Biden Out-Trumps Trump His ‘Buy American’ rules are even more protectionist.
(…) Mr. Biden is creating a new office within the Office of Management and Budget to examine all waiver requests, which will be posted for public—i.e., political—review.
Federal agencies will now have to pass vetting by the White House, labor unions and Congress to buy N95 masks, smartphones and electric cars. Recall how the Trump Administration’s steel and aluminum tariffs led to a flurry of exemption requests from U.S. manufacturers. Labor groups and U.S. steel makers lobbied against exemptions, which invited counter-lobbying from Congress. (…)
Supply problems will ease as the pandemic comes under control. But Mr. Biden’s new procurement bureaucracy will still raise the costs and delay public works that are supposed to be an Administration priority.
Carmakers Face $61 Billion Sales Hit From Pandemic Chip Shortage Chip foundries are too busy supplying gadget makers.
(…) Cars these days are in many respects computers on wheels, with electronics accounting for about 40% of a vehicle’s value. By the time auto parts suppliers realized they were running short on the dozens of microprocessors needed for each car, chipmakers were slammed making semiconductors for the cellphones, game consoles, and computers that housebound shoppers were buying like crazy.
The problems have been exacerbated by the outsize power of a single company: Taiwan Semiconductor Manufacturing Co., which accounted for 56% of global chip manufacturing revenue in the fourth quarter of 2020, according to researcher TrendForce. Automakers rarely buy directly from TSMC, instead purchasing most of their electronics from suppliers that often outsource the design and manufacturing of chips to automotive-focused shops such as NXP Semiconductors NV and Infineon Technologies AG. Those companies make some parts in-house, but they hire TSMC to handle much of their production. While the auto industry’s needs are enormous, they’re dwarfed by those of consumer-electronics giants such as Apple, Samsung, and Sony, which are “ready to pay more for chips to ensure their gadgets get to market on time,” says Jeff Pu, an analyst at GF Securities Co. “Carmakers are less inclined to do so.” (…)
Researcher IHS Markit says 628,000 cars—3% of global production—will be knocked off in the first quarter alone. (…)
Regardless of who’s at fault, few expect the bottleneck to clear before the summer, and some say it will last into the fall. (…)
Demand for new and used cars surging as COVID-19 changes how we live and work
(…) According to research by online marketplace autotrader.ca, the pandemic has caused a surge in demand as people avoid public transport and ride-hailing services.
A survey released by the company in December showed 46 per cent of people who were interested in buying a new car listed the pandemic as a direct reason for their purchase. The website also saw a nearly 28 per cent increase in traffic from May to December.
But the demand was underpinned by supply shortages in both new and used car markets, since some manufacturers stopped production at the start of the pandemic and continue to deal with supply chain issues. (…)
U.S. Consumer Confidence Ticks Up in January Consumers’ expectations for the economy and jobs brighten, though their assessment of current conditions weaken due to pandemic.
The January increase was driven by consumers’ more upbeat outlook for the economy and jobs, suggesting they foresee conditions improving in the not-too-distant future, said Lynn Franco, senior director of economic indicators at the Conference Board.
“In addition, the percent of consumers who said they intend to purchase a home in the next six months improved, suggesting that the pace of home sales should remain robust in early 2021,” Ms. Franco said.
However, “consumers’ appraisal of present-day conditions weakened further in January, with Covid-19 still the major suppressor,” she said.
(Haver Analytics)
Home Prices in U.S. Cities Rise at Fastest Pace Since 2014 The S&P CoreLogic Case-Shiller index of property values climbed 9.1% from a year earlier. It was the biggest jump since May 2014.
Renewed Demand for Treasurys Quells Fears of Rising Rates—for Now A sharp climb in U.S. government bond yields has stalled, easing investors’ concerns that rising rates could undercut recent gains in riskier assets.
The yield on the benchmark 10-year U.S. Treasury note has hovered just above 1% for the past nine sessions after jumping from around 0.9% to almost 1.2% in just six days of trading. (…)
In recent years, the 12-month forward-earnings yield of world technology companies—their expected earnings per share as a percentage of their stock price—has generally exceeded the 10-year Treasury yield by at least 2.5 percentage points.
Stocks have sold off four times since the start of 2018 when that threshold was approached or crossed, according to BCA Research. But the yield differential stood at just 2.3 percentage points on Monday, suggesting Treasury yields or tech stocks could be nearing an inflection point. (…)
S&P 500 Average Monthly Gain
(chartoftheday.com)
Wall St split as more companies hit sky-high valuations Calls to jettison traditional price to earnings metrics echo dotcom boom era
(…) alternative metrics such as price/sales, revenue growth or even operating expenses are being brought to the fore as better indicators of a company’s prospects. (…)
“The best companies right now are investing in human capital,” said Michael Frazis, founder of Sydney-based Frazis Capital Partners, whose fund made 108 per cent last year, fuelled by stocks such as Tesla and Chinese ecommerce platform Pinduoduo.
“This investment is conventionally treated as cost, but in reality, they are getting exceptional returns on these investments,” he added. “Price/earnings and free cash flow metrics penalise companies for doing exactly what they should be doing”. (…)
Said it before but that’s what aging allows: hear it before: “this time is different and there are better ways to value equities”. The good old P/E eventually resurfaces.
About “they are getting exceptional returns on these investments”. Let’s verify that using the CPMS/Morningstar data base and software (all median data):
- The S&P 500 Technology rates of return have improved but remain shy of their 1995-96 peaks. Returns on assets are actually much lower, likely because of high net cash balances:
- Pure software companies are similar:
- P/CF for Technology stocks has rarely been higher. However, CF margins are at an historical high at 19% after exploding in 2020:
- P/CF on software equities are at their 25-year highs. CF margins (black) are also at their peak levels after exploding in 2020. Going higher?
- P/BV are off the chart while ROEs are lower than in the late 1990s:
No doubt that 2020 has been very profitable for Tech companies but their basic rates of returns have not exceeded their previous high levels. The ability to keep leveraging increasingly expensive human capital (i.e. engineers/coders/designers) will be tested in coming years.
GAME STOPPER?
GameStop stock doubles again with no let-up in amateur interest Shares of videogame retailer GameStop Corp surged another 130% on Wednesday in pre-market trading as amateur investors continued to pile into the stock that has skyrocketed nearly 700% over the past two weeks.
The share spikes in GameStop and others including BlackBerry Ltd, headphone maker Koss Corp and Nokia Oyj, have sent short-sellers scrambling to cover losing bets, while raising questions about potential regulatory clampdowns.
The top securities regulator in Massachusetts thinks trading in GameStop stock, which has jumped to $148 a share from $19.95 since Jan. 12, suggests there is something “systemically wrong” with the options trading surrounding the stock, Barron’s reported on Tuesday. (…)
Meanwhile in Europe, shares of Evotec and Varta jumped on chatter that Melvin Capital Management was being forced to unwind its short positions to cover losses on its other bearish bets, including GameStop.
… That one tweet alone added over $3 billion in market cap to Gamespot (or perhaps GammaSpot) whose stock price may crush not just hedge fund but also dealers who are painfully short gamma in the name and will be forced to buy a lot more either now or when the stock opens for trading tomorrow.
BTW: “Another note of caution was provided Wednesday by Bank of America Corp. analysts. While raising their price target to $10 from $1.60 to reflect the stock’s recent surge, they noted that GameStop is in “a weaker not a stronger place” and reiterated their underperform recommendation.” (Bloomberg)
Not in the game ‘cause you don’t know what to buy?
Type “what stocks to buy…” in Google and you need no more explanation who is running this market.
Add to this that over past days we have had some record call options stats. Last Wed 29.1M call options traded, on Friday we had 29.05M call options trading, according to GS the 4th and 5th biggest days ever, and if you ask any interbank options broker, most done on screen and small lots, i.e retail.
There are some 31M accounts open on 2 sites, adding some of the new popular trading apps and the figure goes to 50M.
Retail is huge and as we have seen over past sessions very powerful when it comes to carrying out smart guys on stretchers. (The Market Ear)
BACK TO THE REAL WORLD:
U.S. to Buy Enough Doses to Vaccinate Most Americans by End of Summer The Biden administration said it would boost the supply of coronavirus vaccines sent to states by about 16% for the next three weeks and will purchase enough additional doses to vaccinate most of the U.S. population with a two-dose regimen by the end of the summer.
Pfizer-BioNTech to Make 125 Million New Vaccine Doses in First-Ever Licensing Deal
Sanofi agreed to produce millions of doses of BioNTech SE and Pfizer Inc.’s coronavirus vaccine in an unusual collaboration to speed vaccination efforts.
The French drugmaker will give BioNTech access to a production facility in Frankfurt, which will start to deliver doses this summer, Sanofi said in a statement Wednesday. The deal will produce more than 125 million doses of the messenger RNA vaccine for the European Union. (…)
More Americans want a vaccine. Almost 50% of respondents in a Kaiser poll said they’d get a jab, up from just 34% in December. But it may take some time for them to get inoculated. (Bloomberg)
(NBF)
GET OUT OF MY SPACE
Elon Musk and Jeff Bezos are fighting over celestial real estate for satellite fleets. SpaceX has asked the FCC for permission to operate Starlink communications satellites at a lower orbit than first planned. Amazon says that would risk interference or collisions with its planned system. The spat has spilled out onto social media. (BB)
GE’s Larry Culp cites pandemic sacrifice to defend $47m bonus CEO took no salary last year but board lowered share price target that unlocked bigger rewards
