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World Awash With Liquidity | Seeking Alpha

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Global monetary bodies and government stimulus programs have added trillions to global liquidity that has not been used by the real economy. This excess liquidity has boosted risk assets while at the same time adding trillions to deposits as well as lowering consumer debt. Corporations and individuals are simply not borrowing on a net basis. Major banks reported that deposits were up, on average, 30% with tepid loan demand. Banks are now overcapitalized. We see substantial pent-up consumer demand ahead. At the same time, corporations will keep tight reins on spending, thereby generating excess cash flow as the economic recovery escalates next year. This remains our forecast. Manufacturing needs to pick up meaningfully to build inventory levels back to normal levels. We expect the supply of funds will continue to exceed the demand for funds for many years, forcing investors to stay out on the risk curve.

We realize that coronavirus cases will go up as the weather cools, and businesses that rely on working outdoors will slow. Still, we remain optimistic that economic growth will accelerate as we move through 2021 into 2022 supported by the Fed, several huge stimulus bills, accelerated opening as rapid response tests are rolled out worldwide, vaccines readily available next summer, and inventory levels are built. August manufacturing sales rose 0.6% while inventories increased 0.3%, which means that the I/S continued to move to further record lows, which supports our view that manufacturing will pick up meaningfully in excess of demand such that inventories return back to more normal ratios.

The IMF lifted its economic forecasts for 2020-2022 due in part to a faster-than-expected recovery in China. World trade volumes are likely to increase by 8.3% in 2021 and more in 2022. Unfortunately, the World Bank predicted that over 100 million people would be thrown into poverty due to coronavirus. This goes to the heart of our belief that corporations will not bring back their employees furloughed/laid off nor increase hires much having learned to do more with less. This supports our view that corporate operating margins/profits will be much stronger than the consensus believes today.

Most of this excess liquidity will remain in the financial system for the next two years keeping downward pressure on rates, but we still see a steepening yield curve as economic growth improves. While large productivity gains will hold down overall inflation, we still see meaningful producer/industrial price hikes as capacity utilization rates rise meaningfully as little new capacity comes on stream. While we continue to see an undervalued overall market, we continue to increase our exposure to more economic sensitivity favoring industrials, commodities, and transportation while continuing to reduce technology. Wall Street does not appreciate the positive leverage ahead and the potential for outsized cash generation, which will be used to hike dividends, increase buybacks, and make anti-dilutive acquisitions. Since Boeing (NYSE:BA) received approval to begin flying the Max 737 in Europe, the United States should not be far behind. This alone should add at least 0.2% to GNP, favoring their industrial suppliers.

We had some good and bad news on potential therapeutics and vaccines. Lilly (NYSE:LLY) and J&J (NYSE:JNJ) temporarily paused their phase 3 testing as there were incidents that needed to be investigated before proceeding. No one knows yet if the issues occurred on those taking the placebo or therapeutics/vaccines. Short pauses are not unusual, and we expect them to restart testing shortly. On the other hand, Pfizer (NYSE:PFE) came out yesterday and said that it hopes to present its data to the FDA before the end of November. By the way, we agree with Gilead (NASDAQ:GILD) that its antibody cocktail is effective in reducing death rates meaningfully. We expect more favorable news on therapeutics and vaccines. We remain confident that at least one vaccine will be approved near year-end for those most in need. Several, more efficacious, easier delivery system vaccines will be available in volume by mid-2021. Finally, rapid response tests are now readily available everywhere, which should permit an acceleration in opening just as we move indoors. This is good and supports a more robust economy as we move through 2021.

While we support a meaningful stimulus plan now, the economy has lots of momentum as we enter the fall. From the major banks’ heads, we heard that consumer spending accelerated meaningfully in October after a powerful September, up 1.9%. Consumer sentiment is very strong, so we look for a tremendous holiday spending season as the money/demand is there. Nevertheless, the stimulus plan is needed for those most in need, including individuals (still over 11 million unemployed), small-/medium-size businesses, and industries hurt most by the pandemic like the airlines. States and hospitals need added support too. Regardless of a stimulus deal now, we expect many extensive stimulus programs next year, in the multi trillions, including ones for growth like infrastructure bills. Biden would outspend a Trump administration next year, and he would hold off on tax hikes until later in 2022 after the economy is above pre-pandemic levels. Expect significant fiscal stimulus boosting economic growth in 2021 and 2022.

We heard last week from the BOJ, Bank of China, Bank of England, ECB, and many Fed governors that they will remain all-in. They will let economies run hot, permitting inflation to increase above past threshold levels where actions were previously taken to slow growth. Here we are with trillions of excess liquidity sloshing around in the global financial system with much more to come in 2021 and 2022. The implications for economic growth, interest rates, and financial markets are all clear cut: growth will accelerate, interest rates will remain low, and stock markets will rise.

Investment Conclusions

We are at the cusp of an acceleration in sustainable economic growth, which will lead to record corporate profits and cash flow in 2021 and 2022 as we get our arms around the coronavirus along with aggressive support from the Fed and government. Record levels of excess liquidity will drive risk asset prices higher.

We see the biggest positive earnings surprises in industrials, commodities, and transportation as operating margins increase meaningfully, as pricing improves, and costs are tightly controlled. These companies will generate record free cash flow as capital spending is held steady at 2020 levels. The excess cash generation will be used to boost dividends, reinstate buybacks, and make non-dilutive, medium-sized acquisitions.

We have funded the additional purchases by further reducing our technology holding. While we still favor the industry longer term, relative earnings gains will narrow, which will lead to relative underperformance over the next two years. We have maintained our holding in retailers that are beneficiaries of the new normal utilizing their online and rapid delivery expertise. We continue to recommend the sale of all bonds as the yield curve steepens, albeit slowly, as global growth improves in 2021 and 2022.

Our investment webinar will be held on Monday, October 19th, at 8:30 AM EST.

Review all the facts; pause, reflect, and consider mindset shifts; look at your asset allocation with risk controls; do independent research, listen to earnings calls; and…

…Invest Accordingly!

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.





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More U.S. companies offer earnings guidance despite pandemic By Reuters

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© Reuters. FILE PHOTO: A street sign, Wall Street, is seen outside New York Stock Exchange (NYSE) in New York City, New York

By David Randall

NEW YORK (Reuters) – With earnings season in full swing, more companies are again offering earnings guidance, signaling to investors that some corporations are adapting to uncertainty about a global pandemic that may extend deep into next year.

Overall, 73 companies in the S&P 500 index have offered guidance this quarter so far, up from last quarter’s 65 pre-announcements but well below the 170 companies that typically offer guidance, according to Refinitiv data. The companies offering guidance are giving the most bullish expectations in Refinitiv data going back to 1997.

“If a company is able to offer guidance it shows that they’re able to have a better idea of what’s coming down the road,” said Charlie Ripley, senior investment strategist at Allianz (DE:) Investment Management.

The market has been buffeted by cross-currents related to the looming Nov. 3 U.S. presidential election, drawn out fiscal stimulus talks in Washington and a resurgent pandemic. Still, investors appear more hopeful in recent months.

Fifty percent of high net worth U.S. investors surveyed by UBS Global Wealth Management voiced optimism on the economy, up from 41% three months prior, with 55% optimistic on stocks, up from 44%. The S&P 500 index is up nearly 7% year to date, including a 2.2% gain since the start of October.

So far this quarter, shares of AT&T Inc (N:), Verizon Communications Inc (N:) and Quest Diagnostics Inc (N:) have rallied after each company gave investors updated guidance on how they expect to fare over the next fiscal year.

“It’s not surprising we’ve had so many beats this quarter because we entered the season with very little guidance,” causing analysts to slash their estimates, said Katie Nixon, chief investment officer at Northern Trust (NASDAQ:) Wealth Management.

“Now we’re seeing how companies expect to be able to navigate through the challenges of the year ahead,” she said.

Investors next week will wade through the busiest period of earnings season so far, with companies ranging from Beyond Meat Inc (O:) and Microsoft Corp (O:) to Pinterest Inc (N:) scheduled to report results.

Microsoft, in particular, should outperform its conservative guidance thanks to strong PC shipments and growth of its Azure cloud computing platform, said J. Derrick Wood, an analyst at Cowen.

“The set-up feels more compelling as the bar was reset last quarter and as macroconditions are improving,” he said.

Nearly 86% of companies that have reported earnings so far have beat analyst expectations, a rate 20 percentage points higher than the average beat rate since 1994, according to Refinitiv data.

Still, investors like Nixon say they are looking past beat rates and focusing on companies that can improve or maintain measures such as refinancing debt, raising cash, and controlling costs regardless of the pandemic’s trajectory or a breakthrough in stimulus talks.

The White House and congressional Democrats remain in negotiations for another coronavirus relief bill, though Senate Majority Leader Mitch McConnell has signaled he may not bring the bill to the floor until after the election.

Companies in the S&P 500 index are likely to post average earnings growth rates of up to 25% next year as they bounce off of prior-year comparisons during the worst of the economic lockdowns, said Steve Chiavarone, a portfolio manager at Federated Hermes (NYSE:).

Companies that can offer positive guidance despite the unknowns are also more likely to weather higher corporate taxes expected if Democratic challenger Joe Biden beats President Donald Trump and Democrats take the U.S. Senate, he said.

“We’re seeing a lot of positive metrics that show that these companies may be able to easily absorb any cut to earnings,” he said.





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Ant IPO pricing was determined on Friday, Alibaba founder Jack Ma says By Reuters

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© Reuters. FILE PHOTO: Ant Group logo is pictured at the Shanghai office of Alipay, owned by Ant Group which is an affiliate of Chinese e-commerce giant Alibaba, in Shanghai

By Samuel Shen and Brenda Goh

SHANGHAI (Reuters) – Pricing for Chinese fintech giant Ant Group’s giant dual-listing was determined on Friday night, Alibaba (NYSE:) founder Jack Ma said on Saturday.

It is the first time pricing of the initial public offering, which sources have said could be a world record $35 billion, has been determined outside New York, he told the Bund Summit in the eastern financial hub of Shanghai.

Backed by Chinese e-commerce giant Alibaba, Ant plans to list simultaneously in Hong Kong and on Shanghai’s STAR Market in the coming weeks.

The listing could be the world’s largest initial public offering, surpassing the record set by Saudi Aramco (SE:)’s $29.4 billion float last December. The IPO would also be the first simultaneous listing in Hong Kong and on the year-old STAR Market in Shanghai.

Ant was set to conduct price consultations for the Shanghai offering on Oct. 23 and will set the price on Oct. 26, according to its updated prospectus filed with the local exchange.

For the Hong Kong leg, Ant plans to open order books next week. Its shares are likely to start trading a few days after the Nov. 3 U.S. presidential election, sources have said.

Ma said the global financial system is outdated, adding that current regulations were slowing down innovation. He called for setting up a new, inclusive and universal financial system that benefits small companies and individuals and drive future growth.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Brookfield Asset Management reduced stake in GrafTech International Ltd. By Investing.com

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© Reuters. Brookfield Asset Management reduced stake in GrafTech International Ltd.

On the 21st of October, Brookfield Asset Management sold 322 thousand GrafTech International Ltd. (NYSE:) shares for $2.3 million at an average price of $7.14 per share.
Shares of GrafTech International Ltd. are up 6.48% since the transaction.

Brookfield Asset Management’s holding in GrafTech International Ltd. decreased to about 171 million shares with the transaction.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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