The yield curve is a wonderful predictor of future recessions. In fact, it's predicted all 7 of the last recessions in the USA. In a general sense, this is a signal that there's a disconnect between what Central Banks believe and what bond markets believe. Since Central Banks can control short-term rates with precision, they can assert control on overnight rates in anticipation of future economic conditions.¹
But the yield curve will typically invert when long bond investors believe growth is slowing and Central Banks believe growth is too hot. So Central Banks are typically raising rates trying to cool the economy while long bond investors are setting rates lower in anticipation of slower growth. The record shows that Central Bankers are usually on the wrong end of this... more
Here's another item to ponder while I am away this week...
An inversion in the yield curve (i.e., shorter length bonds yielding higher than longer-term bonds) has (with the exception of 1966) been a reliable sign of an oncoming recession, at least since the late 1920s. Mind you, the curve did NOT invert at all during the later 1930s, 1940s, or early 1950s, despite a number of recessions, including the big 1938 recession, taking place.
But a yield curve inversion = bad, no doubt about it.
There's been a lot of chatter recently about the yield curve flattening, with a few of the usual DOOOMish suspects calling it recessionary even now.
Hold your horses.
Here's a long-term look at the 10 year minus 2-year yield curve:
Note that an inversion has been... more
Ian Bezek recently shared his bullish thesis on New York Community Bancorp (NYCB). It’s always a pleasure reading Ian’s well-researched articles and he made a strong case for NYCB. We have great respect for Ian and we do share similar views on quite a few stocks. However, in this instance, our position is contrary to Ian's one. As such, we think it’s important to present our alternative view on NYCB, especially given that the stock has been on our radars for quite a long time now.
At first glance, NYCB appears to be a hidden gem for both value investors and yield seekers. With its massive underperformance against other regional banks, outstanding asset quality metrics, a 5.3% dividend yield and potential benefits from a looser regulatory environment, the stock... more
Flattening may fatten investors' wallets
Even though the Federal Reserve hasn't tinkered with the Fed Funds target rate since June, interest rates have been ratcheting upward in anticipation of the next reset. Fed Funds are at the extreme left end - the short end - of the yield curve. The rate applies to overnight interbank loans of excess reserves.
The central bank has direct leverage on the overnight lending rate, but as you move to the right of the yield curve, Fed influence wanes.
You can see what's happened to the yield curve over the past year in the chart below. As the Fed snugged, then jawboned, rates at the short end rose while nothing much happened at the long end. The result? A flattening yield curve.
While the end-to-end flattening has been... more
Both HP Inc. (NYSE: HPQ) and HP Enterprise (NYSE: HPE) reported earnings, and the ongoing trend of the year continues: the dull business of selling PCs and printers at HP Inc., originally thought to be the "legacy" business, has actually outperformed relative to HP Enterprise. The latter is declining in nearly all product segments and just recently announced the departure of CEO Meg Whitman, who was CEO of the combined Hewlett-Packard companies before initiating the spinoff and assuming leadership of HPE, then thought to be the "growth" company.
A little more than a year ago, HP Inc. looked dead in the water. PC shipments were declining, printer sales were down - and even more importantly, the paper and ink that makes the bulk of HP's profits went down with... more
Overview In this series of articles, I will be reviewing Dividend Champions from a specific industry and selecting one stock as a long term buy, one stock as a current hold, and one stock to currently avoid based on current valuation, financial stability, historical performance, and future outlook.
More information regarding the Dividend Champions, Contenders, and Challengers lists that Dave Fish maintains can be found here. For part 1, I looked at stocks from the banking industry. In part 3 of this series, I will be looking at Dividend Champions from the Chemical/Cleaning Products industries.
These stocks include:
Air Products & Chemicals (APD) H.B. Fuller (FUL) RPM International (RPM) Clorox Company (CLX) Ecolab (ECL) Stepan Company (SCL) Financial Metrics Revenue... more
Macerich (MAC) and General Growth Properties (GGP) both had significant rallies recently. An investor in MAC or GGP could look to harvest their gains and jump into Simon Property Group (SPG) instead. While SPG also had a nice rally, it was a much smaller rally:
SPG is only slightly out of the “strong-buy” rating and well within the regular buy rating. I would be more comfortable with entering SPG around the current price than jumping into MAC or GGP around their current prices:
Source: CWMF’s Subscriber Access Common Shares V2.04
For anyone who missed it, another activist announced their position in Taubman Centers (TCO). Over the last two weeks we’ve seen an enormous rally among the “A quality” mall REITs. The rally was... more
In my search for value I came across AmTrust Financial Services (AFSI), a property/casualty insurer that specializes in providing coverage for small businesses. Aside from a recent selloff, the stock has significantly outperformed the Dow Jones U.S. P/C insurance stock index since the IPO in 2006. In this article we will examine the company to determine whether AFSI is a buying opportunity or a falling knife.
Investment thesis: AFSI's dividend looks good but company needs better cost control for the dividend to be sustainable and stock to rebound
Financial statement analysis Poor fundamentals usually means poor stock performance. While top-line revenue has grown over time as insurance premiums, interest, and investment gains have all appreciated, expenses have correspondingly... more
There is no change to my outlook for Target (TGT). Consensus street forecasts a couple months ago were absurdly weak for Q3 and Q4. Recently, analyst forecasts were raised. Target smashed forecasts and guidance in Q1 and warned analysts to revise forecasts higher for Q2. I expected Target to warn them again in Q3. Instead, Target beat guidance and forecasts in Q3 2017:
Source: Seeking Alpha
It’s normal for Target to give weak guidance and then beat estimates. It’s no surprise they guided lower than analyst estimates for Q4 2017:
Source: Seeking Alpha
Target is seeing growth in comparable sales, yet offers weak guidance for Q4 2017. It shouldn’t shock anyone if Target beats guidance again next quarter. The market still punished the stock... more
For investors following my preferred share ratings, here is my guide to preferred shares.
PREIT (PEI) recently saw a nice rally. I decided to harvest my gains for around 19% to 20%. I want to discuss the safer route with the preferred shares. PEI has 3 series of preferred stock: PEI-B, PEI-C, and PEI-D. Currently, the best value is the B series. PEI-D is still a good option for the buy and hold investor.
Guide to price chart at the end of article
PEI-D is closer to the buy range than it is to a sell. PEI-D is a buy under $25.11. However, it’s a sell over $26.31. In the last few months, PEI-D was trading under $25. I issued a buy rating on 9/10/2017 for subscribers. I purchased shares a few days after:
PEI-D was added... more