Valuentum Exclusive Analysis for the Discerning Investor

Symbol Keyword

Apr 8, 2020

US Fiscal Stimulus and Emergency Spending Update
Image Source: Pictures of Money. 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’). Key Republican legislators and Trump administration officials including Senate Majority Leader McConnell (Kentucky), Treasury Secretary Mnuchin, and Senator Rubio (Florida) who is Chairman of the Senate Committee on Small Business and Entrepreneurship, want to add $250 billion in funding capacity to the SMBs relief program, dubbed the Paycheck Protection Program (‘PPP’). That program involves providing loans to SMBs equal to 250% of their monthly payroll, and those loans can be used to pay employees along with utilities and rent. If those funds are used to retain workers, they can become forgivable loans and effectively grants (if certain conditions are met).

Mar 18, 2020

Banking Entities: The Technicals Tell the Story
Image: The Financial Select Sector SPDR ETF has experienced a tremendous amount of pain in recent weeks.  What is clear is that temporarily shutting down large parts of U.S. economy is absolutely unprecedented, and there will be substantial knock-on effects and difficulties in getting things restarted. This is most especially true if the coronavirus re-emerges following the periods of social distancing around the world, or when the weather turns colder again in the fall, and humanity could be facing a different strand of the coronavirus. Don’t forget that all bank institutions use a lot of financial leverage by their very nature, and the Fed and Treasury can never truly stop a run-on-the-bank dynamic (i.e. that which happened to WaMu in 2008). We think BOK Financial is in particular trouble given its energy loan exposure. Others to avoid include Cullen/Frost Bankers, Cadence Bancorp, and CIT Group. The credit card entities, Capital One and Synchrony Financial may be worth avoiding. We’d stay far away from the regional banks given their exposure to small business pain amid COVID-19. We don’t think the fiscal stimulus on the table does much to help small businesses. Deutsche Bank may be the first of the big European banks to topple, and this weakness could eventually spread to the U.S. banks given counterparty risk. Most foreign banks, including Santander, Credit Suisse, UBS, ING, and BBVA remain exposed to crisis scenarios. We’re also witnessing some very troubling developments with banking preferred shares, with the bank-preferred-heavy ETF, Global X SuperIncome Preferred ETF dropping ~15% during the trading session March 18. The preferreds of HSBC and Ally Financial are top weightings in that ETF. Banking technicals are raising some major red flags across the board, and given actions by the Fed and Treasury, this crisis has all the makings of being worse than the Great Financial Crisis. In any financial crisis perhaps excepting a depression, there can come a time to invest new money in bank stocks. Though it seems likely we have not yet reached the bottom in the markets yet, the highest-ground bank franchises in the US are JPMorgan and Bank of America, in our view. While sharp declines in their equity values may be expected (no one truly knows how deep the coming flood will be), they’re likely to make it to the other side with most of their equity capital firmly intact. With all that said, however, one doesn’t have to hold banking equities. It may be time to phone Mr. Buffett before things really start to unfold.

Mar 15, 2020

Fed Cuts 100 Basis Points, Launches More QE
“Now, stocks and other assets are being sold, some indiscriminately. It is truly becoming a stock pickers market as opposed to a quant-led and index-led market. It takes a different kind of bravery to buy on massive down days and one must have conviction in their research that the company will not go away if massive downside scenarios do in fact emerge.” – Matthew Warren. In this piece, we cover our assessment of what the global markets might be facing in a bull-case, base-case, and bear-case scenario. Our base case is a substantial recession in the US and a financial crisis of some unknown magnitude.

Mar 13, 2020

Dow Fell 9.99%, Worst Point Drop in History, More Nibbling?
Every stock in the S&P 500 fell during the trading session March 12, except one. The Dow Jones Industrial Average experienced the biggest point drop in history, Europe was crushed, gold and crypto-currencies sold off, Treasuries and munis were weak, as correlations among almost all asset classes approached one, as they often do during economic crises. Thursday, the S&P 500 closed at 2,480, near the low end of our 2,350-2,750 target range, and given the massive historical decline March 12 (the biggest point drop in history), equities are now starting to reflect a more neutral risk-reward balance at current levels, though we note downside risks remain. It may be time to consider doing some more nibbling on some of your favorite ideas. Where should you look? Our favorite ideas are always included in the Best Ideas Newsletter portfolio, Dividend Growth Newsletter portfolio, High Yield Dividend Newsletter portfolio and Exclusive publication. In particular, we think ideas that have strong net cash positions, strong economic returns ("castles"), solid moats around their operations (competitive advantages), and strong free cash flow generation are the places to look during crises.

Mar 12, 2020

Closing 'Crash Protection' Again, Circuit Breakers Tripped Again, Too
Image Source: YahooFinance. On March 11, the Trump administration announced a ban on travel from Europe to the U.S. for 30 days, but containment efforts in this regard may be too little too late. COVID-19 is already in the United States and spreading aggressively. Containment efforts on travel bans into the United States were the right move weeks ago, but perhaps politically difficult to achieve. Director of the National Institute of Allergy and Infectious Diseases Dr. Anthony Fauci noted the following regarding the possible number of eventual deaths from COVID-19 in the United States: "if we are complacent and don't do really aggressive containment and mitigation, the number could go way up and be involved in the many, many millions." The World Health Organization expects a global death rate from COVID-19 of about 3.4%. The markets were disappointed in the expected fiscal stimulus response, announced March 11, that focused on proposals regarding deferred tax payments and payroll tax relief, items that will not move the needle in addressing what ails the United States, a novel virus that is highly contagious and far more deadly than the seasonal flu.

Nov 20, 2019

Economic Commentary: Marks, Dalio, and the Discount Rate
Image Source: Mike Cohen. We sat down with the Valuentum team to discuss their latest thoughts on recent economic developments. To kick off the conversation, let’s start with the team’s views on the latest memo from Oaktree’s Howard Marks: Mysterious. For those that don’t know Howard, he is the Director and Co-Chairman of Oaktree, which managed about $122 billion in AUM, as of September 2019. The memo goes into depth on the reasons for negative interest rates, the impact of negative interest rates, and opines on whether the US will ever see negative interest rates. Then, we’ll go from there!

May 28, 2018

Uncertainty of Italy’s Political Future Weighing on Global Investors' Minds
Image shown: Duomo di Milano. Italy holds ~$2.7 trillion in public debt, and global investors are worried that a new government could implement policies that would weaken the country’s credit status. Though a sovereign debt crisis does not seem probable at this point, bond markets are suggesting that risks are rising.

Oct 27, 2016

Earnings Insight – Visa
Image source: Visa. Let’s cover some ground on Visa’s calendar third-quarter report, its fiscal fourth-quarter release.