Hedge fund icon Ray Dalio delivered a grim speech yesterday at a gala dinner for the National Committee on US-China Relations. The investor is worried about war in all it forms. He said that “There is a trade war, there is a technology war, there is a geopolitical war, and there could be a capital war”. Famed former US Secretary of State Henry Kissinger also spoke at the event and told both sides that they must avoid a shooting war at all costs, as no side can win.
FINSUM: Everyone on both sides will hopefully be somewhat relieved if a “phase one” trade deal can be reached.
Retail is dying, right? Brick and mortar is doomed, supposedly, but that assumption creates some opportunity. The reality is that despite the broader headwinds the industry is facing, some malls and some REITs are doing well. Macerich, for instance, is a large REIT that owns several “trophy” malls amidst its 47 properties. The stock is trading at just 7x earnings, which incredibly cheap for a REIT. Apartment REITs, for instance, are trading at 20x. Its dividend cover ratio is fairly tight, but its overall model looks solid and it is yielding 10.9%.
FINSUM: There is a lot of opportunity in retail stocks, but you need to know where to look, and it takes quite an understanding of the space to sift through the options. Macerich looks solid.
Goodbye bearishness, hello risk-on. JP Morgan took a pivot from the rest of the Wall Street research machine today and took some bold steps in its allocation recommendations. The bank said that investors should take money out of gold and other risk averse assets, like government bonds, and put it into risk assets like stocks. The bank’s strategy team said “We maintain a significant and incrementally larger tilt in our model portfolio towards risky assets, based on signs of a cyclical recovery, easing geopolitical tensions, synchronized monetary easing, and defensive investor positioning across asset classes”.
FINSUM: The clouds do seem to be parting a bit, but there are still a lot of x factors—which is exactly the reason this could turn out to be a very good call.
Apple has been on an absolute tear lately. All the bearishness which preceded the newest iPhone launch set the company up for a great run. The stock is up a mind boggling 65% this year. To put that $450 bn of value appreciation in perspective, it is equivalent to adding the market caps of SalesForce, IBM, and SAP on top of what Apple already was at the end of 2018. So where does it go from here? The thing is, Apple usually continues a big upswing after an iPhone launch, so history is on its side right now.
FINSUM: iPhone sales may continue to surprise to the upside but the medium- to long-term question is whether investors will buy into Apple’s pivot into credit cards, gaming, and streaming.
Any small cap investor can tell you that the end of the year is not usually a good time. Small caps historically suffer in November and December compared to the rest of the year. However, 2019 looks to be shaping up differently according to the Wall Street Journal. The reason small caps are usually weak at the end of the year is that managers sell off their holdings and mirror the market at the year-end as a way of insulating their annual bonus (which is based on outperformance). However, in years where overall stock performance has been strong, this pattern is less obvious. So, given 2019’s strong gains, it seems like small caps probably won’t suffer so much.
FINSUM: This is by no means a guarantee, but it certainly seems like a more positive structural consideration.