In this exciting edition of Market Factors I start with a major market call by the strategist I might trust most. A distinct trade idea forms the second section and the diversion sorts through the saddest TV episodes ever.
PredictionsPower grid is the new investment frontier
RB Advisors founder Richard Bernstein believes the Federal Reserve is underestimating inflationary forces by cutting interest rates and encouraging a misallocation of capital comparable to the late 1990s.
In early 2000, Mr. Bernstein famously urged investment bankers to leave technology and move to Texas, implying the bull market for tech was ending and an oil boom about to begin. This is still among the best market calls I’ve ever seen and now he’s making another big market prediction.
Mr. Bernstein uses the Bloomberg U.S. Financial Conditions index to emphasize excess liquidity in the current equity market. It shows financial conditions now approaching 2025 highs, though not quite at the extremes seen during early in the COVID-19 era. He adds that the near record lows of credit spreads – the difference between what corporate bonds yield relative to ultra-safe government bonds – is another sign of the same phenomenon.
The strategist lists potential sources of inflation – supply chain shocks, economic growth above the long-term average and ICE-related labour shortages are the big ones – but doesn’t waste a ton of time second guessing Federal Reserve chairman Jerome Powell. This is the correct perspective in my opinion. I’ve always urged investors to view central bank policy like the weather in that yelling at it won’t help, it just determines the playing field we all have to deal with.
There are two potential outcomes of looser monetary policy, according to Mr. Bernstein. The positive scenario involves more credit for non-technology market sectors, a broadening of equity market leadership and more inclusive U.S. economic growth.
The negative scenario involves more speculation in already-expensive investment themes and asset classes like cryptocurrency.
The most relevant advice for active investors comes late in Mr. Bernstein’s most recent report. After discussing the misallocation of capital into unviable internet companies in the late 1990s, he writes: “There is a similar misallocation of capital within the U.S. economy today. Simply put, imagine if all the capital going into cryptocurrencies instead was invested in the U.S. electric grid.”
It’s surprisingly subtle but with that statement Mr. Bernstein is making a call now similar to his early 2000 triumph. In this case he thinks the electric power sector, and electric power equipment specifically, is the new oil.
Switzerland’s ABB Ltd., France’s Schneider Electric and Germany’s Siemens Energy are among the world’s largest providers of electric power equipment and I will be taking a closer look at the whole sector in the days ahead.
AIEasy to implement trade idea
A weekly list of featured reports from Morgan Stanley’s global director of research Katy Huberty included a very specific trade idea representing a picks-and-shovels way to play the ongoing spending on AI infrastructure: hard disk drives (HDDs). There are two central providers – Seagate Technology Holdings PLC (STX-Q) and Western Digital Corp. (WDC-Q) – that make implementing the trade idea straightforward.
HDDs play an important storage role in data centers, one reason Morgan Stanley analyst Erik Woodring thinks the bull market for Seagate and Western Digital will extend into 2028. The analyst thinks profit margin improvement will exceed consensus estimates and profit growth will beat forecasts by between 20 and 35 per cent.
Positive surprises for both profit margins and earnings will lead to “significant multiple expansion” that will help drive the stock prices sharply higher, according to Mr. Woodring.
Philip Michael Thomas and Don Johnson starred in the hit television series Miami Vice.
DiversionsDid a TV show ever make you cry?
The MakeUseof site offered a list of comedy shows that made writer Corey Hoffmeyer cry. This had me wracking my brain trying to remember if a TV show ever made me cry or even tear up.
My favourite shows of the 80s, Cheers and Family Ties, definitely didn’t. This is despite Family Ties’ serious suicide-related episode, part of a trend where comedy shows tackled social issues. The Different Strokes child sexual abuse episode of 1983 was the most jarring example.
In the 80s the (apparent) death of Thomas Magnum’s friend “Mac” was sad but elicited no tears. Sonny Crockett’s corrupt partner in the Miami Vice pilot was just disappointing. Anyone who cried during an A-Team episode needed medical attention.
Of the 90s biggest shows, the final Friends episode was sad in a nostalgic way but ER came the closest to making me weep. The scene where Dr. Mark Greene’s letter to the staff was read after he’d already died was incredibly sad and well done by the show’s writers.
I didn’t watch a ton of TV in the 2000s but I can point to the House M.D. (loved that show) episode when Wilson’s girlfriend died in extremely unlucky fashion as likely the saddest TV show I saw. Still, no tears.
Have I missed something? Let me know about your picks as saddest ever tv show.
The essentials
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Globe Investor highlights
Why do smart investors make dumb decisions? Sam Sivarajan has some insight – and it applies to politics as well
If AI is a bubble, the economy will pop with it, warns Mike Dolan
Wall Street just had one of its calmest quarters in nearly six years. Reuters reports on why the lull won’t last much longer
What’s up next
It’s another light week for economic and corporate data releases on both sides of the border. Domestically the only economic release of note is the international merchandise trade report for August next Tuesday, when fixed income investors will be looking for a major change from July’s nearly C$5-billion deficit.
The one earnings report that could potentially interest the wider investment community is DPM Metals Inc. on Tuesday, where analysts expect US$0.62 per share.
The U.S. has factory orders (an increase of 1.4 per cent month over month expected) and durable goods orders for August (2.9 per cent month over month) this Thursday.
The always over-hyped non-farm payroll data for September might be out Friday if the government isn’t shut down. In the event it happens, economists expect 50,000 new jobs and a 4.3 per cent unemployment rate
For U.S. earnings there’s Constellation Brands ($3.424 per share expected) on Monday and flavour products purveyor McCormick & Co. ($0.819) the next day
See our full earnings and economic calendar here