[DrVenture]

Barron's Feb 24, 2025 highlights

Pg 8, It’s quiet before the storm. Be prepared for lurking deficits, inflation and volatility. There are unofficial explorations of special nonmarketable 100-yr zero-coupon Treasuries that the US allies with US military protections or guarantees would be required to buy and hold – a deal that they may not refuse. That may be Band Aid for the underlying US deficits and debt-servicing problems – historically, those caused the unraveling of the past great powers. But following aggressive dollar diplomacy (that the dollars you hold aren’t really yours), such demands for protection may backfire and accelerate the move away from the dollar and hurt its global reserve status. Moreover, the stock market hasn’t adjusted to rising inflation-expectations that are now around +3.5% over 5 years. Volatility (stock VIX, bond MOVE) is definitely mispriced now, so buy some protective puts (they aren’t cheap vs calls, note high SKEW) for portfolio or raise some cash.

EUROPEAN stocks (ETFs VGK, EWG; sectors – financials, industrials, etc) are bargain at fwd P/E of 14 (vs 22 for SP500). Several European economies are in/near recession, and some face elections, and that may be a good time to buy. The US tariffs would add to those woes. Europe may also have to spend more on defense. A big positive would be the end of Russia-Ukraine war that would lower energy prices in Europe and would provide huge boosts to the economy. Ukraine would require massive reconstruction. Many European companies have bulk of their revenues and sales outside of Europe. However, several US institutional investors are already overweight in Europe, and some European indexes appear technically overbought, so wait to buy the dips (in Europe, not in the US).

Pg 14, The energy sector is important for the economy as well as for lowering inflation through lower energy prices. Energy Emergency will selectively benefit areas of oil, gas and alternatives. Some early actions have hurt energy stocks (XLE, XOP, TAN, FAN) – halting existing grants and loans (some are in courts already), tariffs on Canada and Mexico. OPEC is operating at reduced production levels. If sanctions on Russian oil/gas are relaxed or lifted, the energy stocks would be lower.

Energy areas not much dependent on federal actions may be better bets – natural gas, nuclear, solar, etc. US oil and gas production is already at high levels. The US also has too much natural gas that it cannot export due to LNG facility limitations (several new ones are being built). Primary uses of natural gas are for power production and by industrial and residential customers. It’s also a great transitional fuel. As such there is no supply emergency for oil or gas. The emergency order focused on traditional areas of energy, transportation or transmission, but there was no mention of the fast-growing solar, wind and batteries. Mentioned are AR, FSLR, GTLS, LNG, VG; nuclear CCJ, EU, SMR, OKLO, UEC, ETF NUKZ.

Pg 26, Missed expectations and lowered guidance by Walmart/WMT killed the rally this week. Economic concerns arose about inflation and tariffs impacting the consumer. SP500 had new highs in a down week. Other economic data was also weak (UM sentiment, home sales). But bulls haven’t given up hope as YTD is still good for SP500.

Packaged-foods companies are struggling (lagging ETF XLP) as consumer preferences have shifted to fresher, healthier foods and store brands. The new obesity drugs have had negative impact. Potential tariffs also muddy the outlook. More attractive are MDLZ, POST, BRBR (protein powders and shakes).

Pg 31, The US wants Ukraine to payback the military aid with its rare-earth minerals and metals. But mining those will require huge capex in the post-war Ukraine needing extensive reconstruction. Rare-earths mining and processing will require huge amounts of energy and may cause extensive environmental damage. About a third of the rare-earths are in the Ukrainian territory controlled by Russians. The development period for rare-earths production may be 15+ years with payback period of 40+ years – that’s not the timeframe for private sector investments. In the reconstruction of Ukraine, mining of rare-earths may be only a tiny factor.

INTEREST RATES

TREASURY

T-Bills: 3-mo yield 4.32%, 1-yr 4.15%
T-Notes: 2-yr 4.19%, 5-yr 4.26%, 10-yr 4.42%
T-Bonds: 30-yr 4.67%
TIPS/Real yields: 5-yr 1.65%, 10-yr 2.00%, 30-yr 2.35%

Pg 55, Elon MUSK’s DOGE is going after Medicare. Looking at Project 2025 (a real blueprint after all), the plan may be to privatize Medicare, i.e. Medicare Advantage (MA) default for all new participants; the existing traditional Medicare participants (Parts B, D and private Medigap) may be grandfathered. Major changes may require Congressional approval. It’s time to review traditional Medicare vs MA choice. It’s hard to go back from MA to traditional Medicare in many states as medical underwriting for Medigap may be required. Advance planning is necessary as the premiums (including IRMAA) depend on income 2 years prior; limited Roth conversions may help (tradeoff is current tax liability vs no RMDs or no taxes on withdrawals in future). Keep in mind that even at the highest IRMAA levels, there is some subsidy (and the highest Medicare premium are still much lower than private health insurance).

[DrVenture]

Sounds familiar!

https://www.cnbc.com/2025/03/03/leon...-cash</b>.html

"The chairman of Omega Family Office expressed hesitation Monday in a CNBC interview, saying “I don’t like what I see” in a market with high valuations and against a volatile policy environment.'

'Basically, I’m selling anything I have that goes up. I’m selling on strength, reducing exposure on strength,” Cooperman said during a “Squawk Box” interview. “We have a bunch of stocks that have done well. We’re keeping up with the market, which is [a] good thing.'

"...he is holding about 15% cash, which is well above the usual 5% or so allocation typical on Wall Street."

[XutvJet]

Here come the tariffs we all wanted!!!

[DrVenture]

https://www.cnbc.com/2025/03/03/trum...-minister.html


-President Donald Trump dashed hopes Monday that a last minute deal might avert tariffs on Canada and Mexico.
-The tariffs include a 10% levy on Canadian energy imports.
-U.S. consumers will face higher gasoline, electricity, home heating and car prices if the tariffs go into effect, Canadian Energy Minister Jonathan Wilkinson said.

https://www.cnbc.com/2025/03/03/nvid...iff-fears.html

-Nvidia shares fell nearly 9% on Monday after President Donald Trump confirmed that tariffs from Canada and Mexico will go into effect on Tuesday.
-The company’s shares are now trading at the same price they were in September, before the U.S. presidential election.

https://www.cnbc.com/2025/03/03/cryp...ket-today.html

Bitcoin drops almost 10%, reversing gains.

[Watching The World Burn]

Originally Posted by DrVenture

https://www.cnbc.com/2025/03/03/trum...-minister.html


-President Donald Trump dashed hopes Monday that a last minute deal might avert tariffs on Canada and Mexico.
-The tariffs include a 10% levy on Canadian energy imports.
-U.S. consumers will face higher gasoline, electricity, home heating and car prices if the tariffs go into effect, Canadian Energy Minister Jonathan Wilkinson said.

https://www.cnbc.com/2025/03/03/nvid...iff-fears.html

-Nvidia shares fell nearly 9% on Monday after President Donald Trump confirmed that tariffs from Canada and Mexico will go into effect on Tuesday.
-The company’s shares are now trading at the same price they were in September, before the U.S. presidential election.

https://www.cnbc.com/2025/03/03/cryp...ket-today.html

Bitcoin drops almost 10%, reversing gains.

Yes, this is where things are going to get interesting I think. So Canada didn't suffer as much as you guys did with the 2008 banking crisis, which was a bit of a different story than this of course (rising interest rates, less demand for housing, leading to defaults, etc), but the catalyst really IMO for why 2008 happened was largely due to a decent majority of Americans living without much of a rainy day fund. Basically living paycheque to paycheque and thus they couldn't afford the cost of increased interest rates (those that had mortgages - obviously the poorest Americans didn't, and so probably weren't as affected).

If that's generally correct, and if the mindset hasn't really changed in terms of not having a rainy day fund - if tariffs do what I think they are going to do (which is to raise the cost of living for most Americans) - if basic cost of living increases by 25% say, could we see another 2008 crisis? I'm not sure it would be to the same scale though, since I suspect the total cost of living might be less than the annual cost of interest payments, but maybe I'm wrong....maybe they are close.

[DrVenture]

My view is that the market has been trying to ignore all the noise, but that may no longer be possible. How long this game of chicken will last becomes the question.

"Canadian PM Trudeau announces 25% retaliatory levy on U.S. products"

"Tech stocks are down 7% since Trump’s inauguration as trade war fuels uncertainty"

"Best Buy shares plunge as CEO warns price increases are ‘highly likely’ due to Trump tariffs"

"Mexico tariffs could raise produce prices in the next few days, Target CEO says"

"China retaliates with additional tariffs of up to 15% on some U.S. goods from March 10"

"Tariffs will wipe out all profits for Detroit’s Big Three if they don’t raise prices, estimates Barclays"

"Airline stocks tumble amid economic concerns"

[ASAP]

Recession by summer... mark my words.

And this time it won't be the nonsense about 2 negative gdp quarters but it will in fact also include high unemployment and persistent inflation.

[Tyga11]

Originally Posted by ASAP

Recession by summer... mark my words.

And this time it won't be the nonsense about 2 negative gdp quarters but it will in fact also include high unemployment and persistent inflation.

You've been calling for a recession for 3 years now. Yes, it may come eventually but you keep repeating it doesn't mean anything.

You probably have a large cash position and want the market to crash

[other_evolved]

I wouldn't be surprised by a mild recession sometime in the next 12 months. Historically we get one about every 4 years, and we haven't had a "natural" one since 2007/2008.

[DrVenture]

^^^This is a pretty good point. Though we have had some down years on the markets along the way - notably 2015, 2018 & 2022. Even without a true recession we could have slow GDP growth and market corrections. This months jobs report indicates potential issues. And the Nasdaq is hovering around correction territory.

-Private companies added just 77,000 new workers for the month, well off the upwardly revised 186,000 in January and below the 148,000 estimate, ADP reported.
-The report reflected tariff concerns, as a sector that lumps together trade, transportation and utility jobs saw a loss of 33,000 positions.
-On the positive side, leisure and hospitality jobs jumped by 41,000, while professional and business services added 27,000 and financial activities and construction both saw gains of 25,000.

[DrVenture]

USD has undergone a sharp pullback lately. There is concern that it could be masking significant stock market weakness. Chartists believe that the S&P is suggesting a move down to 5400. An ~6% drop from here.

Efforts are now underway to change how GDP is calculated. To me this would appear to be an effort to obfuscate the true economic data. And would seem to only be necessary if the measures that have been successfully in use for many decades were expected to deteriorate.

"Monday, the Federal Reserve Bank of Atlanta issued a forecast that calls for gross domestic product to fall by 2.8% in the first quarter of 2025, down from -1.5% last week. The Atlanta Fed’s GDPNow estimate in mid-February had projected a rise — not a drop — of 2.3%.'

If these numbers materialize, it represents a massive shift from +2.3% growth to as much as a 2.8% drop. This makes me consider further de-risking activities.

[ASAP]

Originally Posted by DrVenture

USD has undergone a sharp pullback lately. There is concern that it could be masking significant stock market weakness. Chartists believe that the S&P is suggesting a move down to 5400. An ~6% drop from here.

Efforts are now underway to change how GDP is calculated. To me this would appear to be an effort to obfuscate the true economic data. And would seem to only be necessary if the measures that have been successfully in use for many decades were expected to deteriorate.

"Monday, the Federal Reserve Bank of Atlanta issued a forecast that calls for gross domestic product to fall by 2.8% in the first quarter of 2025, down from -1.5% last week. The Atlanta Fed’s GDPNow estimate in mid-February had projected a rise — not a drop — of 2.3%.'

If these numbers materialize, it represents a massive shift from +2.3% growth to as much as a 2.8% drop. This makes me consider further de-risking activities.

Not to pick any sides here at all... but that also happened with unemployment and how money supply was measured... the employment revisions month over month were absurd and i dont think that we have seen a real unemployment report in probably 5 years.

I am confident we see a recession by the summer... its a bubble thats brewing and unemployment is finally skyrocketing... papering over the problem won't fix the issue any longer.

[DrVenture]

Revisions have been part of the process for 100 years. Even GDP numbers get revised, as the data emerges. The alternative is waiting until all data is acquired and validated and assessed, meaning months of delays before getting a glimpse of the situation. Not optimal.

Completely changing how the GDP numbers are calculated to inflate them is something entirely else. Like changing MPH to KPH so you can boast that you can do 0-100 in 3 seconds. I do know that you have a thing about revisions, from your past posts. Not looking to go there. We must agree to disagree on that.

Read this:

https://www.barrons.com/articles/lut...onomy-aaa2b8c6

First paragraph: "Commerce Secretary Howard Lutnick floated the notion on Sunday of excluding government spending data from the overall calculation of gross domestic product. Economists say such a move would be “nonsensical” and could erode confidence in U.S. economic data."

[DrVenture]

The rotation from large cap growth to large cap value continues with LCG down -0.52 and LCV up +0.64 today. Yesterday LCG was down 4% and LCV was up +0.7%.

This is not necessarily reflected in looking only at major indices as they are being bolstered by value and core components. Still in only two days value has beaten growth by ~6%. YTD large value is still up 6% and large growth is down -5%, a whopping 11% spread.