does opportunity knock? (4) S&P 500 Trucking index has been lagging its Railroad counterpart; 3Q earnings reports confirm why. (5) Reading between the line items. (6) When deepfakes stop being funny.
Brazil & Italy: From Right to Left
(1) Hot, hot, hot: Brazilian stock market is world’s only gainer mtd. (2) Gains reflect high hopes for Latin America’s biggest economy. (3) High hopes rest on fiery, ultra-right presidential frontrunner Jair Bolsonaro, “Trump of the Tropics.” (4) Yet a Bolsonaro administration’s economic policy remains uncertain. (5) Debating Brazil’s stock market runup: “Bolsonaro bump,” fundamentals, or both? (6) Spaghetti western: Stay tuned for a Rome-vs-EU showdown over Italy’s 2019 budget. (7) Proposed budget would hike social spending, cut taxes, and boost the deficit in defiance of EU rules. (8) Rising Italian bond yields threaten a dangerous debt spiral, pressuring euro.
Stepping on the Accelerator and the Brakes
(1) A most bullish and bearish fellow. (2) The accelerator: deregulation plus tax cuts. (3) The brakes: deficits, interest rates, oil prices, and tariffs. (4) A very big bet on supply-side economics. (5) A 15% boost to earnings. (6) Small business sentiment soars on deregulation and tax cuts. (7) A big boost to corporate cash flow from Trump’s expansion of depreciation allowance. (8) Monetary and fiscal policies clashing. (9) A long-term conflict with China. (10) Bad news for emerging economies. (11) Still recommending “Stay Home.”
Panic Attack #62?
(1) Panic Attack #62 or something more bearish? (2) Unlike past selloffs, there are lots of explanations but the main cause is elusive. (3) A broad consensus: the 10-year US Treasury yield is going to 4.00%. (4) Dow Vigilantes vs Bond Vigilantes. (5) Policies in conflict: Supply-side fiscal stimulus vs Fed’s monetary tightening. (6) Saturday morning with Jim Cramer, who blames the Fed for last week’s selloff. (7) PPG earnings warning set stage for last week’s stock market plunge. (8) Threat to supply chains running through China could be troublesome for tech hardware companies. (9) ETFs didn’t have a meltdown, but they spread the pain. (10) FANG ache. (11) Valuation multiples get Banksy-ed. (12) Movie review: “First Man” (-).
Respecting the Tape
(1) Triple whammy: rising interest rates, oil prices, and the dollar. (2) China’s spooks are spooking supply chains. (3) Trump stepping on accelerator and brakes at the same time. (4) Bad vibrations in auto industry. (5) Homebuilding has the shakes. (6) Building overcapacity in hotel industry. (7) Canary is gasping in the copper mine. (8) Too much capacity in semi equipment industry. (9) Mind reading.
Looking for Stress Cracks in Corporate Debt
(1) Cool-Hand Jay not too worried about NFC debt. (2) Corporate debt rising to record highs, led by bond debt. (3) Corporate cash flow in record-high territory, boosted by depreciation allowance. (4) NFC liquid assets at record high, with or without equity holdings. (5) NFCs have spent the past several years refinancing and borrowing at record-low bond yields. (6) Fed study sanguine about the impact of a 3% federal funds rate on corporate debt. (7) Credit quality is a mounting issue for NFC debt. (8) Are leveraged loans the new subprime problem? (9) Any credit market blowup would be more likely in private lending than public banking, taking down just rates of return, not the financial system.
Trump’s Poison Pills
(1) Gift for the holidays. (2) Short wait to get confirmation of our China thesis. (3) Veep Pence is Trump’s new hit man on China. (4) US has a long list of grievances over trade and many other issues with China. (5) There’s a poison pill in trade deal with Canada and Mexico. (6) Trump’s bullets hitting one of his targets: Chinese stock market. Will they ricochet to the US? (7) The Big Hack likely to alter global supply chains. (8) Trump’s sanctions against North Korea and Iran seem to be hitting their marks too. (9) Lots of poison pills out there!
Stocks Tracking Earnings Higher
(1) Bonds: Six reasons to fold them and one reason to hold them. (2) US bonds’ tether to bunds and JGBs may be fraying. (3) Bond Vigilantes model is most bearish of them all. (4) Latest wage inflation data remain subdued. (5) Industries with highest wage inflation are among most competitive. (6) Phillips curve on life support. (7) Powell says Fed remains on course. (8) Fed is adding an annualized $360 billion to Treasury supply. (9) Fed data show big buyers of Treasuries so far this year have been households, foreigners, and pension funds. (10) US PMIs outpacing the rest of the world’s PMIs. (11) Will bond yield top out at 3.50% or 4.00%? (12) Movie review: “A Star Is Born” (+ +).
On the Road Again
(1) Why have rail stocks been leaving trucking stocks in the dust? (2) Business is brisk for both, but labor costs and fuel-efficiency favor rails. (3) Amazon materializes, bursting into the “real” world with stores, smart homes, and delivery trucks (for starters). (4) Internet retail industry is a projected 80% 2018 earnings grower valued at a forward P/E in the 50s—add to cart? (5) Elon Musk, Houdini of the business world, escapes from self-made scrapes again. (6) Tesla says it met Q3 production goals—defying critics.
Stocks Tracking Earnings Higher
(1) USAF and the S&P 500. (2) Bull market’s jets fueled by earnings. (3) Remarkably strong revenues since mid-2016 still remarkably strong. (4) Could profit margins possibly go any higher? (5) What if the supply-side fairy tale comes true? (6) Animal spirits remain spirited. (7) Nothing to fear but wage inflation? (8) Powell says don’t worry, be happy about higher wages. (9) Buybacks rose to record high during Q2.
The World According to Jay
(1) FOMC is no longer accommodative, as interest rates gradually have normalized. (2) Normal may be a 3.00% federal funds rate. (3) Brainard says that shifting from headwinds to tailwinds might blow neutral rate higher for a short while. (4) Williams says that r-star’s light is getting “fuzzy.” (5) Powell has a short worry list: escalating trade war, high asset valuations, too much corporate debt, and unstable emerging markets with dollar-denominated debt. (6) Powell endorses supply-side economics, sort of. (7) FOMC’s forecasts suggest Phillips curve is dead at the Fed. (8) National and regional price surveys show September dip from high readings during the summer. (9) Everyone agrees that labor market is tight.
China’s Syndromes
(1) Downgrading outlook for China’s economy. (2) Trump’s trade war with China is really about slowing China’s advance to becoming a superpower. (3) Moving out of China into Vietnam. (4) Peter Navarro’s protectionist agenda isn’t just about trade. (5) Trump is shopping around for fairer trade. (6) Arms race in and around the South China Sea. (7) After China entered WTO, manufacturers left the US. (8) Aging demographics may already be weighing on real retail sales in China. (9) Less and less bang per yuan. (10) Urbanization and legacy of one-child policy depressing China’s fertility rate and economy. (11) Movie review: “A Simple Favor” (+ + +).
Home in the Range
(1) Consumers feeling fine, homebuilders not so much. (2) Home unaffordability hurts. (3) Home buyers out of juice or just catching their breath? (4) Dour homebuilder stocks worth a look. (5) Quantum computers make data vulnerable. (6) Cryptographers have job security for years.
Morning Briefing 2018-09-26
Morning Briefing is available as well. (1) Introducing Generation Z! (2) Post-Millennials are not mini-Millennials. (3) Gen Zers are motivated self-directed doers. (4) Predicting good things for US labor force with career-minded Gen Zers headed up the ladder. (5) Lots of Gen Zers want to start a business. (6) Forget traditional education, say Gen Zers; hack online school instead! (7) Will Gen Zers eschew Millennials’ minimalism? (8) Attention: Gen Z shoppers want cool products with no hassle, in hand fast. (9) Not just tech savvy, Gen Zers are “always on” digital natives. (10) Future Gen Z households to be full of “framilies.” (11) Watch out for pre-K Gen Alpha kids flying drones!
See You in 2020!
(1) Smoking hot pot stocks. (2) Second-hand smoke making industry analysts high? (3) No Wile E. Coyote scenario in S&P 500 revenue estimates. (4) Above-trend earnings growth in 2019 and 2020? (5) High on life. (6) Will S&P 500 profits make new record highs over the next two years? Unlikely. (7) Go Global investment strategy outperformed last week. We are sticking with Stay Home for now. (8) Stay Home has been the big winner during the current bull market.
Bear Tracks
(1) Goldman’s Bear-Market Risk Indicator and others like it suggest it may be time to get out of stocks. (2) By our count, there have been 61 panic attacks in this bull market, yet it is still making new highs. (3) The most obvious bear trap for the bull market is a recession. (4) Yet both leading and coincident indicators are still making record highs. (5) Current bull market charged right through 2015 growth recession and this year’s emerging markets crisis (so far). (6) Six good reasons to dump bonds and one really good reason to hold onto them (because doing so is still working!). (7) Movie review: “White Boy Rick” (+ +).
Rotating Tech & Flying Taxis
(1) Bull market rotating again and again. (2) Tech under attack by regulators and protectionists. (3) Semi Equipment industry also feeling pain of protectionism? (4) Tech margins keep notching records. (5) New Communications Services sector: New home for some FANGs. (6) Communications sector offers more offense, less defense. (7) Flying cars?
Remarkable Revenues
(1) Nothing funky about strong revenues growth. (2) The bottom line is that the top line is looking good across the board. (3) Trump’s policies are mostly bullish for business sales, which are at record highs. (4) S&P 500 forward revenues at record high again, and again. (5) There is a divergence between strong S&P 500 revenues and weak OECD leading indicators. (6) The dollar doesn’t seem to matter much. (7) Mario Draghi says ECB’s policy is a work in progress. (8) BOJ still dreaming the impossible dream: A 2% inflation rate. (8) Bottom line: ECB and BOJ will continue to be ultra-easy until further notice.
Debt Roundup
(1) Debt worries making a comeback. (2) Record debt levels may matter again if inflation rebounds, which we don’t expect. (3) Federal government interest payments soaring along with Treasury debt and rising interest rates. (4) Fed’s rate hiking could push government interest payments over $500 billion by 2020. (5) Record bank loans in China. (6) Chinese government wants more babies. (7) Trump’s trade war depressing Chinese stocks despite solid production growth. (8) China’s real retail sales growth is weakening as aging demography weighs on consumer spending. (9) Getting less output bang per yuan of bank debt. (10) Beige Book has lots of green signals about growth, yellow signals about tight labor market, and a few red signals about price inflation.
Countering a Rash of Pessimism
(1) Rash of articles about 2008 financial crisis. (2) Feldstein confident that a bear market is coming. (3) Latest price inflation news fairly benign. (4) Trump’s trade war isn’t boosting import prices so far. (5) Productivity growth finally making a comeback? (6) Trump’s tax cuts making America a great place to do business. (7) Lots of minimalists are bullish for economy and stocks. (8) US federal deficit balloons along with entitlement outlays, defense spending, and interest payments. (9) S&P 500 forward revenues and earnings continue to set records. (10) Outlook for long-term stock returns depends on starting point.
Healthy M&A, Musk’s Potcast & Digital Tulips
(1) A very healthy sector. (2) Lots of winners in Health Care, though Biotech lags. (3) Small is beautiful for takeover targets. (4) Stocks of acquirers also benefit from M&A deals. (5) Is Musk a pothead, or just high on life? (6) Just another quirky genius. (7) We will all be geniuses if Musk’s Neuralink links our brains directly to the Internet. (8) Crypto currencies are like digital tulips.
All About Wages
(1) Labor market tight enough to revive Phillips curve finally? (2) Wage inflation still below Yellen’s “normal.” (3) Labor costs don’t automatically get marked up into prices. (4) Record profit margin implies more productivity growth than official data show. (5) Lots of industries with above-average wage inflation don’t have much pricing power. (6) Real wage and other compensation measures show rising trends, not stagnation. (7) The Council of Economic Advisers posts a useful primer on wages, which confirms upbeat trend. (8) Gene Epstein explains why labor’s share of national income isn’t as bad as shown by official data, and widely reported.