Pimco has just gone on the record warning that indicators of a recession are flashing worrying signs. Based on trends in the economy and markets, including inflation, Pimco says it is time for investors to adjust their portfolios. In order to play the looming recession, Pimco suggested five trades. These include: short-term corporate bonds, a basket of EM currencies (Finsum comment: ??), gold, large cap stocks over small, and alternative investments.
FINSUM: Wow, most of these are deeply contrarian (i.e. EM currencies, gold, and large caps). All three of those picks have major headwinds against them. The case against EM currencies is clear but why pick gold when rates are rising, the Dollar is strengthening, and investors have shown zero appetite despite all the volatility?
The US real estate market has seen a string of bad news over the last few months, but many were hoping July housing starts would see a rebound. New data out shows that such a boost did not materialize, with housing starts underperforming expectations. The previous month’s reading was also downgraded by 13%. “Housing is the sole weak spot in the economy right now, and that’s probably not going to change”, according to one economist.
FINSUM: There is no near-term recovery in sight. We wonder if housing might be a leading indicator of a looming recession.
Some very interesting news about Tesla emerged yesterday. While it was already known that the SEC had subpoenaed Tesla over Elon Musk’s recent tweet about taking the company private, it emerged yesterday that the company was already the subject of an SEC investigation into whether it had misled investors. In particular, the SEC is probing whether Tesla misled the market with its Model 3 production forecasts. The actual production of vehicles last year was woefully short of the company’s forecasts.
FINSUM: Musk’s actual delivery of vehicles was just 10% or so of his initial forecast, which is likely what sparked the investigation. However, this is apparently a very difficult case for the SEC to prove, so it seems unlikely to amount to much.
Tesla is a hard stock to figure at the moment. No one is quite sure how likely it is that the company will be taken private at $420. Many are trying to handicap the odds, with Barron’s guessing they are less than 50%. The stock has given up much of the initial gains it got from Musk’s fateful tweet, but the big question is where it will go next. The answer is that it likely won’t move much until there is more information to digest. The SEC is investigating the company, but there is little word on any potential deal.
FINSUM: We think Tesla is going to be quite banded until more information about a potential deal comes out.
If you hold luxury retail stocks or are thinking of doing so, think again. With all the fears over a trade war, many luxury stocks look vulnerable. While Gucci owner Kering and Louis Vuitton owner LVMH look insulated, look out for weakness in Burberry, Salvatore Ferragamo, and Swatch. The first two look particularly weak because they are trying to regain traction with consumers at the same time as facing trade tensions (as opposed to Gucci, which is very hot at the moment). Most luxury stocks are currently trading at a premium relative to the market.
FINSUM: In our view, the brands that are already hot are going to stay on the shelves, but ones that haven’t been selling as well will be more impacted by trade tensions as wholesalers can more easily just stop stocking them.