TLT

Fed Rate Decision, UAW Strike Continues, Microsoft Ups Payout

by

Image Source: Mike Mozart By Brian Nelson, CFA If you’re thinking like us about the ongoing Fed rate-hiking cycle, you’re probably thinking that perhaps we’ll see another rate hike or two down the road, even if the Fed pauses at today’s September 20 meeting. However, whether the Fed pauses from here on out or executes a couple more rate hikes, it really shouldn’t matter much to long-term investors. From where we stand, the conversation about interest rates should now be shifting away from worries about elevated inflation to the future positive prospects that correspond to the work that the Fed has already done. With the market-cap weighted S&P 500 (SPY) just a stone’s throw away from all-time highs, despite aggressive … Read more

ICYMI: The Impact Rising Interest Rates Have on Equity REITs

by

Image: REITs have not performed as well as one might have thought. The Vanguard REIT ETF has underperformed the broader market considerably since 2015, while dividends per share have not grown much, if at all, since 2005. Source: Vanguard By Brian Nelson, CFA The question on most everyone’s minds: How will equity real estate investment trusts (REITs) fare in the current rising interest-rate environment? The topic has long been debated and studied, and there are myriad opinions on the subject. From where we stand, however, there are two main moving parts consisting of fundamental and investment dynamics that investors should be aware of. Let’s have a look. Fundamental Considerations In the discounted cash-flow (enterprise) valuation context, a rising nominal interest rate (real + inflation) … Read more

Markets Don’t Look Bad

by

Image: The market-capitalization weighted S&P 500 (SPY) continues to hold its January breakout, while support held in mid-March. By Brian Nelson, CFA Though the regional banking crisis in the U.S. remains on investors’ minds, the panicky environment that has defined much of the past couple months has settled down somewhat, even as First Republic Bank’s (FRC) back remains against the ropes. The regional bank has suspended the dividends on several series of its preferred stock, and we’re hearing of advisor flight from the bank as it now appears to be fighting a consumer perception battle as it struggles to stay afloat. First Republic is clearly on the front lines of the regional bank crisis, and if the bank holds the … Read more

SVB Financial, Silvergate Capital, Credit Suisse Reveal Cracks in Global Financial System

by

Image: SVB Financial looks to be collateral damage of the Fed’s rate-hiking cycle, and we can’t rule out that other regional banks could have also managed interest-rate risk wrong. Shares of SVB Financial have collapsed, and other banks could be facing similar issues that have yet to come to light. Image Source: TradingView By Brian Nelson, CFA We don’t include any banks in the newsletter portfolios, but we include slight “exposure” to the Financial Select Sector SPDR (XLF) in the Best Ideas Newsletter portfolio, primarily for diversification reasons. We have never been fans of the banking business model, and here is what we wrote in the first edition of Value Trap: Theory of Universal Valuation: It’s likely we will have … Read more

BIN Portfolio ALERT: Removing META, Adding to XLE, Adding MCD and PEP

by

Image Source: Valuentum Summary Removed META Added to XLE: now 4%-6%, was 1%-2% Added MCD: 4%-6% Added PEP: 4%-6% By Brian Nelson, CFA As long-term investors, the hardest part is knowing when to get back into the market with “recently-raised” cash. We’ve done a good job year-to-date through the last “performance” measurement in August. [We’ll continue to update members periodically on simulated newsletter performance across all newsletter portfolios.] But with the markets being punished since August 19, when we “raised” cash, we’re going to go back to “fully invested.” Let’s explain what this means. First, we’re still bearish on the broader markets. We’ve carved out some “alpha” we would have missed had we not captured the latest downdraft, and we … Read more

Things Are Bad Out There

by

“I don’t like this market one bit, but we have to endure. Markets will rise again, but there will be a lot more pain to come in the near term. We think the base case is that we get a very bad recession in 2023. We’ve yet to pull the trigger on put option ideas in the simulated newsletter portfolios, but we expect things to get worse before they get better. For readers seeking ongoing option ideas each month, please consider subscribing to our options commentary here.” – Brian Nelson, CFA By Brian Nelson, CFA Things are bad out there, and there’s probably no better way to say it. On September 28, Bloomberg reported that Apple Inc. (AAPL) is now … Read more

Valuentum Weekly: Outsized Energy Exposure Continues to Buoy Newsletter Portfolios

by

Image: Light crude oil futures once traded for roughly -$40 (negative $40) during the COVID-19 crisis, but have now rocketed to more than $120 in recent trading. Image Source: TradingView. This note was emailed to members Sunday, March 6, 2022. Markets   The S&P 500, as measured by the SPY, is down 9% year-to-date, a modest pullback, in our view, particularly in light of the fantastic performance the past few years. Though not necessarily welcome, a down year every now and then for the broader market indexes and a modest bear market can only be expected, at times. The Dow Jones Industrial Average, as measured by the DIA, is down more than 7% year-to-date (not too bad), while the Nasdaq–as measured by the … Read more

ICYMI: Never Been More Bullish Even as Buffett Dumps Airlines

by

Image Source: IATA. Data Source: McKinsey & Company (IATA). Airlines haven’t been able to earn their estimated cost of capital for as long as we can remember. There have been hundreds of airline bankruptcies since deregulation in 1978. By Brian Nelson, CFA On Saturday, May 2, Berkshire Hathaway (BRK.A, BRK.B) reported expectedly weak first-quarter results. We won’t be ditching Berkshire Hathaway’s stock in the Best Ideas Newsletter portfolio so long as Uncle Warren is at the helm, but there were a couple takeaways from the report that we want you to be aware of (we’ll have another more extensive note focusing more exclusively on Berkshire coming out soon). The first big piece of news, something that should not be surprising … Read more

US Fiscal Stimulus and Emergency Spending Update

by

Image Source: Pictures of Money By Callum Turcan On Thursday, April 9, the US Senate is set to hold a vote on whether to add additional funding towards helping small- and medium-sized businesses (‘SMBs’) on top of the $350 billion allocated towards a loan/grant program that was included in the recently passed $2+ trillion Coronavirus Aid, Relief, and Economic Security Act (‘CARES Act’). Members who want to read our commentary on the CARES Act are encouraged to check out this article here, and for additional commentary, check out our ‘Recapping the Crash’ note here and one of our latest videos here. We sincerely hope everyone and their loved ones stay safe during the ongoing coronavirus (‘COVID-19’) pandemic. Pivoting back to … Read more

Banking Entities: The Technicals Tell the Story

by

Image: The Financial Select Sector SPDR ETF has experienced a tremendous amount of pain in recent weeks. From Value Trap: “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 and the nature of a banking entity’s business model, which does not hold a 100% reserve against deposits. Our good friend George Bailey, played by actor Jimmy Stewart, in the movie It’s a Wonderful Life knew this very well when he tried to discourage Bedford Falls residents from making a “run” on the beloved … Read more