David Fuller and Eoin Treacy's Comment of the Day
Category - General

    A $6 Trillion Wall of Money Revives Arcane Part of Wall Street

    This article from Bloomberg may be of interest to subscribers. Here is a section: 

    Companies are grappling with the twin burdens of higher interest rates and slower economic growth, and some have already suspended dividends or put assets up for sale to pay debt. But with $6.3 trillion of outstanding corporate bonds alone coming due by the end of 2025, many are seeking alternative ways to protect their balance sheets.

    Mall landlord Unibail-Rodamco-Westfield is one firm that’s been selling assets to pay down debt after its purchase of Westfield for about $22 billion in 2018 soured.

    “We over-levered the company,” Unibail-Rodamco-Westfield Chief Executive Jean-Marie Tritant said in an interview. Falling values after the acquisition meant “our loan-to-value started to increase to a point where investors were somehow concerned about our ability to face our obligations.”

    Tritant took over the firm in 2021 after a successful activist campaign backed by French technology billionaire Xavier Niel. As well as the disposals, the CEO stabilized the company by axing the dividend, limiting capital expenditure and extending debt maturities.

    Read entire article

    U.S. Housing Starts Fell to Pandemic Lows in January

    This article from Dow Jones may be of interest. Here it is full: 

    U.S. housing starts declined in January to its lowest level since June 2020, a sign residential construction is pulling back amid the current downturn in the housing sector. Here are the main takeaways from the Commerce Department's report released Thursday:

    Housing starts, a measure of U.S. homebuilding, decreased 4.5% in January month to a seasonally adjusted annual rate of 1.309 million. This is the lowest annual rate since June 2020, at the onset of the Covid-19 pandemic.

    Economists polled by The Wall Street Journal expected starts to decrease 2.3% to 1.35 million.

    Housing starts were 21.4% below the same month a year earlier.

    The drop was driven by both single-family and multi-family projects, which declined by 4.3% and 5.4%, respectively.

    Housing starts data for December was downwardly revised to 1.371 million from 1.382 million initially estimated.

    Monthly housing starts data are volatile. January data came with a margin of error of 15.9 percentage points.

    Residential permits, which can hint at future home construction, increased by a marginal 0.1% in January on month, to a seasonally adjusted annual rate of 1.339 million. Economists expected permits to increase 1.5% on month.

    Sentiment among home builders rose sharply in February for a second consecutive month, in a sign that the current downturn in the housing market could be bottoming out, according to data from the National Association of Home Builders published Wednesday.

    Read entire article

    Rush Into Meme Stocks, Zero-Day Options Fuels Latest Frenzy in the Wall Street Casino

    Now, insouciant speculation has returned in another acronym, 0DTE, which stands for Zero Days to Expiration options. Short-term calls and puts have long been favorites of speculative traders because they cost less than lengthier contracts. To help traders scratch that speculative itch, the exchanges have been offering ever-shorter options until they got to 0DTE.

    And their growth has been explosive, so much so that their trading volume is swamping the turnover in the underlying securities, reports Doug Kass, who heads Seabreeze Partners and flagged the 0DTE phenomenon for us. He likens it to the speculative frenzy once seen in the trading of hot initial public offerings, when new shares would change hands several times on their first day, he said in a phone interview.

    These short-term options have succeeded meme stocks as the Street’s gambling vehicle of choice, adds Peter Tchir, the derivatives maven who heads macro strategy at Academy Securities. About 90% of his recent conversations are about 0DTE, he relates in an email. And Thursday saw record call-option volume, with the vast majority of expirations on Feb. 2 and Feb. 3. The SPDR S&P 500 exchange-traded fund (ticker: SPY), usually leads the most-active list; Tesla (TSLA) does the same among single stocks.

    Read entire article

    Britain's Easing Inflation Puts End of BOE Rate Hikes Into Sight

    This article from Bloomberg may be of interest. Here is a section: 

    The concern is that inflation doesn’t tick down as quickly as the BOE anticipates. Prices increased 11.1% in October, the most in 41 years. That eased in each of the past three months, but the latest inflation reading at 10.1% remains five times the BOE’s target rate.

    The BOE will be heartened by news that inflation in the services sector eased in January. It’s one of the key indicators being watched by policymakers, who see it as gauge of domestically generated inflation that is hard to shift once it takes hold.

    The other red flag is wage growth, which is now running at the fastest pace on record outside of the pandemic as labor shortages hand workers unprecedented bargaining power. 

    The BOE fears inflation could become entrenched as companies keep raising prices to cover their salary costs. There were some signs of hope in the latest data, however, with figures for December alone showing a slowdown in private-sector pay increases.

    Read entire article

    Air India made the largest plane order in commercial aviation history

    This article from Quartz may be of interest to subscribers. Here is a section: 

    The White House was the first to announce the deal with Boeing, releasing a statement from president Joe Biden describing the deal as evidence of a strong economic partnership between the US and India. According to the statement, all the Boeing planes will be made in America and will create over one million jobs across 44 states.

    The purchase was also welcomed by Indian prime minister Narendra Modi, who said it was evidence of “the successes and aspirations of the civil aviation sector in India.”

    Air India was privatized in 2022 after a long run as India’s national airline. Currently, it only has a fleet of around 100 jets, most of them leased. The first batch of planes from Airbus is expected to arrive later this year. Boeing has yet to release a timeline for production.

    Read entire article

    How America Took Out The Nord Stream Pipeline

    This article from Seymour Hersh’s Substack may be of interest. Here is a section: 

    In December of 2021, two months before the first Russian tanks rolled into Ukraine, Jake Sullivan convened a meeting of a newly formed task force—men and women from the Joint Chiefs of Staff, the CIA, and the State and Treasury Departments—and asked for recommendations about how to respond to Putin’s impending invasion.

    It would be the first of a series of top-secret meetings, in a secure room on a top floor of the Old Executive Office Building, adjacent to the White House, that was also the home of the President’s Foreign Intelligence Advisory Board (PFIAB). There was the usual back and forth chatter that eventually led to a crucial preliminary question: Would the recommendation forwarded by the group to the President be reversible—such as another layer of sanctions and currency restrictions—or irreversible—that is, kinetic actions, which could not be undone?

    What became clear to participants, according to the source with direct knowledge of the process, is that Sullivan intended for the group to come up with a plan for the destruction of the two Nord Stream pipelines—and that he was delivering on the desires of the President.

    Read entire article

    Norfolk Southern Drops as EPA Asks It to Pay for Ohio Cleanup

    This article from Bloomberg may be of interest to subscribers. Here is a section: 

    Norfolk Southern Corp. fell again as the railroad faced growing fallout from a train derailment that spilled chemicals in Ohio early this month.

    The US Environmental Protection Agency notified the company of its “potential liability” and encouraged Norfolk Southern to reimburse the agency for its costs related to the crash. The EPA urged a quick response in its Feb. 10 letter.

    The railroad said it received the EPA’s request and “will continue to perform or finance environmental monitoring and remediation,” according to an emailed statement. Norfolk Southern’s hazardous materials team was at the scene within an hour of the accident and continues to work with authorities, the company said in the statement.

    The 150-car train derailed at 8:55 p.m. Eastern time on Feb. 3. It was hauling about 20 railcars with chemicals, including vinyl chloride, ethylhexyl acrylate and isobutylene, according to the EPA. 

    Those chemicals were released into the air, surface soils and surface waters near East Palestine, Ohio. 

    Norfolk Southern slid 1.2% Monday in New York, the fourth decline in six trading days since the spill. The shares are down 2.7% this year, while the S&P 500 Index is up 7.8%

    Read entire article

    Sentimental Journey

    Thanks to Iain Little for this edition of his Global Thematic Investors’ Diary. Here is a section: 

    Where next? The best comment, as it also applies to us, comes from one of our managers, Terry Smith: “Our companies should demonstrate a relatively resilient fundamental performance in such circumstances, and the only type of market which ends in a recession is a bear market.”

    We are reminded by another market veteran we’ve followed for 40 years, Ed Yardeni, that the FAANGS, the mega tech US stocks which led the 2014 to 2021 bull market, still inflate the PER market rating. Without the FAANGS, the forward market multiple is only 16.7x, making it barely 2 points higher than the long-term average. Bearish commentators claim that earnings are about to take a hit, raising the PER, and rate rises are still in store. (Remember that 2 main factors influence share prices: the valuation of earnings, influenced largely by interest rates, and the earnings themselves). There may indeed be something to the bears’ claim.

    Read entire article