Friday 9/13/19=DJIA +33 NASDAQ -19
Minnesota Oct. 15-16-Bill will be at the Radisson Bleu-Mall of America. Call or visit our website to make an appointment.
A Very Strange Week in The Market.
Daily Wrap: The red-hot bond market got thumped this past week. The red-hot precious metals sector also got thumped. But, even worse than that, the leading sectors and stocks in the market also got thumped. The cloud stocks, medical device, and mobile payments saw a very serious sell-off this past week. They still have the best prospect going forward. I think you just have to chalk it up to a weird week. They happen from time to time.
Every sell off in the leadership stocks over the last ten-plus years has been a buying opportunity. It looks like this is another one.
Trading: I made two big purchases today. They will be in the newsletter this on Saturday.
Tweets: I was quiet on Social Media today. I was really busy as usual managing money. I did send out tweets on BX, LULU, and BKNG, however.
The bond market was thumped this past week.
Bond yields continue big move higher
• The 10-year Treasury yield whooshed lower earlier today after the ECB announced a rate cut and new wave of QE. That's reversed in a big way, with the yield now higher by 5.5 basis points on the session to 1.79%. TLT -0.7%, TBT +1.4%
• That means the 10-year yield has climbed a whopping 35 basis points in the handful of sessions since Labor Day - if there's been a sharper move higher in recent (or distant) memory, we can't think of it.
• Today's move has brought the 30-year yield up to 2.26%, meaning the Fed Funds rate at 2.25% in no longer the largest number across the yield curve.
• Not complaining are the banks - the SPDR S&P Bank ETF (NYSEARCA:KBE) is up about 8% since returning from Labor Day weekend.
The two sides continue to reconcile.
China makes biggest U.S. soybean purchases since June - Reuters
• Chinese importers bought at least 10 cargoes of soybeans, or 600K metric tons, the country's biggest purchases since at least June, in another indication that trade tensions between the U.S. and China may be easing, Reuters reports, citing U.S. traders with direct knowledge of the deals.
• The purchases will be shipped from U.S. Pacific Northwest export terminals from October to December, according to the report.
• Also, the latest USDA crop production report pegged U.S. soybean production for the 2019-20 marketing year at 3.63B bushels, below last month's estimate of 3.68B, citing a lower yield forecast of 47.9B bu/acre.
• Benchmark Chicago soybean futures jumped to one-month highs today, with the actively traded November contract in its sharpest rally since May; November futures rose $0.29 to $8.95 3/4, and January futures gained $0.28% to $9.09.
China excludes U.S. soybeans, pork from additional tariffs
• China's Ministry of Commerce says it will exempt soybeans, pork and other agricultural products from the U.S. from additional tariffs, in the latest move to ease trade tensions before the two countries restart trade talks next month.
• China says it is responding to Pres. Trump's decision to delay tariffs by two weeks.
• The farm goods add to 16 types of U.S. products that will be exempt from tariffs; the exemption will be valid for a year to Sept. 16, 2020.
• China says domestic firms have started inquires about prices on U.S. soybeans and pork; Chinese importers reportedly bought 600K metric tons of soybeans for shipments from U.S. Pacific Northwest export terminals from October to December.
The economy continues to slow a bit.
August core retail sales disappoint
• August Retail Sales: +0.4% M/M vs. +0.2% consensus; +0.7% prior.
• Retail Sales (less auto): flat M/M vs. +0.2% consensus; +0.3% prior (revised).
• Core Retail Sales: +0.1% M/M vs. +0.3% consensus; +0.9% prior (revised).
• Retail sales control group: +0.3% in-line with consensus; +0.9% prior (revised).
Middle income tax cut planned for 2020
• During a speech before House Republicans in Baltimore, President Trump said his administration would unveil a tax overhaul plan aimed at middle-income households in 2020.
• "It will be a very, very substantial tax cut for middle-income folks, who work so hard," he declared, adding that it's going to be something that "everyone's really looking for."
• Other tax reform proposals, including indexing capital gains and a payroll tax cut, have recently been ruled out by the administration.
Now we need 100 year mortgages!
100-year Treasury bonds are possible
• "We are going to start with 50 years, and if the answer is, 50-years is successful, we'll consider 100-year bonds," U.S. Treasury Secretary Steven Mnuchin said in an interview with New York Times' DealBook.
• The moved is aimed at "derisking" the government's $22T of debt and locking in low interest rates, but would only take place if there is "proper demand."
• The longest-dated U.S. Treasury currently is 30 years.
Fracking ban would slash U.S. oil production by 60%, Pioneer CEO says
• U.S. oil production would plunge to 2008 levels of 5M bbl/day from 12.4M bbl/day currently under a fracking ban proposed by several top Democrat presidential candidates, Pioneer Natural Resources (NYSE:PXD) CEO Scott Sheffield says.
• "I don't think they understand what will happen," Sheffield told S&P Global Platts. "The decline rate is about 80% in the first year of a typical horizontal well in the Permian Basin, so can you imagine if we shut all of the rigs down to zero."
• Sheffield said the U.S. would need to import 7M-8M bbl/day of oil from the Middle East and would lose as much as 10% in gross domestic product if the U.S. drilling sector collapses.
• Total Permian oil production currently stands at 4.4M bbl/day, and Sheffield believes output will top out at 8M bbl/day in the next 8-9 years, adding 1M bbl/day this year before falling to 600K-700K bbl/day growth in 2020.
• Sheffield also sees no infrastructure constraints ahead for Permian exports, with 3.5M bbl/day in new pipeline capacity coming online through the end of 2021.
SmileDirectClub flops in U.S. debut
• IPO SmileDirectClub (SDC N/A), a direct competitor of Align Technology (ALGN -2.3%), stumbles out of the gate in its first day of trading. Shares are down 16% from its $23 offer price on turnover of over 24M.
• Adding to the sour mood is a Forbes piece citing governance concerns with its many related transactions with affiliates of Chairman & CEO David Katzman's investment shop, Camelot Venture Group. The company paid Camelot over $3M last year for consulting services, over $8M to a Camelot affiliate for freight costs and $1M to another
Check the rate on Uber bonds. This is a indication of just how terrible this stock is.
Uber prices upsized $1.2B senior notes offering
• Uber Technologies (NYSE:UBER) has priced $1.2B (from$750M) of 7.500% Senior Notes due 2027.
• The sale of the notes is expected to close on September 17.
• The notes will accrue interest payable semiannually in arrears on March 15 and September 15 of each year, beginning on March 15, 2020, at a rate of 7.500% per year.
• Uber intends to use the proceeds to fund a portion of the pending acquisition of Careem.
• Uber shares are down 0.06% pre-market.
Goldman does some strange things!
Goldman cuts Apple on TV+ trial
• Goldman Sachs cuts its Apple (NASDAQ:AAPL) target from $187 to $165 and maintains a Neutral rating.
• Analyst Rod Hall says the plan to offer a trial period for Apple TV+ is "likely to have a material negative impact" on ASPs and EPS.
• Apple will offer one free year of TV+ with the purchase of certain types of hardware. Hall expects Apple to account for the trial as a $60 discount to the hardware/services bundle.
• Apple shares are down 0.5% pre-market to $221.98. The company has an Outperform
I still like Amazon too.
• Amazon bull sees international Prime potential
• Jefferies analyst Brent Thill says Amazon's (AMZN +1.6%) growth could accelerate with an overseas Prime membership push.
• Thill notes that overseas penetration remains low and thinks the expansion into Brazil as a sign Amazon is focused on this strategy.
• Thill: "Increased Prime adoption will remain key to AMZN driving growth across the non-AWS businesses."
• Jefferies maintains a Buy rating and $2,300 price target. Amazon has a Buy average Sell
Slight disappointment from AVGO.
Broadcom EPS beats by $0.03, revenue in-line
• Broadcom (NASDAQ:AVGO): Q3 Non-GAAP EPS of $5.16 beats by $0.03; GAAP EPS of $1.71 beats by $0.41.
• Revenue of $5.52B (+9.1% Y/Y) in-line.
• Shares -1%.
Broadcom -1.7% after cautious outlook in Q3 report
• Broadcom (NASDAQ:AVGO) beat profit expectations yet again in fiscal Q3 earnings as revenues came in in line with near double-digit growth.
• Shares are off 1.7% after hours.
• Analysts had lowered the bar over the past quarter, with a few dozen downward revisions in expectations for EPS and revenues.
• Revenues grew 9% and were roughly flat sequentially, at $5.515B. Gross margin was 55%, up from a year-ago 51.7% and down slightly from last quarter's 56%.
• Operating income fell to $865M from a year-ago $1.34B and last quarter's $970M.
• Revenue by segment: Semiconductor solutions, $4.35B (down 5%); Infrastructure software, $1.14B (up 132%); IP Licensing, $22M (up 633%).
They sport a nice dividend yield.
Broadcom declares $2.65 dividend
• Broadcom (NASDAQ:AVGO) declares $2.65/share quarterly dividend, in line with previous.
• Forward yield 3.53%
We featured Lam Research on today’s show.
Lam gets target boost on TSMC ties
• Needham raises its Lam Research (NASDAQ:LRCX) target from $220 to $250, citing recent reports that TSMC (NYSE:TSM) plans to raise its capex.
• Analyst N. Quinn Bolton also notes the rotation into cyclical stocks, which combined with the TSMC news "make us believe LRCX warrants a higher P/E multiple."
• The analyst says Lam has been gaining market share at TSMC "and will capture ~12% of TSMC’s WFE spending upside."
• Lam shares are up 0.5% pre-market to $236. The company has an Outperform average Sell Side rating.