I'm busy knocking off a long list of small-ish projects. Finishing the last remaining walls of baseboard trim, some moulding going down my newly carpeted stairs, mowing the lawn. Pretty typical weekend stuff.
Last week, 3 of the 4 US stock indexes were green - with only the tech-heavy Nasdaq closing lower. That's a pretty shocking event and something to be wary of as we continue into earnings season.
U.S. Indices
Dow +2.3% to 26,672. S&P 500 +1.3% to 3,225. Nasdaq -1.1% to 10,503. Russell 2000 +3.7% to 1,475. CBOE Volatility Index -5.9% to 25.68.
S&P 500 Sectors
Consumer Staples +1.5%. Utilities +1.9%. Financials +2.9%. Telecom -0.5%. Healthcare +3.7%. Industrials +5.2%. Information Technology -1.6%. Materials +4.6%. Energy +4.5%. Consumer Discretionary -1.%.
World Indices
London +3.2% to 6,290. France +2.% to 5,069. Germany +2.3% to 12,920. Japan +1.8% to 22,696. China -5.% to 3,214. Hong Kong -2.5% to 25,089. India +1.2% to 37,020.
Commodities and Bonds
Crude Oil WTI +0.1% to $40.59/bbl. Gold +0.6% to $1,812.1/oz. Natural Gas -5.5% to 1.706. Ten-Year Treasury Yield +0.1% to 139.38.
___________________________________________________
Looking to earnings:
Wow! What a jam-packed week of very important company reports! If things are good, we should see some companies bringing back earnings guidance after many of them pulled guidance last quarter. Hiring plans should be noted. And obviously, actual trends in sales and earnings. At some point, the many millions of newly jobless won't have money to spend on the latest phones...but there I go talking about reality again...what would Steve and Jerome think?
_________________________________________
My wife is a teacher and we've therefore been monitoring the school reopening plans pretty closely. The White House's plan to "ignore science" and get kids back in physical school is obviously the worst plan. With the best/safest plans being full-on e-learning. The problem with many of the media takes on school is they focus 100% on the kids. "Kids won't get sick." "Kids need physical school." So on and so forth. Most fail to take it the next step and account for the adult staff required to facilitate the school experience. Not to mention that even if kids aren't getting sick, they can carry and spread the virus to their families.
The problem with e-learning in the spring was that there were no consequences, at least here in Illinois. The Governor outright said grades can't get worse because of e-learning. For it to work, it needs to have consequences and be graded. Duh!
I'll tell you, I've learned a lot about the issues that I care about in society because of this pandemic. Like, I never would have thought that public health would be one of my key topics. I'm not advocating, necessarily, for free healthcare or anything. But common sense public health choices and polices that benefit everybody? Yep. Like wear a mask to protect your neighbors. Don't go out when you're sick. Free testing and care for the illness that causes pandemics. Stuff like that. And not putting captive staff on the front lines. Healthcare workers signed up to be on the front-lines of healthcare crises. Teachers didn't. And we can still facilitate the learning experience online. I'd rather not see teachers and kids die because we need schools to be daycare. What a stupid notion!
So let's use this as an opportunity to bring the internet's greatness to light. Flexible hours, location-independent work and school! At least as a choice!
__________________________________________________
I've decided to stop having tons of charts in these weekly notes. It takes a lot of time to save and sort them and I share 3 charts a day during the week. That's approaching chart overload. So this is just me ranting about stuff that might be pertinent to the prior week and the coming week. I hope that works for you too. Not that you have a choice.
__________________________________________________
I had a very busy Friday switching around my utility book. Many of the stocks I bought performed great and I was able to rotate that capital into utilities that didn't so as well. Remember, utilities are more-or-less allowed to earn 10% on their equity per year. They can beat that sometimes, but broadly think of it as a cap. With that in mind, earning 10% on a utility stock investment should be about the limit. So by earning 5-10% in a month or two, we've done better than we should and therefore, the stock should underperform going forward.
There's a simple model some real utility investors use. Dividend yield plus growth expectations equals total return. When total return is below allowed return (10%), sell. When total return is above allowed return (10%) buy.
So a 3.5% yielding utility with 6-7% growth should provide a 9.5-10.5% return. Thus, it's just about fairly valued if the allowed return is 10%.
That method is overly simplistic, but like many rules of thumb, it's useful as a first cut.
I'm really excited about the return prospects for Spire (SR), a name I added on Friday. It's 20%+ below it's recent high and a well-run company. It doesn't have the wildfire risk of a California utility. Isn't trying to raise customer bills too much. And isn't going to see earnings declines from the economic reality that faces so many non-utility companies reporting this week.
Selling AWK hurt a bit. It was my top pick to hold forever, but forever is a long time. And getting wedded to positions leads to bad outcomes. It's all about trimming and adding on the margins. Sell high, buy low. Rinse & repeat. AWK should trade in the $110-120 range. Even a company that can grow at 10%/year forever shouldn't trade at 40x P/E!
________________________________________________________
This week, I'll get back to 15-20% short pretty quick. I just don't like being aggressively positioned into weekends. I added Hong Kong and Singapore as longs to offset my shorts and will take them off pretty quickly if markets show weakness. If they want to rally, I'll let it ride a bit.
I also want to add back GLD. If we get a selloff in gold prices, I'll be quick to get back in. Like maybe in the $166 or lower range on GLD. The odds of going up more weren't as high as the odds of a decline, which is why I sold a core position. I'm telling you: markets are toppy and strange.
It feels like the cracks are forming and opening a bit. At some point, likely this week given the slate of earning reports, we'll see the weakness I've been predicting since the start of this blog.
______________________________________________________
I've been a professional investor for a long time now. I've never seen a market like this. My fear is that reality might not come until November as President Trump does his best to keep markets up into the final gasp of his Presidency. But the writing is on the wall. He's going to lose, bigly, and we'll once again have financial markets that reflect the underlying conditions. And markets that function properly, aren't manipulated, and reflect underlying conditions is all we can ask for as free market capitalist investors.
Oh, man. That was therapeutic!
Good luck out there this week. Don't get wedded to positions. And tread lightly with the heavy dose of earnings.
Last week, 3 of the 4 US stock indexes were green - with only the tech-heavy Nasdaq closing lower. That's a pretty shocking event and something to be wary of as we continue into earnings season.
U.S. Indices
Dow +2.3% to 26,672. S&P 500 +1.3% to 3,225. Nasdaq -1.1% to 10,503. Russell 2000 +3.7% to 1,475. CBOE Volatility Index -5.9% to 25.68.
S&P 500 Sectors
Consumer Staples +1.5%. Utilities +1.9%. Financials +2.9%. Telecom -0.5%. Healthcare +3.7%. Industrials +5.2%. Information Technology -1.6%. Materials +4.6%. Energy +4.5%. Consumer Discretionary -1.%.
World Indices
London +3.2% to 6,290. France +2.% to 5,069. Germany +2.3% to 12,920. Japan +1.8% to 22,696. China -5.% to 3,214. Hong Kong -2.5% to 25,089. India +1.2% to 37,020.
Commodities and Bonds
Crude Oil WTI +0.1% to $40.59/bbl. Gold +0.6% to $1,812.1/oz. Natural Gas -5.5% to 1.706. Ten-Year Treasury Yield +0.1% to 139.38.
___________________________________________________
Looking to earnings:
Wow! What a jam-packed week of very important company reports! If things are good, we should see some companies bringing back earnings guidance after many of them pulled guidance last quarter. Hiring plans should be noted. And obviously, actual trends in sales and earnings. At some point, the many millions of newly jobless won't have money to spend on the latest phones...but there I go talking about reality again...what would Steve and Jerome think?
_________________________________________
My wife is a teacher and we've therefore been monitoring the school reopening plans pretty closely. The White House's plan to "ignore science" and get kids back in physical school is obviously the worst plan. With the best/safest plans being full-on e-learning. The problem with many of the media takes on school is they focus 100% on the kids. "Kids won't get sick." "Kids need physical school." So on and so forth. Most fail to take it the next step and account for the adult staff required to facilitate the school experience. Not to mention that even if kids aren't getting sick, they can carry and spread the virus to their families.
The problem with e-learning in the spring was that there were no consequences, at least here in Illinois. The Governor outright said grades can't get worse because of e-learning. For it to work, it needs to have consequences and be graded. Duh!
I'll tell you, I've learned a lot about the issues that I care about in society because of this pandemic. Like, I never would have thought that public health would be one of my key topics. I'm not advocating, necessarily, for free healthcare or anything. But common sense public health choices and polices that benefit everybody? Yep. Like wear a mask to protect your neighbors. Don't go out when you're sick. Free testing and care for the illness that causes pandemics. Stuff like that. And not putting captive staff on the front lines. Healthcare workers signed up to be on the front-lines of healthcare crises. Teachers didn't. And we can still facilitate the learning experience online. I'd rather not see teachers and kids die because we need schools to be daycare. What a stupid notion!
So let's use this as an opportunity to bring the internet's greatness to light. Flexible hours, location-independent work and school! At least as a choice!
__________________________________________________
I've decided to stop having tons of charts in these weekly notes. It takes a lot of time to save and sort them and I share 3 charts a day during the week. That's approaching chart overload. So this is just me ranting about stuff that might be pertinent to the prior week and the coming week. I hope that works for you too. Not that you have a choice.
__________________________________________________
I had a very busy Friday switching around my utility book. Many of the stocks I bought performed great and I was able to rotate that capital into utilities that didn't so as well. Remember, utilities are more-or-less allowed to earn 10% on their equity per year. They can beat that sometimes, but broadly think of it as a cap. With that in mind, earning 10% on a utility stock investment should be about the limit. So by earning 5-10% in a month or two, we've done better than we should and therefore, the stock should underperform going forward.
There's a simple model some real utility investors use. Dividend yield plus growth expectations equals total return. When total return is below allowed return (10%), sell. When total return is above allowed return (10%) buy.
So a 3.5% yielding utility with 6-7% growth should provide a 9.5-10.5% return. Thus, it's just about fairly valued if the allowed return is 10%.
That method is overly simplistic, but like many rules of thumb, it's useful as a first cut.
I'm really excited about the return prospects for Spire (SR), a name I added on Friday. It's 20%+ below it's recent high and a well-run company. It doesn't have the wildfire risk of a California utility. Isn't trying to raise customer bills too much. And isn't going to see earnings declines from the economic reality that faces so many non-utility companies reporting this week.
Selling AWK hurt a bit. It was my top pick to hold forever, but forever is a long time. And getting wedded to positions leads to bad outcomes. It's all about trimming and adding on the margins. Sell high, buy low. Rinse & repeat. AWK should trade in the $110-120 range. Even a company that can grow at 10%/year forever shouldn't trade at 40x P/E!
________________________________________________________
This week, I'll get back to 15-20% short pretty quick. I just don't like being aggressively positioned into weekends. I added Hong Kong and Singapore as longs to offset my shorts and will take them off pretty quickly if markets show weakness. If they want to rally, I'll let it ride a bit.
I also want to add back GLD. If we get a selloff in gold prices, I'll be quick to get back in. Like maybe in the $166 or lower range on GLD. The odds of going up more weren't as high as the odds of a decline, which is why I sold a core position. I'm telling you: markets are toppy and strange.
It feels like the cracks are forming and opening a bit. At some point, likely this week given the slate of earning reports, we'll see the weakness I've been predicting since the start of this blog.
______________________________________________________
I've been a professional investor for a long time now. I've never seen a market like this. My fear is that reality might not come until November as President Trump does his best to keep markets up into the final gasp of his Presidency. But the writing is on the wall. He's going to lose, bigly, and we'll once again have financial markets that reflect the underlying conditions. And markets that function properly, aren't manipulated, and reflect underlying conditions is all we can ask for as free market capitalist investors.
Oh, man. That was therapeutic!
Good luck out there this week. Don't get wedded to positions. And tread lightly with the heavy dose of earnings.
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