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Mr Toad sliding down the ride (again)

Mr Toad sliding down the ride (again)

This visualization does not do justice to YTD rates … a table

EOY 20191/23/2020
30 yr2.3902.140
10 yr1.9201.700
2 yr1.5801.490
3mo1.5501.540

If there is a correlation between long bond yields and anticipated inflation … inflation expectations were just lowered by ~25 basis points in 16 days. Maybe this is just a confluence of terrible geopolitical events and happy days are right around the corner … we’ll see.

Place your bets!

Place your bets!

Heisenberg posted a great table today showing all the major broker houses and their 2020 crystal balls – quote below. The cynical side of me says anything that ends in ‘0’ or ‘5’ is a best guess and rounded up; the only non 0 or 5 is 3388 from Wells Fargo. (i had an old boss who would jump down any clearly round number – they just don’t really occur that often)

Quote – “Below is the full breakdown of house calls organized by bank, strategist, target and EPS forecast:

  • Bank of America; Savita Subramanian; 3,300; $177
  • Bank of Montreal; Brian Belski; 3,400; $176
  • Barclays; Maneesh Deshpande; 3,300; $166
  • BTIG; Julian Emanuel; 3,450; $175
  • Canaccord; Tony Dwyer; 3,440; $172
  • Citigroup; Tobias Levkovich; 3,375; $174.25
  • Cornerstone Macro; Michael Kantrowitz; 3,400; $172
  • Credit Suisse; Jonathan Golub; 3,600; $175
  • Deutsche Bank; Binky Chadha; 3,250; $175
  • Evercore ISI; Dennis Debusschere; 3,400; $178
  • Fundstrat Global Advisors; Tom Lee; 3,450; $178
  • Goldman Sachs; David Kostin; 3,400; $174
  • Jefferies; Sean Darby; 3,300; $176
  • JPMorgan; Dubravko Lakos-Bujas; 3,400; $180
  • Morgan Stanley; Mike Wilson; 3,000; $165
  • Ned Davis Research; Ed Clissold; 3,425; $168
  • Oppenheimer; John Stoltzfus; 3,500; $175
  • RBC Capital Markets; Lori Calvasina; 3,460; $174
  • Scotiabank; Hugo Ste-Marie; 3,350; $167
  • Societe Generale; Sophie Huynh; 3,050; $164
  • Stifel Nicolaus; Barry Bannister; 3,265; $167
  • UBS; Francois Trahan; 3,250; $170
  • Wells Fargo; Chris Harvey; 3,388; $166
Valuation insights

Valuation insights

A couple of recent posts by same author are worth a walk-thru imho.

There’s a bit of an echo chamber as I am fairly aligned here in the valuation tiering – my variance is however i am not so willing to take capital risks in the middle tier and will accept lower return rates for lower capital risk, aka, bills and short-term high quality bonds.

https://seekingalpha.com/article/4315341-expectations-for-next-decade

The subsequent post walks thru some critical questions investors need to bat around for actionable direction https://seekingalpha.com/article/4317012-lyn-aldens-positioning-for-2020-diversified-global-focus

Confounding economic variables … normal or a new norm?

Confounding economic variables … normal or a new norm?

Just read thru the data and the post’s comments … typical 3-option take-away: a) economy growing, b) economy slowing down, or c) unclear direction with conflicting indicators … subjective response.

https://seekingalpha.com/article/4317748-green-shoots-bond-market-is-ignoring

Should we start to question our standard forward looking (predictive) indicators given the irrational exuberance of central banks’ actions over last 10 years? Don’t have an answer, but ecourage folks to struggle with the question.

Employment data diving

Employment data diving

This author typically does a great job putting a data story together – i’m not sure they’re intended to be actionable, but they surely help me think. One caveat here is that my own observations often align – bias caution

https://seekingalpha.com/article/4317559-employment-in-2020-downshift-in-jobs-growth-will-prevent-interest-rates-from-rising-again

Here are the editor’s summary bullets – quote:

  • US employment growth continues to decline toward population growth, increasing the probability of a rise in the unemployment rate.
  • Aggregate earnings growth continues to decline, putting a lid on aggregate consumption growth.
  • Leading indicators of employment do not suggest a sustained increase in cyclical employment growth is around the corner yet.
  • As long as employment growth continues to decline, we cannot remove the risk of a recession in 2020.
  • If GDP growth does not increase and recession risk remains on the table, interest rates will not be able to rise, keeping the bond bears at bay for another year.
Mainstream financial press on 5G

Mainstream financial press on 5G

This post is pretty good advice (not that it mirrors mine :))

Prudent approach over several years and there will be waves of investment appropriate to different areas on value chain … FOMO will be a negative impact on portfolio and patience will be rewarded.

https://www.marketwatch.com/story/how-and-when-prudent-investors-ought-to-buy-these-5g-stocks-2020-01-13

Of their list, I am watching or own APPL, NOK, NXPI, T and QCOM. I also add ERIC, CSCO and a host of carriers around the world (mostly because they pay dividends to be patient)

Climate financial impact just keeps adding up … action when?

Climate financial impact just keeps adding up … action when?

Quote below -> I saw it on Seeking Alpha

Moody’s report on global sea level rise says Vietnam, Egypt, Suriname and some small island sovereigns face material credit risk

The document has been translated in other languages 16 Jan 2020

Singapore, January 16, 2020 —

— Sovereign credit profiles are mainly affected through economic and fiscal strength

— Credit assessments factor in the likely impact of plausible shocks related to sea level rise

Moody’s Investors Service says in a newly published report that Vietnam (Ba3 negative), the Bahamas (Baa3 stable), Egypt (B2 stable), Suriname (B2 stable) and other small island sovereigns are among the most exposed to a global rise in sea levels according to a range of studies.

Climate science shows that sea levels will most likely continue to rise for decades. Although this will happen gradually, higher sea levels contribute to increasingly frequent and severe natural disasters such as storm surges, floods or cyclones.

Moody’s explains that the sovereign credit implications of sea level rise and the related natural disasters are wide-ranging. The economic and social repercussions of lost income, damage to assets, a loss of life, health issues and forced migration from the sudden events related to sea level rise are immediate. The main credit channels for sovereigns are through their economic and fiscal strength.

Vulnerability to extreme events related to sea level rise can also undermine investment and heighten susceptibility to event risk, by hindering the ability of governments to borrow to rebuild, increasing financial risks, raising external pressures, and/or amplifying political risk as populations come under stress and institutional capacities are tested.

The extent of risk will be determined by the pace of increase in the frequency and severity of natural disasters related to sea level rise, which is currently highly uncertain, and by the effectiveness of adaptation measures, so far largely untested.

While some high income economies, such as Japan (A1 stable) and the Netherlands (Aaa stable) are also exposed, many of them have countermeasures in place, and their credit strengths mean they are unlikely to suffer a material credit impact.

Mixing Indicators

Mixing Indicators

In a quick post this morning from Heisenberg on the data out this morning, a statement struck me square in the face

Quote: “Retail sales came in better than expected for December (even as some cohorts were revised lower for prior data), perhaps relieving some worries about the stability of the key pillar holding up the US economy at a time when business investment is subdued and C-suite confidence remains depressed.”

Heisenberg is one of the smartest financial bloggers I read, so I am not pointing a finger at his misuse of indicators – his was a summary statement, not a conclusion or inference of the data.

Here’s the problem – mixing indicators and trying to reconcile their inferences – Retail numbers are backward historical indicators; CFO confidence is a forward looking indicator. It’s no surprise they are not consistent. From an investment perspective, which direction do you want to review and analyze (i remember all the prospectus i read … historical performance is no guarantee of future performance). But all the C-suite people i worked with looked ahead and planned accordingly – …

So should we, i think.

Healthcare REITs

Healthcare REITs

Today was a good day for good reads – doesn’t happen all that much

Hoya Capital does a great job (imho) with their analysis and data-rich updates. They tend to share their data analysis and let the reader make their own decisions – i like that!

This was one of the best Healthcare REIT reviews I have seen in long time.

Healthcare REITs: ‘Retirement Crisis’ Fears Overblown

That graphic is a great overview of the segment … the rest of the article fills in the gaps around this table.

My portfolio contains: WELL, DOC and LTC. These positions were trimmed in 2019 given the run up and earlier I sold all my VTR as I am not a fan of SHOP-heavy senior housing businesses. Up-coming earnings reports and conference calls will be important to see if additional capital should be applied … i am skeptical until later in 2020, but facts will tell.

Autonomous Driving – A good update

Autonomous Driving – A good update

This may be a heavy hand to INTC (it was afterall a piece on INTC), but the overall picture on ADS was pretty good.

This is a pretty standard pic on the ADS levels

To get beyond today’s current best in class Level 3, many pieces need to fall together – some technical and some government approvals. The author states, quote:

“Intel will not be able to do this, as the roadshow presentation from CES 2020 also shows (see above). But this is not necessarily due to Intel. The competition is not ahead of Intel either. It is more that there is a need for multiple approvals and the infrastructure for enabling autonomous driving does not even exist yet. To make all this possible, a decisive development is needed and this development is 5G. 5G is generally considered to be decisive in this respect. However, this will change this year. With the coming rollout of 5G right ahead, I don’t think that the years 2024 and 2025, which Intel is aiming for, are unrealistic.”

Regardless of the hype, this is a long road (pun intended) … there are two things that will matter more than others: a) who has the largest and most ‘learnable’ dataset for AI / ML, and b) where will 5G infrastructure be reliable to send around the datasets required. (my opinion) … that completely skirts the government approvals (policy, etc).

*** exuberance from credit investors?

*** exuberance from credit investors?

Heisenberg posted on a BoA survey of credit investors this morning … wow. Such shifts make me nervous and I wonder if irrational exuberance is entering this space …

For example, quote: “For high yield investors, holding above normal cash levels is increasingly out of style. At the same time, it’s getting more fashionable to hold less cash than usual.’

If that does not grab your attention, then what about this … quote:

“In another sign of rapidly improving sentiment, 32% now see CCCs outperforming all other buckets across both IG and HY. That’s up from 17% in November and more than triple the 10% who expressed the same optimism around the junkiest junk in September.”