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The Best of What They Said and I Read Week Ending 5/10/2020

Short excerpts from articles I found interesting.  I may not agree with the author and the following material is not intended as investment advice


Barron’s – May 8, 2020 – Stock Valuations Are Near Dot-Com-Era Levels.   Don’t Expect a Bust This Time. – Al Root

  • “…This past week was full of bad economic data and mediocre earnings —and the stock market just kept going higher. The Dow Jones Industrial Average rose 608 points, or 2.6%, to close at 24,331. The S&P 500 index rose 3.5%, to 2930. The Nasdaq Composite beat both its peers, rising 6% to close at 9121, cracking the 9000 barrier again. The Nasdaq, amazingly, is up on the year, having tacked on almost 2,500 points, or 38%, from the March lows. Not bad, considering the damage that Covid-19 has wrought on the economy.
  •  “…Still, risks are lurking for investors. They always are. Market concentration is one . The Nasdaq is positive for the year, though roughly 75% of the stocks in the index are down in 2020 . But the Nasdaq, like the S&P 500, is weighted by market capitalization, and larger companies count for more.  These days, the top 10 stocks, which include tech behemoths Apple, Amazon.com, and Microsoft, account for about 44% of all the value in the 2,700-stock index. And those 10-largest stocks aren’t cheap. They trade for about 47 times estimated 2020 earnings on average. The valuation problem looks even more extreme in the market’s best-performing names. 
  • But this market is different from the dot-com tech wreck of the early 2000s, the last time valuations were this high. In fact, this time the highflying Nasdaq Composite holds the keys as to why investors can sleep at night. This crop of tech giants is quite different from those of the past. For starters, the tech sector now earns a lot of money, and businesses are booming. Microsoft CEO Satya Nadella said on his company’s recent earnings conference call that the virus has turbocharged companies’ digital transformation plans, boosting Microsoft’s cloud business.  Big tech also looks less economically sensitive than energy and industrial firms that were market giants long ago. “It would be healthier if market leadership were more broadly based,” Rauscher says. “But market statistics are always dominated by the largest companies.”

U. S. Global Investors – May 8, 2020 – Frank Holmes

  • “…U.S. employers cut an unprecedented 20.5 million jobs in April, the most in history, while the unemployment rate rocketed up to 14.7 percent. As of this week, a head-spinning 33.5 million Americans, or one out of every five workers in the U.S. labor force, have lost their jobs as a result of coronavirus lockdown measures.…Meanwhile, we’re seeing corporations file for bankruptcy protection at an accelerated clip. As of May 7, an estimated 78 public and private firms with liabilities greater than $50 million have declared bankruptcy so far in 2020, including iconic brands J.Crew and Neiman Marcus. This puts businesses on track to meet and even surpass the 271 bankruptcies that occurred in 2009.
  • “…The “investor class” will have to pay for the ballooning debt stemming from the Covid-19 crisis, according to Jim Millstein, the co-chairman of Guggenheim Securities who led restructuring efforts at the U.S. Treasury Department after the financial crisis. An article in Advisor Perspectives summarizes, “There is one clear implication: The era of tax cuts is over,” Millstein said Monday in a Bloomberg Television interview. It’s “inevitable” that the wealthy will face greater taxes, he said. “People who have been fortunate enough to be able to make significant incomes are going to have to make a greater contribution.” He said unprecedented support by the U.S. Federal Reserve to backstop credit markets has benefited investors in a way they’ll eventually have to pay back.

The Kiplinger Letter – May 8, 2020 

  • “…Meanwhile, COVID-19 is causing a spike in U.S.-China trade tensions, as President Trump threatens retaliatory tariffs for Beijing’s mishandling of the outbreak, blaming China for the virus’s global spread. Expect this war of words to stay that way; Trump’s threats can be a prelude to diplomacy. But rocky relations may persist if Beijing struggles to buy more U.S. goods as part of a recent trade truce.  Chinese imports from the U.S. are down nearly 6% from the same time last year. 
  • Lawmakers are looking for ways to shore up the U.S. health care workforce. One idea: Give green cards to up to 40,000 foreign medical professionals.  A new Senate bill would authorize up to 25,000 immigrant visas for foreign nurses and up to 15,000 for foreign doctors who are currently eligible to come to the U.S. or already here on temporary work visas. Eventually, these doctors and nurses will be guaranteed an employment-based green card for assisting in the outbreak. The proposal aims to break lengthy immigration backlogs. Thousands of foreign nurses and doctors who have applied for green cards are stuck overseas or face many limitations on their work in the U.S. because of their temporary status. Approximately one-sixth of the U.S. health care workforce is foreign-born. 

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