FINSUM + Magnifi: Fear rising inflation? Here’s How to Play It
(February 2021)
Inflation concerns are on the rise. The Fed has reacted with large unprecedented moves to the Covid-19 recession. The Biden administration is coming out of the gates swinging with a proposed $1.9 trillion stimulus package, that even has debt dove Larry Summers, former secretary of the Treasury for Democrat Bill Clinton, voicing fears of inflation's return. It’s not just talking heads either, the data can speak for itself. Treasury yields are on the rise and the 10-year-break even inflation rate reached a 6-year peak. Generally speaking, the banking sector is speaking to the same tune as the Fed, and given the Fed isn’t stepping off the gas pedal the SPDR regional banking ETF (KRE) is a way investors can align themselves with Fed’s zeitgeist. The regional banks are in tune with the local loan markets and are more responsive to policy than the day-to-day financial news cycle. KRE is trading at $61.83, by buying a $61 put option for $4.40 and a $65 call option for $3.90 in June, investors can bet that the Fed and the Biden administration are going to hold steadfast until they “see the whites of the eyes of inflation”.
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FINSUM + Magnifi: Look Out for a US Economic Stall
(October 2020)
The outlook for US economic performance took a significant hit this week. That hit was when President Trump called off further negotiations about a stimulus bill until after the election. That means the odds for more stimulus dollars to land in consumer bank accounts in the next couple months plummeted. Oxford Economics argues that with the recent expiration of Trump’s extra payments that he created via executive order, there is going to be an income “cliff” for most Americans. “Without faster job growth — unlikely at this stage of the recovery — or increased fiscal aid, households, businesses and state and local governments will be increasingly susceptible to a deterioration of the health situation”, says Oxford Economics, adding that it may mean the US enters “stall speed”.
FINSUM + Magnifi: Here is How to Play the Tension with China
(September 2020)
US tension with China is reaching new heights over the last few weeks. Not only are the two countries in an escalating trade war that has finally started to see China getting more assertive vis-a-vis Trump’s actions, but now Beijing and Washington are squaring off over TikTok. With trade relations between the countries devolving, Goldman says the best action investors can take is to invest in funds which have exposure to US onshoring efforts. Goldman’s thesis is that economic tension with China will lead to the onshoring of US supply lines, and that such a transition will benefit a handful of sectors. In particular, pharmaceuticals may do well as it is becoming very plausible that the US government might mandate that pharmaceutical drugs need to be made in the US. Additionally, automation and robotics companies stand to gain as the expense of reshoring US manufacturing leads to investments in automation.
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FINSUM + Magnifi: This Sector Will Benefit from “Decoupling” With China
(September 2020)
Over the last few years, President Trump has been leading a so-called “decoupling” with China, or a concerted effort to lessen the economic links between the US and China. This has involved many spats over trade tariffs etc, but this week the president is refocusing on the issue and reiterating that he intends to both lower the trade deficit and make the US less reliant on Beijing. If this move continues it could have profound effects on the economy. One sector that seems very likely to gain is robotics and automation. A central tenet of Trump’s push is to re-assert the US’ manufacturing prowess. As US firms bring production home, costs will become an issue because domestic manufacturing is more expensive. Therefore, they will likely turn to robotics companies to automate as much of the manufacturing process as possible.
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FINSUM + Magnifi: Go Long China Because Decoupling" is a Myth"
(September 2020)
There has been a lot of media coverage about the US’ “decoupling” with China. Most of this has been centered around President Trump’s push to lessen economic ties with Beijing. This has worried some investors as it could disrupt decades-long global supply chains and raise costs for US companies. However, an analysis of underlying economic activity reveals that, if anything, the US and China have grown closer over the last year. This increasing closeness has largely happened on the financial front, as Beijing has been allowing more and more access to US companies. For instance, since the start of 2019, PayPal, JP Morgan, Goldman Sachs, American Express and others have all secured deals that allow them varying forms of greater access to the Chinese market. This has coincided with increasing cross-border capital flows between the two countries.
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