Valuentum Exclusive Analysis for the Discerning Investor

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Mar 26, 2020

US Congress Is Getting Ready to Pass a Massive ~$2.2 Trillion Fiscal Stimulus Bill
Image Shown: US equities have started to recover some of their lost ground as the likelihood that the US Congress will pass a massive ~$2.2 trillion fiscal stimulus and emergency spending package, dubbed the CARES Act, has increased significantly over the past week as seen through the bounce in the SPDR S&P 500 ETF Trust. President Trump has clearly indicated that he intends to sign such a bill into law as soon as possible, with the US House of Representatives expected to take up the legislation this upcoming Friday morning on March 27. On March 25, the US Senate worked late into the night to secure a bipartisan compromise on a massive ~$2.2 trillion fiscal stimulus and emergency spending bill to offset the negative impact of the ongoing novel coronavirus (‘COVID-19’) pandemic. The bill passed 96-0 after several senators forced a vote on an amendment on that bill that would have changed the nature of the “beefed up” unemployment benefits (that amendment failed 48-48, and would have needed 60 votes to pass). As of this writing, there are over 65,000 confirmed cases of COVID-19 in the US according to Johns Hopkins University, and we sincerely hope everyone, their families, and their loved ones stay safe during this pandemic. A vote in the US House of Representatives is expected this upcoming Friday morning on March 27. The House is expected to convene at 9AM EST and the goal of each party’s leadership is to secure passage of the bill via a voice vote (please note that this differs from unanimous consent, which requires every member of the House to agree to such a legislative process in order to pass a bill without having the majority of lawmakers return to Washington DC, but this is easier/faster to achieve than a recorded roll call vote that would force every member of the House to return). Assuming the House swiftly passes the bill that was approved in the Senate, President Trump has clearly communicated he would sign the bill into law right away. Please note this bill is formally known as the Coronavirus Aid, Relief, and Economic Security (‘CARES’) Act.

Mar 23, 2020

US Fiscal Stimulus Update
Image Source: frankieleon. The US Congress is debating and working on a massive multi-trillion dollar fiscal stimulus package to mitigate the negative impact the ongoing novel coronavirus (‘COVID-19’) pandemic is having on the domestic economy and to provide for additional healthcare funds to cash-strapped entities to combat the virus.

Mar 23, 2020

Fed and Treasury Efforts Might Not Be Enough to Avoid Another Great Depression
Image: The Energy Select Sector SPDR and Financial Select Sector SPDR, two securities removed from both the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio in August 2019 have been ravaged during this market selloff. We maintain our view that the energy and banking sectors are worth avoiding during this market meltdown. The U.S. is stuck between a rock and a hard place, and we might get the next Great Depression regardless of what the Fed or Treasury does. The timeline for when these markets attempt to bounce back meaningfully from this disruption may not be based on whether COVID-19 cases roll over, but rather when consumers start coming out to spend in droves again, and that may not happen until we have a vaccine broadly available. We're maintaining our fair value range on the S&P 500 of 2,350-2,750, with expectations of panic/forced selling down to 2,000 on the broad market index (it closed at 2,304.92 on Friday, March 20). We believe that savvy investors have been nibbling at this market during the past couple weeks and may have achieved up to 50%-75% of their equity allocation in a well-diversified portfolio via dollar-cost averaging strategies, with expectations of further market declines. Our best ideas remain in the Best Ideas Newsletter portfolio, Dividend Growth Newsletter portfolio, High Yield Dividend Newsletter portfolio and Exclusive publication. Expect more gut-wrenching volatility.

Mar 21, 2020

Top Ten Dividend Growth Stocks to Consider Amid COVID-19
Image Shown: A look at some of the top dividend growth stocks to consider, companies with strong Dividend Cushion ratios and nice payout growth trajectories, in light of ongoing turbulence in equity markets. The 'Multiplier' column multiplies a company's dividend yield by its Dividend Cushion ratio. The novel coronavirus (‘COVID-19’) pandemic continues to wreak havoc on global economies, credit and equity markets, and the livelihoods of many. We sincerely hope everyone stays safe during this pandemic. US equities have sold off aggressively during the past month, with the S&P 500 down ~25% year-to-date as of this writing, punishing the names of several top quality dividend growth opportunities that we will highlight in this note today.

Mar 19, 2020

Extreme Volatility and Crisis Economics
Image: The Dow Jones has now registered 8 consecutive trading days with a 4% move in either direction, from March 9 through March 18. This is the most volatile time in history, a streak that is longer than the 5 consecutive days registered in November 1929 (Great Depression), 4 consecutive days in 1987 (Crash of 1987), and 4 consecutive days in 2008 (Great Financial Crisis). The worst of the declines may still be ahead of us. The S&P 500 still is trading within our fair value estimate range of 2,350-2,750, and we wouldn’t be surprised to see panic/forced selling all the way down to 2,000 on the S&P. Expect more volatility, and please stay safe out there as the world declares all out war on COVID-19. Our best ideas remain in the Best Ideas Newsletter portfolio, Dividend Growth Newsletter portfolio, High Yield Dividend Newsletter portfolio, and Exclusive publication.

Mar 18, 2020

US Considering $1 Trillion (Or More) Fiscal Stimulus Program
Image Source: Frank Boston. A lot has changed in a short period of time since we published our first note covering the potential for a major US fiscal stimulus program back on March 10. Due to the sheer amount of pummeling the stock and credit markets have taken over the past few weeks, along with consumer, business, and investor confidence at-large (we’ll get a better read on that over time), it seems that both Democrats and Republicans are now more open to a major fiscal stimulus program than before. The ‘Survey of Consumers’ conducted by the University of Michigan notes the ‘Index of Consumer Sentiment’ fell from 101.0 in February 2020 down to 95.9 in March 2020, and there’s room for that index to fall a lot further. Please note the next data release date is March 27. In all likelihood, this is all due to the negative impacts posed by the ongoing novel coronavirus (‘COVID-19’) pandemic to both the health of individuals (particularly the older demographics and those with preexisting conditions) and the health of the overall economy (due to the “cocooning” of households and consumers). We sincerely hope everyone, their loved ones, and their families stay safe out there as we get through this pandemic as a nation and as a global community.

Mar 17, 2020

Buybacks and Wealth Destruction
From Value Trap: "According to S&P Dow Jones Indices, S&P 500 stock buybacks alone totaled $519.4 billion in 2017, $536.4 billion in 2016, and $572.2 billion in 2015. In 2018, announced buybacks hit $1.1 trillion. Given all the global wealth that has been accumulated through the 21st century, it may seem hard to believe that another Great Depression is even possible. However, in the event of a structural shock to the marketplace where aggregate enterprise values for companies are fundamentally reset lower, the vast amount of cash spent on buybacks would only make matters worse. The money that had been spent on buybacks could have been distributed to shareholders in the form of a dividend or even held on the books as a sanctuary of value within the enterprise during hardship. Buybacks, unlike dividends, can result in wealth destruction in a market economy, much like they can with companies. This is an important downside scenario that is often overlooked." -- Value Trap, published 2018

Mar 11, 2020

Seeds of Financial Crisis May Have Been Sown, Volatility Soars
Image Shown: The broader market indices continue to reveal tremendous levels of volatility. The Dow Jones Industrial Average dropped 5.86%, or 1,465 points, to 23,553 during the trading session March 11. From Value Trap: It seems like the markets experience a new financial crisis every decade or so. During the past few decades alone, there have been three significant banking crises: the savings and loan crisis of the late 1980s/early 1990s; the fall of Long-Term Capital Management and the Russian/Asian financial crisis of the late 1990s; and the Great Recession of the last decade that not only toppled Lehman Brothers, Bear Stearns, Washington Mutual, and Wachovia but also caused the seizure of Indy Mac, Fannie Mae and Freddie Mac...It's likely we will have another financial crisis at some point in the future, the magnitude and duration of which are the only questions. My primary reason for this view is not to be a doomsayer, but rests on the human emotions of greed and fear... -- Value Trap, published 2018

Mar 10, 2020

S&P 500 Hits Target Range, Nibbling at Ideas?
As we have outlined extensively in Value Trap: Theory of Universal Valuation, the combination of indexing and quantitative algorithmic trading is creating a situation of tremendous volatility. When indexers sell, they're not selling overpriced equities, they're selling everything in the index, indiscriminately. This has profound implications on the levels of broad market volatility, as we've been witnessing, exacerbated by the quants that pay little attention to fundamental analysis.

Mar 10, 2020

Fiscal Stimulus Coming to the US?
US equity markets started up strongly initially on Tuesday, March 10, likely due to reports coming out that the Trump Administration was considering recommending payroll tax cuts, paid leave, and special loans to small businesses to offset the negative impacts of the novel coronavirus (‘COVID-19’) epidemic. There are over 560 reported cases of COVID-19 in the US as of this writing, and unfortunately, that includes roughly two dozen fatalities. This remains a serious epidemic.