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Tue, 17th January 2017

Anirudh Sethi Report

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Archives of “Fred Trump” Tag

Daiwa to launch ‘Trump-related’ mutual fund

Daiwa Asset Management is set to start operating a mutual fund that invests in stocks related to U.S. President-elect Donald Trump’s infrastructure investment policy. Daiwa will launch the product on Tuesday.

The open-end mutual fund — the first of its kind in Japan since Trump’s election victory in November 2016 — is likely to be made available to retail investors by the end of the month.

 The U.S. infrastructure builder equity fund, which invests in U.S. companies, will quantify how much each stock will benefit from Trump’s infrastructure policy, based on criteria such as sales ratio in the U.S. and the degree of obsolescence of the target infrastructure. The details of the portfolio will be determined by how much share prices are undervalued and how competitive the companies are.

The portfolio, comprising 30-50 companies — mostly in the construction, transport and materials sectors — will be adjusted as appropriate as Trump’s policy takes form.

Trump has pledged to spend $1 trillion to overhaul the country’s aging infrastructure over the next decade.

Overnight US Market :Dow closed +99 points. 46 pts short to cross 20k;Nasdaq at new high

Stocks ended higher Wednesday — and the super-hot Nasdaq notched another new high — in a volatile session that saw sharp swings after President-elect Donald Trump met with the press in a news conference for the first time in six months.

The Dow Jones industrial average climbed 99 points, or 0.5% to 19,954.28, while the S&P 500 ended up 0.3% to about a point and half shy of its record closing high of 2276.98.

It was the seventh winning session in a row for the Nasdaq composite, which gained 0.2%. It notched a new closing high of 5563.65, a dozen points above the previous record set the day before.

Health care stocks got hit after Trump criticized the industry moving production overseas as well as the bidding process for drugs. Energy stocks continued their strength as oil prices headed higher.

The health care sector was the biggest loser among the S&P 500 sectors. Trump said the government has to create new bidding procedures for the pharmaceutical drug industry “because they’re getting away with murder.” The remarks sent the S&P health care sector down 1.7%. Several pharmaceutical companies slumped, with Endo International (ENDP) falling 9%, the biggest decliner in the S&P 500. Perrigo (PRGO) lost 7% and Mallinckrodt (MNK) tumbled 7%.

Energy stocks were the biggest winners as oil prices jumped. Benchmark U.S. crude rose rose $1.43, or 2.8%, to $52.25 a barrel in electronic trading. Shares of Exxon Mobil rose 0.8%.

Bond prices rose after Trump’s news conference, sending the yield on the 10-year Treasury note down to 2.37% from 2.38% Tuesday.

Trade zones out, tough bargains in for 2017

A reversal in U.S. trade policy could make 2017 the year that efforts to build multinational trade zones crumble, returning the focus to tough, bilateral dealmaking.

In October 2015, officials from 12 nations including the U.S. and Japan gathered in the American city of Atlanta to ink the historic Trans-Pacific Partnership, confident of the dawning of a new age of trade governed by such high-level, multilateral agreements. Yet that dream lies all but dead just over a year later, not least due to Donald Trump’s presidential victory and his pledge to pull the U.S. from the agreement upon taking office Jan. 20.

 Many bilateral free trade agreements, which reduce or abolish tariffs and set rules for trade in goods and services between two nations, have been struck over the years. Multilateral agreements extend this notion to the regional level and improve security in the areas they cover, further greasing the wheels of commerce.

Yet Trump prefers his trade pacts one on one — the better to drive hard bargains, leveraging U.S. economic and diplomatic might to secure the most advantageous terms. Multilateral pacts involve far more careful compromise and require each nation to give and take small concessions rather than pushing for an unambiguous win.

Us first

Central Banker Sees “Scary” 2017

 Barron’s Asia: When you look ahead to 2017, what keeps you awake at night?

Amando Tetangco: Short term, the Fed rate hikes — the timing and the magnitude. Of course, this would be related to the policies that the new U.S. administration will adopt. Medium-to-long term, the retreat from multi-lateralism. That is related to the performance of the global economy – the major and various economies, and emerging markets like China.

“Scary stuff” – that’s not the kind of utterance one would expect to hear from a central banker, but in this interview posted on Barron’s Asia with Amando Tetangco of the Philippines, “scary” is just how the central banker defines the increasingly chaotic global environment. Between Donald Trump’s shock election, Brexit, Italians showing their prime minister the door and fallout from quantitative-easing programs, 2016 has been an unusually unruly year. Will 2017 be a kinder, gentler one? Sadly no, says the governor of Bangko Sentral ng Pilipinas.

Barron’s Asia sat down with Tetangco in his Manila office to hear why “scary” days lie ahead.

Barron’s Asia: Many are so happy to see the back of 2016, a year of epochal political upheaval. It’s been a year when lots of financial relationships broke down, with messages from bond yields to stock prices to how oil prices affect markets going haywire. Is the worst over or are we in for rockier times in 2017?

Tetangco: I think it’s more of the latter. You mentioned politics. I think that’s a major consideration right now because it’s causing some uncertainty with this potential rise in populist policies – uncertainty because it is going to be difficult to frame economic policy when something isn’t clear. Among the important considerations in this regard would be Brexit. We don’t know yet how this is going to pan out.

Won’t allow H1B visa holders to replace US workers: Donald Trump

President-elect Donald Trump has said he would not allow Americans to be replaced by foreign workers, in an apparent reference to cases like that of Disney World and other American companies wherein people hired on H-1B visas, including Indians, displaced US workers.

“We will fight to protect every last American life,” Trump told thousands of his supporters in Iowa on Thursday as he referred to the cases of Disney world and other US companies.

“During the campaign I also spent time with American workers who were laid off and forced to train. The foreign workers brought in to replace them. We won’t let this happen anymore,” Trump vowed amidst cheers and applause from the audience.

“Can you believe that? You get laid off and then they won’t give you your severance pay unless you train the people that are replacing you. I mean, that’s actually demeaning maybe more than anything else,” he said.

Disney World and two outsourcing companies have been slapped with a federal lawsuit by two of its former technology staff, alleging that they conspired to displace American workers with cheaper foreign labour brought to the US on H-1B visas, mostly from India.

Gross Echoes Gundlach, Says Trump Rally Is Misguided: “Move To Cash”

On the heels of Jeff Gundlach’s “there’s going to be a buyer’s remorse period” warnings yesterday, the other ‘bond king’ has raised similar fears that the Trump rally is overdone (as are the prospects for growth behind it). Putting aside the book-talking as their bond portfolios suffer, Gross echoes Gundlach’s “Trump’s not the wizard of oz” comments, noting that the next president faces serious structural headwinds and warns investors “should move to cash,” as any fiscal stimulus gains will be temporary at best.

As we noted yesterday, speaking to Reuters, Gundlach, who went “maximum negative” on Treasuries on July 6 when the yield on the benchmark 10-year Treasury note hit 1.32 percent and bottom-ticked what may have been a generational low in rates, said that markets could reverse the recent momentum in equities, and at the very latest by U.S. President-elect Donald Trump’s Jan. 20, 2017 inauguration. 

The “new bond king” said that the strong U.S. stock market rally, surge in Treasury yields and strength in the U.S. dollar since Trump’s surprising presidential victory more than three weeks ago look to be “losing steam,” Gundlach told Reuters in a telephone interview.

“The bar was so low on Trump to the point people were expecting markets will go down 80 percent and global depression – and now this guy is the Wizard of Oz and so expectations are high,” Gundlach said. “There’s no magic here.”

Gundlach had warned last month that federal programs take time to implement, rising mortgage rates and monthly payments are not positive for the “psyche of the middle class and broadly,” and supporters of defeated White House candidate Hillary Clinton are not in a mood to spend money.

Gundlach Turns Bearish Again: “Stocks Have Peaked, It’s Too Late To Buy The Trump Trade”

Having predicted the Donald Trump victory, and nailing the upturn in US Treasury yields as well as the concurrent stork market rally, DoubleLine’s Jeffrey Gundlach has once again taken the other side of the trade after riding it for the past 3 weeks, and is now considerably less exuberant on Trumponomics.

Speaking to Reuters, Gundlach, who went “maximum negative” on Treasuries on July 6 when the yield on the benchmark 10-year Treasury note hit 1.32 percent and bottom-ticked what may have been a generational low in rates, said that markets could reverse the recent momentum in equities, and at the very latest by U.S. President-elect Donald Trump’s Jan. 20, 2017 inauguration.

The “new bond king” said that the strong U.S. stock market rally, surge in Treasury yields and strength in the U.S. dollar since Trump’s surprising presidential victory more than three weeks ago look to be “losing steam,” Gundlach told Reuters in a telephone interview.

“The bar was so low on Trump to the point people were expecting markets will go down 80 percent and global depression – and now this guy is the Wizard of Oz and so expectations are high,” Gundlach said. “There’s no magic here.”

Gundlach had warned last month that federal programs take time to implement, rising mortgage rates and monthly payments are not positive for the “psyche of the middle class and broadly,” and supporters of defeated White House candidate Hillary Clinton are not in a mood to spend money.

There is going to be a buyer’s remorse period,” said Gundlach, who voted for Trump and accurately predicted in January the winner of the presidential election.

What happens next: “The dollar is going to go down, yields have peaked and will move sideways, stocks have peaked as well and gold is going to go up in the short term.”

Trump Warns US Companies There Will Be “Consequences” For Outsourcing Jobs

Emboldened by his “victory” with Carrier Corp, which agreed to keep 1,100 workers in the US instead of outsourcing them to Mexico in exchange for $7 million in tax incentives over 10 years, as part of his victory tour in Indiana, Donald Trump on Thursday warned that U.S. companies will face “consequences” for outsourcing jobs overseas.

“Companies are not going to leave the United States any more without consequences. Not going to happen,” the President-elect said on a visit to a Carrier Corp plant in Indianapolis cited by Reuters.


U.S. President-Elect Donald Trump speaks at event at Carrier HVAC plant in
Indianapolis, Indiana.

Overnight US Market :Dow closed + 2 points.Nasdaq closed sharply down -56 points

The Dow Jones industrial average ended up fractionally Wednesday after a big jump in oil prices on word of an OPEC oil deal.

Tech stocks took a hit as the major indexes ended mostly lower to cap a wild month.

The Dow lost considerable steam, ending up a mere 2 points and about 29 shy of its record closing high of 19,152.14. Earlier in the day, it and the S&P 500 topped their closing records, both set Friday, before scaling back. The S&P 500 wound up in negative territory, down 0.3%

Losing more altitude is the Nasdaq composite, which fell 1.1%.

The price of benchmark U.S. crude jumped as much as 9%m ending about a dime over $49 a barrel after OPEC countries moved toward finalizing a deal to reduce production.

Among energy companies, Devon Energy (DVN) jumped 14.6%, the biggest gain in the Standard & Poor’s 500 index.

Goldman Raises S&P Target To 2,400 On “Trump Hope”

Having warned for nearly all of 2016 that the market is getting ahead of itself on the back of median P/E multiples that are higher than 99% of all historical reading, Goldman chief strategist David Kostin stubbornly kept his year end S&P target at 2,100 on valuation concerns.

Today, however, with oil soaring and the S&P at all time highs, he finally threw in the towel as a result of the Trump victory, and in a report Kostin writes that the Trump “Hope” will dominate through 1Q 2017 as S&P 500 climbs by 9% to 2400.  However, at that point, “less-than-expected tax cuts and higher inflation and interest rates will limit both upward EPS revisions and any P/E multiple expansion. S&P 500 will end next year at 2300, reflecting a price gain of 5% and a total return of 7% including dividends.”

Here is the summary from Goldman:

  • US equity investors have focused “more on hope than n fear” since Donald Trump’s election. Ironically, many commentators believe his campaign rhetoric focused “more on fear than hope.” In 2017, we expect the stock market will be animated by competing views of whether economic policies and actions of President Trump and a Republican Congress instill hope or fear.
  • “Hope” will dominate through 1Q 2017 as S&P 500 climbs by 9% to 2400. The inauguration occurs on January 20 and our Washington economist expects much legislation will be proposed during the first 100 days. The prospect of lower corporate taxes, repatriation of overseas cash, reduced regulations, and fiscal stimulus has already led investors to expect positive EPS revisions. Instead of our baseline adjusted EPS growth of 5% to $123, growth could accelerate to 11% and reach $130, which would support a P/E multiple above 18x. Top “Hope” investment recommendations: (1) Cyclicals vs. Defensives; (2) Stocks with high US versus foreign sales exposure; and (3) High tax rate companies.
  • “Fear” is likely to pervade during 2H and S&P 500 will end 2017 at 2300, roughly 5% above the current level. Our economists expect inflation will reach the Fed’s 2% target, labor costs will be accelerating at an even faster pace, and policy rates will be 100 bp higher than today. Rising inflation and bond yields typically lead to a falling P/E multiple. Congressional deficit hawks may constrain Mr. Trump’s tax reform plans and the EPS boost investors expect may not materialize. Potential tariffs and uncertainty around other policy positions may raise the equity risk premium and lead to lower stock valuations in 2H. The median stock trades at the 98th percentile of historical valuation based on an array of metrics. Top “Fear” investment recommendations: (1) Low vs. High labor cost companies; and (2) Strong vs. Weak Balance Sheet stocks.
  • Money flow represents a potential upside to our baseline forecast. Equity mutual fund and ETF inflows may benefit as investors lose money owning bonds. After years of active management underperformance and outflows, higher return dispersion will increase the alpha opportunity for investors skilled enough to capture it. Economic policy uncertainty and the later stages of the economic cycle are typically associated with higher stock return dispersion