Advertisements

What Can a Trader Do With Best Buy Stock?

Chutes Without Ladders

As toddlers, my sister and I used to play the famous board-game where depending on the spot where one lands, the individual either slides down a long chute, or climbs a ladder. I had intended to carry my long position in Best Buy (BBYGet Report) into the holiday season as far back as September. This was one of the first names that I got rid of in early October at an average price of $70 and change.

The broad market selloff that stated there has now surpassed the threshold of what many consider to be the definition of a Correction (-10% from the highs) was just getting in gear at that time. The retailers were making a lot of noise regarding trade with China, and this name was one of the first deck chairs thrown overboard for me as my ship started taking on water. I could have made a better sale a day of two prior, but then again, these shares never looked back once I made that sale either.

Download Now: To be a profitable investor you first need to know the rules. Get Jim Cramer’s 25 Rules for Investing Special Report

The stock had been so badly beaten that recently I considered buying back what I had sold. As I usually do with the retailers, I visited my local Best Buy location before taking on some shares. I walked around the store, stopped over by the laptops pretending to need help. Nothing. Look around. Employees walk by. Maybe it’s just the department, so I walk over to household appliances. Same thing.

The employees did not seem interested in making a sale that day. I decided to walk out. I put my hands in my jacket pockets in a way that should have drawn interest from the security employee at the door. Again, nothing. Now it may just be my store, and it may have just been a bad day, but I decided not to buy any shares in the company that day. Lucky miss.

Will I Be Back?

To the store? Definitely. I have thought the employees energetic and helpful in the past. They’ll get another chance. The stock may have to prove itself, especially after Bank of America Merrill Lynch made their opinion known this morning. BAML cut it’s rating on BBY to “Underperform” from “Neutral”, so it’s not like they loved the chain to begin with. However, the firm dropped their price objective for BBY from $70 to $50.

Best Buy will report its Q4 results on February 19th. Industry consensus is for EPS of $2.57, which would be good for earnings growth of 6.2%. Revenue is expected to print somewhere around $14.7 billion, which will illustrate a contraction year over year for that line item.

The stock trades at just 9.8 times forward looking earnings, and given the general outlook for growth, is it possible that these earnings projections are just too high. If relations with China don’t come to an amicable resolution in the near future… perhaps. That’s the way BAML feels at least for the current quarter, but also makes a point of mentioning the full year.

The Catch

The analyst behind the BAML opinion is not highly rated by TipRanks, at least not yet. The last highly rated, high profile analyst that I see that still has a buy rating on BBY, and a much higher price target ($81) is Piper Jaffray’s Peter Keith. My belief would be that if Keith throws in the towel, that the marketplace will notice. Perhaps at that point I will initiate an entry level long but not without another visit to my local store.

Free Lunch?

So, what can a trader do, other than sit on their hands, and wait to see if another shoe drops? Right now, a trader might be able to sell one BBY $47.50 February 15th put at an implied value of $1.29, instead of taking down an equity stake. Hopefully, this trader pockets $129, and takes his or her significant other out for a nice meal.

The risk is that the shares trade below $47.50 by expiration, and the trader is forced to eat these shares at a net basis of $46.21. Note that expiration is four days ahead of this Q4 earnings release. At the time of publication, Stephen Guilfoyle had no position in the securities mentioned.

By:

Source: What Can a Trader Do With Best Buy Stock? – TheStreet

Earnings Economy Investing Options Stocks Trading Consumer Products

Warren Buffett has been and continues to be a role model for millions of investors across the globe. His rich investment history going back to as far as 11 years old when bought his first stock, his impressive story has been used in hundreds of speeches globally, with every investor, beginner or pro, being asked to emulate him. However, who is Warren Buffet? In this video, we are going to look into the life of the man known as the “Oracle of Omaha”, highlighting the investments and decisions he made to become one of the richest and most respected businessmen in the world. Audible 30 Day Free Trial: https://amzn.to/2mO6ow0 #WarrenBuffett #WarrenWisdom Light Sting by Kevin MacLeod is licensed under a Creative Commons Attribution license (https://creativecommons.org/licenses/…) Source: http://incompetech.com/music/royalty-… Artist: http://incompetech.com/ Practical Wisdom – Producing High Quality Content For Your Enjoyment. Please Consider Subscribing, and enable notifications. Thanks in Advance.

Advertisements

Stocks Making The Biggest Moves After Hours: Cisco NetApp and Vipshop

5.jpg

Cisco fell nearly 8% in after-hours trading after announcing better than expected fourth-quarter earnings and weaker-than-expected guidance. The enterprise technology company reported adjusted fourth-quarter earnings per share of 83 cents on revenue of $13.43 billion. Analysts had expected adjusted earnings per share of 82 cents on revenue of $13.38 billion, according to Refinitiv.

For the first quarter, Cisco said it anticipates adjusted earnings per share between 80 cents and 82 cents. The company said it expects flat to 2% revenue growth. Those figures are below analyst projections for earnings of 83 cents per share and revenue growth of 2.5%, according to Refinitiv consensus estimates.

Cisco CEO Chuck Robbins said the company’s business in China dropped 25% amid the U.S.-China trade war and early signs of macro shifts that didn’t occur in the previous quarter.

Shares of NetApp jumped nearly 4% after the data services and management company reported promising first-quarter earnings. The company reported adjusted earnings per share of 65 cents on revenue of $1.24 billion. Analysts had expected earnings per share of 58 cents on revenue of $1.23 billion, according to Refinitiv. NetApp CEO George Kurian said gross margin and cost structure improvements will help the company “navigate the ongoing macroeconomic headwinds”

Vipshop soared 8% after announcing higher-than-expected earnings for the second quarter. The Guangzhou, China-based company reported adjusted second-quarter earnings per share of $1.58 yuan on revenue of $22.74 billion yuan. Analysts had expected earnings per share of $1.01 yuan on revenue of $21.52 billion yuan, according to Refinitiv. Eric Shen, chairman and chief executive officer of Vipshop, cited the company’s growing numbers of active users and acquisition of Shanshan Outlets.

Pivotal Software shares skyrocketed nearly 70% in extended trading after VMware said it will acquire all outstanding Class A shares at $15 in cash. That price represents an 80% premium on  Pivotal’s closing price of $8.30 per share.

By : Elizabeth Myong

Source: https://www.cnbc.com/

 

Cisco, Tilray, Aurora Cannabis, Alibaba, Trade Talks – 5 Things You Must Know

Here are five things you must know for Wednesday, May 15:

1. — Stock Futures Lower Amid Subsiding Trade War Worries

U.S. stock futures were lower Wednesday though sentiment was lifted by a softening of the rhetoric from Donald Trump in the U.S.-China trade war and suggestions that talks could resume in the coming weeks.

Download Now: To be a profitable investor you first need to know the rules. Get Jim Cramer’s 25 Rules for Investing Special Report

Markets also were soothed by weaker-than-expected economic data from China that pointed to not only slowing growth in the world’s second-largest economy but also a weakening bargaining position in Beijing’s trade standoff with Washington.

With Trumps describing the dispute with China as “a little squabble” on Tuesday, as well as confirmation from the U.S. Treasury that Secretary Steven Mnuchin will soon travel to Beijing to resume trade talks, markets were happy to add risk following Tuesday’s gains on Wall Street.

Contracts tied to the Dow Jones Industrial Average fell 85 points, futures for the S&P 500 declined 8.70 points, and Nasdaq futures were down 23 points.

The economic calendar in the U.S. Wednesday includes Retail Sales for April at 8:30 a.m. ET, the Empire State Manufacturing Survey for May at 8:30 a.m., Industrial Production for April at 9:15 a.m., and Oil Inventories for the week ended May 10 at 10:30 a.m.

2. — Cisco, Alibaba and Macy’s Report Earnings Wednesday

Alibaba Group Holding (BABAGet Report)  posted stronger-than-expected fiscal fourth-quarter earnings as consumer growth on its online marketplace surged and its tie-up with Starbucks (SBUXGet Report) , the world’s biggest coffee chain, helped boost revenue and its cloud computing sales surged.

Macy’s (MGet Report)  earned 44 cents a share on an adjusted basis in the first quarter, higher than estimates of 33 cents. Same-store sales rose 0.7% in the quarter vs. estimates that called for a decline of 0.6%.

Earnings reports are also expected Wednesday from Cisco Systems (CSCOGet Report) and Jack in the Box (JACKGet Report) .

Cisco is a holding in Jim Cramer’s Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells CSCO? Learn more now.

3. — Tilray Rises After Revenue Beat, Aurora Cannabis Slumps

Tilray  (TLRY) shares were rising 4% to $50.71 in premarket trading Wednesday after the Canadian cannabis company posted stronger-than-expected first-quarter sales, while its domestic rival Aurora Cannabis (ACBGet Report) slumped after revenue missed analysts’ forecasts amid caps on retail store growth in the Canadian market.

Tilray said first-quarter revenue rose 195% from a year earlier to $23 million, as sales in Canada surged following the country’s decision to legalize cannabis for recreational use. The adjusted loss in the quarter was 27 cents a share, wider than analysts’ estimates, after a 5.7% drop in the average price per kilogram sold.

CEO Brendan Kennedy also said Tilray was looking to further its partnerships with U.S. and international companies as the potential $150 billion global market for cannabis undergoes a generational change in both regulation and consumer acceptance.

“We’ve been inundated with contacts from Fortune 500 companies who are interested in exploring partnerships with Tilray,” Kennedy told investors on a conference call late Tuesday. “And it’s a range of companies from a broad variety of industries.”

“We’re also starting to have conversations with U.S. retailers who are interested in carrying CBD product in the second half of this year,” he added.

Aurora Cannabis, meanwhile, was tumbling 4.7% to $7.99 in premarket trading after its fiscal third-quarter revenue of C$75.2 million missed Wall Street forecasts of C$77.2 million and consumer cannabis sales were just under C$30 million as provincial regulators limited the number of retail outlets.

The company reported a loss attributable to shareholders in the quarter of $C158 million said Aurora Cannabis said it was “well positioned to achieve positive EBITDA beginning in fiscal Q4.”

Aurora Cannabis is in TheStreet’s Stocks Under $10 portfolio. To find out more about how you can profit from this investing approach, please click here.

4. — Walmart Considering IPO for U.K. Unit Asda

Walmart (WMTGet Report) is considering an initial public offering for its U.K. grocery subsidiary Asda, a listing that that could value the company at as much as an estimated 8.5 billion pounds ($11 billion), Bloomberg reported.

The news comes just weeks after U.K. antitrust regulators blocked a planned merger between Asda, Britain’s fourth-largest supermarket, and rival J Sainsbury.

“While we are not rushing into anything, I want you to know that we are seriously considering a path to an IPO,” Judith McKenna, the company’s international chief, told employees at an event in Leeds, according to a summary of the event provided by Asda. Any preparations for going public would “take years,” she said, Bloomberg reported.

5. — Nelson Peltz’s Trian May Wage Activist Campaign at Legg Mason – Report

Nelson Peltz’s Trian Fund Management may wage an activist campaign at Legg Mason (LMGet Report) and push the mutual fund company to improve its flagging results, The Wall Street Journal reported, citing people familiar with the matter.

It would be the second time in 10 years that Trian has targeted the mutual fund company, according to Reuters.

Trian recently has held discussions with Legg Mason about the need to cut costs and improve profit margins, the people told the Journal. The two sides may still negotiate a settlement that sidesteps a proxy fight, the sources added.

On a conference call with analysts Monday, Legg Mason CEO Joseph Sullivan said the company was moving to slash expenses.

“While there is much work to be done, we now have increased visibility into and have gained even greater confidence in our ability to deliver $100 million or more of annual savings now within two years,” he said.

By:

 

Source: Cisco, Tilray, Aurora Cannabis, Alibaba, Trade Talks – 5 Things You Must Know

Yields Up To 9.9% That Rich Guys Don’t Want You To Know About

uncaptioned

Not yet as rich as you always wanted to be? Don’t worry, because today we’re going to dial you in for some “rich guy” dividend favorites that’ll pay you up to 9.9% every year.

Private equity is a lucrative and secretive world. It’s often limited to accredited investors, which means these funds require you to have $200,000 or more in annual income to qualify.

If you’re living on dividends alone, this might be challenging. Fortunately, there are some private equity plays that you can buy just like individual stocks. They trade for as cheap as $12 per share and they’ll pay you dividends from 8.8% to 9.9% along the way:

Contrarian Outlook

Contrarian Outlook

Private equity (PE)—funds that can invest in the equity and debt of privately held companies, which we typically can’t get our hands on—is generally touted as outperforming the stock market.

The American Investment Council, which advocates for private investment, points out that research from the 1990s and early 2000s showed that “private equity outperformed public markets by 3 to 4 percent each year,” and a 2019 paper investigating more recent “vintage years” finds that “that private equity continues to generate returns that are 2 to 3 percent above the returns of public markets.”

The downside? Privately held private equity firms aren’t exactly easy to tap, and you typically need to have seven digits to get in.

But here’s a back door that you and I can access. We can buy PE-esque investments just like regular stocks with a single-click! The trick is handful of little-known publicly traded companies called business development companies (BDCs).

Congress created BDCs in the 1980s to spur investment in America’s small and midsize businesses, the same way they created REITs in the ‘60s to help mom ‘n’ pop investors tap the real estate markets. And like REITs, BDCs get a generous tax break—if they dole out 90% or more of their profits as dividends to you and me.

Thus, business development companies not only let us access a big pool of investments you and I otherwise couldn’t otherwise dream of accessing, but also deliver sky-high yields that are among the highest you can find in the stock market. The caveat, of course, is that they do come with heightened risk, and not all BDCs are gems.

Today, I’ll show you three notable BDCs—yielding between 8.8% and 9.9%—that should be on your radar screen.

PennantPark Floating Rate Capital (PFLT)

Dividend Yield: 9.7%

Let’s start out with a yield juggernaut: PennantPark Floating Rate Capital (PFLT), which will get investors awfully close to a double-digit yield at current prices.

PennantPark provides access to middle market direct lending with, as the name implies, a heavy focus on floating-rate loans, though it’ll invest anywhere across the capital structure (senior secured debt, subordinated debt and others).

Its primary target is private equity sponsor-backed companies with $10 million to $50 million in EBITDA. It avoids capex-heavy businesses, as well as fickle industries such as fashion and restaurants, but it still has plenty of sectors to play with. Portfolio companies include the like of primary-clinic operator Cano Health, marketing services provider InfoGroup, and WalkerEdison, whose furniture can be found online via companies such as Amazon.com (AMZN), Target (TGT) and Home Depot (HD).

PennantPark typically leans toward the low-risk but low-reward end of the BDC spectrum, which historically has served it just fine. However, the BDC’s last earnings report raised some credit-quality concerns. The company reported that four of its portfolio companies were on “non-accrual,” which essentially happens when a payment is more than a month overdue, or there’s some other concern about a company’s ability to make a payment.

The BDC was subsequently nailed in May on the news. That has me wary. And the floating-rate nature of its loans, while attractive during periods of rising rates, isn’t a significant advantage right now.

New Mountain Finance

Dividend Yield: 9.9%

New Mountain Finance (NMFC) targets companies middle-market companies, too, investing between $10 million to $50 million across the debt spectrum in businesses that generate annual EBITDA between $10 million and $200 million.

NMFC likes to say that it invests in “defensive growth” industries. It’s a silly, contradictory term, sure. But the qualities it covets in its portfolio companies are, in fact, pretty attractive: high barriers to competitive entry, recurring revenue, strong free cash flow and niche market dominance.

To be fair, New Mountain, like PennantPark, is heavily weighted toward floating-rate loans, which make up 93% of the portfolio. But NMFC is a few steps in the right direction. Its credit quality is stellar – only eight portfolio companies have gone on non-accrual since inception in 2008, and there were no new non-accruals over this past quarter. Better still, the company is a bastion of consistency when it comes to covering its healthy dividend with net interest income (a core measure of profitability for BDCs).

New Mountain, which trades at only a sliver of a premium to its net asset value right now, still should be fine in the current environment. Keep this BDC in mind should the Fed’s hawks ever take over again.

Ares Capital (ARCC)

Dividend Yield: 8.8%

Ares Capital (ARCC) is a slightly more modest yielder compared to the previous two picks, and you likely won’t snag it for a significant discount. But that’s OK—ARCC is worth a small premium.

I’ve beat the drum on ARCC a few times, including in February 2019, but also going back more than two years, in January 2017. I said at the time that the company’s investment spread, as well as a $3.4 billion merger with American Capital, “should benefit ARCC in just about any market environment,” and that “in short, ARCC is going places.”

Ares Capital, Wall Street’s largest BDC, invests primarily in first and second lien loans and mezzanine debt of middle-market companies. A high priority is placed on “market-leading companies with identifiable growth prospects that can generate significant cash flow.” Its portfolio of roughly 345 companies touches numerous sectors, including business services, food and beverage, healthcare, IT and light manufacturing.

Ares’ core earnings and net realized gains have exceeded dividends every year since 2011, by increasingly wide margins. In fact, the company’s operational performance has been so robust that it has hiked its payout twice since this time last year.

Bottom line: ARCC is a standout in what typically is a difficult industry to invest in.

However, I’m not sure I’d commit capital to this stock right now. Given its recent run up, I’d like to see a pullback for a lower risk entry point.

Brett Owens is chief investment strategist for Contrarian Outlook. For more great income ideas, click here for his latest report How To Live Off $500,000 Forever: 9 Diversified Plays For 7%+ Income.

Disclosure: none

I graduated from Cornell University and soon thereafter left Corporate America permanently at age 26 to co-found two successful SaaS (Software as a Service) companies.

Source: Yields Up To 9.9% That Rich Guys Don’t Want You To Know About

Which Company Could Be The Next Permian Basin Acquisition Target?

Following the news that Chevron had agreed to pay a nearly 40% premium to acquire Anadarko Petroleum, investors quickly bid up the shares of other potential acquisition targets.

As I argued in the previous article, I believe the Permian was the key to the Anadarko acquisition, but there are plenty of other targets in the region. There are also several companies with the capability of making acquisitions.

In recent years, the few mergers and acquisitions in the oil and gas industry have been largely focused on the Permian Basin. The supermajor integrated oil and gas companies have been increasingly making forays into the Permian.

In addition to Chevron’s new acquisition, in 2017 ExxonMobil paid $6.6 billion to acquire Permian acreage from the Bass family of Fort Worth, Texas. ExxonMobil also spent $41 billion in 2009 to acquire XTO, which has a major presence in the Permian.

Permian Players

Today major acreage holders in the Permian Basin include the supermajors Chevron and ExxonMobil, as well as Occidental, Apache and Concho Resources. Occidental, in fact, reportedly attempted to acquire Anadarko prior to Chevron sealing the deal. But Occidental may now find itself in the crosshairs of a bigger player looking to shore up their Permian portfolio.

But there are many other major producers in the region, including ConocoPhillips, EOG Resources, Pioneer Natural Resources, Noble Energy, Devon Energy, and Diamondback Energy. Smaller producers in the region include WPX Energy, Parsley Energy, Cimarex Energy, Callon Petroleum, Centennial Resource Development, Jagged Peak Energy and Laredo Petroleum.

Let’s first take a look at the largest companies operating in the Permian according to enterprise value. This metric is preferred over market capitalization, because it includes a company’s debt. In the case of a potential acquisition, the acquiring company would be responsible for this debt in addition to the purchase price. Hence, it is a more comprehensive representation of a company’s market value.

I have included the integrated supermajors that could have the ability to make major acquisitions, three of the larger exploration and production companies (which could make an acquisition or be a target themselves), and Anadarko for comparison. All data were retrieved from the S&P Capital IQ database.

Metrics for major oil companies operating in the Permian Basin.

Metrics for major oil companies operating in the Permian Basin.

Robert Rapier

  • EV – Enterprise value at the close on April 12, 2019 in billions of U.S. dollars
  • EBITDA – TTM earnings before interest, tax, depreciation, and amortization in billions of U.S. dollars
  • TTM – Trailing 12 months
  • FCF – Free cash flow in billions of U.S. dollars
  • Debt – Net debt at the end of the previous fiscal quarter
  • 2018 Res – Total proved oil and gas reserves in billion barrels of oil equivalent at year-end 2018
  • EV/Res – The value of the company divided by its proved reserves

Potential Buyers

Based on their size and debt metrics, ExxonMobil and Chevron still appear to be the most capable of pulling off a major deal. Shell has been moving in the direction of becoming a natural gas company, and has already made major capital expenditures in this area in recent years. Further, in 2016 they made their own major acquisition — a $70 billion deal for BG Group.  Meanwhile, Total hasn’t shown much interest in the Permian.

BP may not have an appetite for an acquisition as it continues to be weighed down by its obligations from the 2010 Deepwater Horizon oil spill. As an aside, the continued fallout from that disaster has also resulted in BP having the cheapest reserves on the books by far of any company listed in the table. Also note that the EV/Res metric for integrated supermajors isn’t directly comparable to pure oil producers like Anadarko, as the former also have midstream and refining assets.

ConocoPhillips appears to be the most attractive target for an acquisition from a pure valuation perspective, but as the largest pure oil company it would be a large bite for even ExxonMobil. With respect to making an acquisition, ConocoPhillips CEO Ryan Lance stated earlier this year that the company isn’t feeling any pressure to do so.

Occidental also falls into the category of potentially making an acquisition or of being acquired. On a relative basis, they are more expensive than ConocoPhillips, but on an absolute basis the price would be more manageable.

What about smaller players like Parsley, WPX Energy, or Cimarex Energy? Based on the price movement following the announcement of the Chevron-Anadarko deal, investors are clearly betting that more deals will follow. Below are some of the metrics of potential acquisition targets (with Anadarko for comparison), including some of the large players listed in the previous table:

Metrics for smaller oil companies operating in the Permian Basin.

Metrics for smaller oil companies operating in the Permian Basin.

Robert Rapier

  • 1-Day Change – Change in share price on April 12, 2019, the day the Chevron-Anadarko deal was announced

Note that the double-digit gains of both Pioneer Natural Resources and Parley Energy imply that investors believe they could be next on the acquisition list. Parsley looks attractively priced according to its enterprise value and total reserves. Several other companies stand out, such as Devon Energy and Cimarex, although all of these companies outspent their cash flow in 2018. An acquisition by one of the larger players could give them the efficiencies and economies of scale to rectify that.

Another name on the list that stands out is Diamondback Energy, which has long been one of my favorite Permian Basin oil companies. Diamondback has been an outstanding performer in recent years, but now looks to be the most richly valued according to several metrics following its 2018 acquisition of Energen.

The biggest challenge with the smaller players is that they may not have enough reserves to really move the profit needle for the biggest players. Laredo Petroleum’s 200+ million barrels of oil and gas reserves might not be sufficiently appealing to ExxonMobil, which had 24 billion barrels of reserves at the end of 2018. But it could be appealing to a company like EOG Resources, which closed the year with 2.8 billion barrels of reserves.

Ultimately, price and valuation are only part of the equation. Anadarko wasn’t the cheapest acquisition target for Chevron, but Chevron liked the synergies of Anadarko’s locations. Thus, every major operator in the Permian is more likely to acquire companies whose properties are adjacent to their own. A deeper dive thus becomes an exercise in not only value, but in studying maps of the Permian producers — large and small.

Robert Rapier has over 25 years of experience in the energy industry as an engineer and an investor. Follow him on Twitter @rrapier or at Investing Daily.

Robert Rapier is a chemical engineer in the energy industry. Robert has 25 years of international engineering experience in the chemicals, oil and gas, and renewable ene…

Source: Which Company Could Be The Next Permian Basin Acquisition Target?

Vietnam’s Stocks Offer Long-Term Profits With Status Upgrades

uncaptioned image

Vietnam has surged to become Southeast Asia’s best-performing stock market this year, posting a 12% gain for the benchmark VN index on the Ho Chi Minh Stock Exchange. According to Bloomberg data, Vietnam was the third-best performing market globally over the past five years. Although investors will find that most private banks and wealth managers are still unable to buy or sell Vietnamese equities directly, I would argue that this should be seen an encouraging sign because the market is still not yet on the radar of most investors but the indications are that it will be in the future.

Vietnam appears to be Asia’s most interesting macro story and investment case this year. The country’s ongoing economic reforms combined with recent geopolitical developments have certainly bolstered the country’s outlook. The World Bank expects Vietnam to be among Asia’s fastest-growing economies this year, with the country’s GDP growth rate forecast to reach 6.6%. And Vietnam’s two stock market looks set to benefit further from a major potential catalyst for renewed interest if its equities are added to the widely followed MSCI Emerging Markets Index, which is both long overdue and seems like to happen by 2020, according to Mark Mobius, the veteran investor who earned the moniker: “father of emerging markets.”

Many forget how far Vietnam has progressed since the launch of its “doi moi,” or renovation, policies back in 1986. The political and economic initiative introduced just over two decades ago was intended to facilitate the country’s transition from a centralized economy to a “socialist-oriented market economy.” Doi moi was meant to combine government planning with free-market incentives.

“In the beginning of the 90s, the per capita income of Singapore was 125 times higher than Vietnam, now it is 24 times,” Vietnam’s Prime Minister Nguyen Xuan Phuc told delegates at the World Economic Forum to ASEAN last year in Hanoi. “Thailand used to be 16 times higher than Vietnam, now the figure is 2.5 times. Compared to Japan, the figure came down from 267 times to 16 times, or the U.S., the figure decreased from 252 times to the current 25 times.”

Vietnam’s wealth grew by 210% between 2007 and 2017, according to the real estate consultancy Knight Frank, and more than 200 Vietnamese citizens now have investable assets of at least $30 million. Having expanded by 320% between 2000 and 2016, Vietnam’s “super-rich” class is growing faster than that of India (290%) and China (281%). And if current trends continue, it will have grown by another 170%–from 14,300 to 38,600 millionaires–by 2026.

Vietnam has been seen by many as having benefited from the new geopolitical realities of the ongoing U.S.-China trade war. Vietnam is expected to attract more manufacturing FDI as companies seek to build a “China plus one” sourcing strategy to mitigate the risk of further trade disputes between the world’s two largest economies. In terms of the stock market, the most direct beneficiaries of this ongoing trend include the Vietnam’s industrial park operators, logistics and port operators and air cargo handling companies

Boeing’s CEO Kevin McCallister, left, exchanges documents with VietJet’s CEO Nguyen Thi Phuong during a signing ceremony at the Presidential Palace in Hanoi on February 27, 2019. (Photo by Saul LOEB/AFP)

And although the recent the Trump-Kim summit in Hanoi may have been a disappointment in terms of denuclearizing the Korean Peninsula, it was a boon for the host country. The summit  helped to raise the awareness of “Brand Vietnam” on the global stage while reaffirming the view that the country has successfully transitioned from a closed, command economy to a market-based, trade-oriented economy. The country’s air carriers highlighted that fact when they signed more than $21 billion in airline orders and service contracts with U.S. companies on the sidelines of the summit.

Vietnam’s inclusion into some of the world’s most influential equity indices would deliver a much-deserved boost in terms of interest from investors in the nation’s stock market.  According to an annual review by the FTSE Russell released last September, Vietnam is still currently classified as a frontier market, but has been added to its watch list for possible reclassification as a secondary emerging market. The probability that it will be upgraded in September this year seems relatively high in my view. Currently, the FTSE’s secondary emerging category includes China, India, Indonesia, Pakistan, the Philippines and Russia, among others.

Vietnam could also be classified as an emerging market by MSCI next year if its free-float rate increases and the market infrastructure is adjusted to better accommodate foreign investors. Most of the concerns pointed out by MSCI about Vietnam’s upgrade are technical and can be addressed with new regulations. Probably the biggest obstacle to overcome would be the willingness of Vietnamese business owners to welcome foreign investment. This openness to foreign investment will form the biggest impression about Vietnam in investors’ eyes, besides the official market status by MSCI.

Policymakers have already expressed their intentions of removing restrictions on foreign ownership of state-owned and listed companies by the end of 2019, as the government looks to open its capital-hungry economy further in order to sustain its rapid growth. The Finance Ministry is currently drafting an overhaul for the nation’s securities law, the first major amendment since 2010.

In order to prepare the market for MSCI EM Index inclusion and to deepen liquidity, VN30 index futures contracts were introduced last year and currently the Ho Chi Minh Stock Exchange is seeking the Finance Ministry’s approval to start the trading of covered equity warrants in the third quarter of 2019. Underlying assets for the warrants will be stocks that meet certain conditions, such as: belonging to VN30 index or HNX30 index; having free float ratios of at least 20%; an average daily market cap in the most recent 6 months of at least 5 trillion Vietnamese dong ($215 million). Vietnam’s markets regulator is also studying new derivatives index contracts for the future that would use the VNX200 index or VNX100 in addition to the current contracts for the VN30 index. The Hanoi Stock Exchange is also aiming to launch Vietnam government bond futures in the third quarter of 2019.

I’m a portfolio strategist based in Singapore, covering global macro, geopolitics, frontier and emerging markets as well as Blockchain and emerging Tech.

Source: Vietnam’s Stocks Offer Long-Term Profits With Status Upgrades

Brazil Stock Market Tanks Amid Petrobras Scandal That Keeps On Giving

Well, that didn’t last long. Brazil is no longer the darling of emerging markets, with stocks crashing over 5% on Friday . Blame the political class, again.

There are two reasons for today’s correction. One was an immediate over-reaction to news headlines, the other is a rethinking of key market-friendly reforms needed in Brazil this year.

Yesterday’s arrest of former president Michel Temer reminded everyone that the Petrobras Car Wash scandal, the very scandal that led to two years of recession and a never-ending political crisis, will pull the rug out from under this country in seconds flat. Brazil stocks are now underperforming. But just wait until investors price in a failed pension reform, which is probably just three months away. I think that is already starting to happen and Temer’s arrest was just reminder that Brazil is in crisis-mode, making it difficult to govern.

Temer was pulled in on Thursday by Federal Police officers for his role in the Petrobras crime spree. They said he helped run an “organized crime” ring within the government: a system of pay-to-play contracts with civil engineering firms like Odebrecht building all sorts of stuff for Petrobras and skimming millions of dollars off the top. Dozens of A-list executives have been jailed now for at least three years. And yadda yadda yadda. … Temer was next in line.

To date, of the top political leaders in charge during the Petrobras contract-rigging scheme, only ex-president Dilma Rousseff is still standing. She desperately tried to become senator of her home state of Minas Gerais last October but came in third place, probably not because she loved politics or had nothing better to do for work. Now that she is a private citizen, like Temer, she has lost political immunity.

uncaptioned image

Temer: Petrobras presidential jailbird No. 2. AP Photo/Eraldo Peres

Dilma was impeached in a somewhat farcical April 2016 vote by the lower house of Congress for breaching budget laws. She was later indicted in August of that year, making her vice president, Temer, the new interim President. Her impeachment had nothing to do with Petrobras, though the people who instigated it did, with one of them, House Speaker Eduardo Cunha … in jail.

Brazil spent much of the last two and a half years in political chaos because of Petrobras.

Temer was the most disliked president in Brazilian history, with an approval rating struggling to get over 10%. When the election season began in 2018, it became clear that no one from the parties associated with Petrobras was going to win.

They tried hard. Lawyers for jailed ex-president Luiz Inacio Lula da Silva worked overtime trying to convince the United Nations and media influencers from London to New York that he was an innocent man, jailed for his politics. His handpicked successor was Dilma. His second handpicked successor was a former São Paulo mayor, Fernando Haddad. Haddad took it upon himself to admit that he was not his own man, even going so far as printing up and wearing T-shirts emblazoned with the ridiculous campaign slogan: “Haddad is Lula.” He visited Lula in jail for campaign advice. And so as while rubbing the face of the electorate with indicted Petrobras criminals, Haddad got beat by a family-values conservative named Jair Bolsonaro who symbolized the boiled-over anger of those who had had it with anyone affiliated with embattled oil company.

uncaptioned image

A supporter of former Brazilian president Luiz Inacio Lula da Silva cries in hopes of his release outside the federal police department where Lula is serving a 12-year sentence for corruption in Curitiba, Brazil, on  Dec. 19, 2018. No one has heard from him or about him since the start of the new year. AP Photo/Denis Ferreira

By The Way, Where’s Lula?

Lula has been totally absent from the headlines. The biggest fish fried by the Federal Police made himself part of the daily news cycle in the fall of 2018. The New York Times gave him op-ed space where he sold his political persecution story to the world. (I tried to get an opposing view in the NYT, arguing that he was not a political prisoner, but they rejected it. Tudo bem.)

Now, the disgraced founder of the Workers’ Party is spending the next 12 years in jail, at least. No one is outside his prison quarters cheering “Good morning, president Lula” anymore. He is alone and—mostly—forgotten.

His lawyers are no longer blasting reporters’ Whatsapp accounts with their latest filings of a habeas corpus or a statement by someone who works for the UN Human Rights Commission saying that the Petrobras investigators used their legal powers to jail him unlawfully. Those days are suddenly gone. And they are gone, obviously, because the election is over and the Workers’ Party lost. Lula’s “political persecution” was what it was: a political campaign for the Workers’ Party.

The Car Wash investigation isn’t picking parties to plunder.

Temer’s Democratic Movement Party, a big-tent party of wealthy Brazilian oligarchs, one of the oldest parties in the country, also lost big in last year’s election because of Petrobras. In fact, every party that was part of the government, even those that were part of the majority opposition, got handed their walking papers because of this scandal.

It is no surprise that Temer was arrested. If the courts don’t get you, the voters will.

uncaptioned image

Supporters of presidential candidate of the Workers’ Party Fernando Haddad, dressed in a banner written in Portuguese: “Haddad is Lula 13. AP Photo/Eraldo Peres

Brazil’s new government rose to power out of sheer hatred of politicians like Temer and Lula. But this new government is surrounded by noise. Temer’s arrest will likely push Bolsonaro’s already declining public opinion polls lower, especially if Brazilians do not see their economic outlook improving.

Some 68% view Bolsonaro as either “good” or “very good,” with numbers for “very good” declining 15 points since his inauguration in January.

At the start of the year, Jan Dehn, head of research for the Ashmore Group, a $74 billion emerging markets asset manager in London, told me he was giving Bolsonaro until the end of the first half to get something done — on pension reform, in particular. That has been the one issue propping up Bolsonaro’s stock price. As soon as the market feels pension reform is in jeopardy, Brazil’s stock market turns the other way, and Bolsonaro is governing over political crisis and weakening investor sentiment, not much different than Temer did.

uncaptioned image

Jair Bolsonaro, Brazil’s president, said of Temer’s arrest: “Each person has to be responsible for their actions.” Andre Coelho/Bloomberg

© 2019 Bloomberg Finance LP

Bolsonaro: Governing Above The Noise

It is difficult to govern in Brazil due to all the different political alliances. This is not a two-party system. Considering the difficulties already involved in the Brazilian congress, throw political crisis on top of that and it becomes even harder.

Bolsonaro was relatively quiet on Temer’s arrest, preferring to say that, “Each person should be held responsible for their actions.”

Bolsonaro wasn’t elected on an economic platform. He was always an anti-Lula, law-and-order vote.

His government’s economic team is led by BTG Pactual founder Paulo Guedes, a University of Chicago-educated markets guy who has set the course for a somewhat overambitious list of economic reforms. Bolsonaro basically put Guedes in charge of the market.

Given the complex process in approving Guedes’ measures, from pension reforms to privatization, delays are more likely today because of uncertainty surrounding Petrobras investigations than they were last week. The Car Wash investigations are not over, and that means key members of congress could, in theory, be focused on other matters, or perhaps, lose their post in key cabinet positions in worst case scenarios.

Bolsonaro’s small political party—the Social Liberal Party—was not part of the Petrobras scandal, so it is possible they will not be scrambling like the congressional leaders were under Temer’s Administration when arrests were made of private citizens affiliated with them.

On the bright side, that means Bolsonaro has a better chance to inoculate himself from the Petrobras-related arrests like the eight individuals arrested on Thursday.

If he can do that, then smaller reforms like payroll tax breaks and Petrobras asset sales might get done earlier this year. Pension reform is unlikely to go anywhere until the end of the year, Morgan Stanely analysts said in a report. This is a very different view from a month ago when consensus estimates were for some type of pension reform to be competed by July.

The rest of Bolsonaro’s economic agenda depends on how well he can separate himself and his team from the Petrobras brat pack. He will have to remind them that he is president because he was never part of that group in the first place.

For media or event bookings related to Brazil, Russia, India or China, contact Forbes directly or find me on Twitter at @BRICBreaker

I’ve spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big eme…

Source: Brazil Stock Market Tanks Amid Petrobras Scandal That Keeps On Giving

The Yield Curve Just Inverted, Putting The Chance Of A Recession At 30%

The interest rate on the U.S. Treasury 10-year bond just fell below the rate on the 3-month bill in response to the Fed’s March announcement. This is called yield curve inversion as defined by Arturo Estrella and Frederic Mishkin. It implies a 25%-30% probability of a recession on a 12-month view. Their research can be found here.

As economic relationships go, the yield curve has a good track record. You can see the data below going back to 1982. Per the chart, using this series over recent history, the yield curve inverts before a recession reliably with no false positives. An impressive record. The blue line shows the spread between 10-year and 3-month interest rates. The black line is the zero bound. The shaded grey periods are historical recessions. Note that there is a lagged relationship here, recession historically occurs 6-18 months after inversion. So today’s yield curve suggests a fair chance of a 2019-2020 recession.

uncaptioned image

Federal Reserve Bank of St. Louis, 10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity

Federal Reserve Bank of St. Louis

Risks Of Interpretation

Nonetheless, there are some risks with this approach. The first is we’re looking at a limited run of data. There are only a few decades in the sample and a handful of recessions. We’re making a forecast here based on less than ten recessionary events, per the initial research and subsequent out-of-sample data. Plus there are countless pieces of economic data out there. Combining two of them and creating a good recession forecast is possibly due to data mining. For example Tyler Vigen’s site illustrates the problem, showing how correlations can be found between many things that have little basis in reality, such as an apparently strong relationship between mozzarella cheese consumption and sociology degrees. So even though the yield curve relationship looks robust, it has been plucked from hundreds of other relationships that could exist, but don’t look as meaningful. The human brain is adept at creating patterns where none exist.

Also, a 25-30% chance of recession is not that high. Going back from 1960 to 2018 we have 59 years of data. We’ve had U.S. recessions during 16 of those years. So even before any more sophisticated forecasting methods, your chance of being in a recession in any given year are 27%. There’s some auto-correlation there too, as recession years come in clusters, but still, saying the chance of recession coming within a year or so is around one in four isn’t that different from what history tells us regardless of what the economy is doing. Of course, even at a 30% probability the chances are roughly twice as high that a recession does not occur.

Also, the Federal Reserve (Fed) has a key target of avoiding a recession in order to maintain full employment. This one of their key policy targets. The Fed are quite capable of learning. The increasing emphasis on the yield curve has not gone unnoticed by the Fed. In fact, the initial research here was published by the New York Fed itself. So unlike in the past, the Fed may be able to take corrective action, which was exactly what Chairman Powell was looking to stress in the Fed’s March meeting release. The Fed’s challenge is obvious but not simple, a few quarters ago the markets were spooked by a potential stack of rate hikes in 2019 that could risk recession, so the Fed changed course. Yet, in doing so they have helped create an inverted yield curve, introducing another set of recessionary fears.

However, the risk here is the markets are capable of learning too, and there is some evidence that recessions are self-fulfilling, meaning that if enough decision makers expect a recession they may then take the very actions actions, such as temporarily cutting back on spending, that cause a recession to happen. In that light, yield curve inversion gaining more attention is bad news if it causes people to anticipate a recession, which then makes one more likely.

So yield curve inversion is not a positive sign for markets, but we may be overstating its importance. Also if the indicator is to be believed, we should watch out not just for inversion, but when the 3-month yield falls 1% or more below then 10-year yield, then our confidence in a recession around the corner should be quite a bit higher.

Articles educational only, not intended as investment advice.

Follow @simonwmoore on Twitter. Simon is Chief Investment Officer at Moola, and author of Digital Wealth (2015) and Strategic Project Portfolio Management (2009).

Source: The Yield Curve Just Inverted, Putting The Chance Of A Recession At 30%

Progress Ahead? Hopes For China Trade Progress Rise, Putting Markets On Solid Footing

A long weekend looms, but before that, there’s a lot to digest. Perhaps topping the list is the latest scuttlebutt around trade with China (see more below). Netflix earnings also rank high, with shares down 3% in pre-market trading after a Q4 revenue miss. Automaker Tesla is also in the news after announcing plans to shrink its workforce as it tries to lower product prices and improve its margins………

Source: Progress Ahead? Hopes For China Trade Progress Rise, Putting Markets On Solid Footing

IRS Announces Tax Season Start Date Despite Government Shutdown

The Internal Revenue Service (IRS) has announced that tax season will open on Monday, January 28, 2019. The IRS will begin accepting paper and electronic tax returns that day. The IRS made the start date announcement despite the ongoing government shutdown. “We are committed to ensuring that taxpayers receive their refunds notwithstanding the government shutdown. I appreciate the hard work of the employees and their commitment to the taxpayers during this period,” said IRS Commissioner Chuck Rettig………

Source: IRS Announces Tax Season Start Date Despite Government Shutdown

%d bloggers like this:
Skip to toolbar