Barron’s Weekend Summary: The world thrives on plastic—one of the most enduring, versatile materials ever invented
Cover Story:
-The world thrives on plastic—one of the most enduring, versatile materials ever invented. Extracting ourselves from plastic-land is tough. The cost seems negligible—a penny in a $20 takeout order. But a global addiction to plastic is turning into an environmental disaster, challenging goals to curb greenhouse-gas emissions and reduce the 354M tons of waste that’s landfilled or incinerated, or that drifts out to sea, each year. It’s also a quandary for the consumer packaged-good industry. Under pressure from activist shareholders and governments, companies like Coca-Cola, Mondelez International and Nestlé have promised to cut back on new plastic and use more recycled content. Yet progress reports show many companies using more plastic and falling short of sustainability targets—colliding with market forces that are making it tougher to cut back.
Interview:
-For some perspective on the bond market, and a 2023 forecast, Barron’s has interviewed Gibson Smith, a seasoned fixed-income investor who founded Denver-based Smith Capital Investors in 2018. His 30-plus years in the business also include 15 years at nearby Janus Capital Management, where he served as chief investment officer of the fixed-income division and a fund manager. Smith’s firm sub-advises about $3B of mutual funds, including the $1.9B ALPS/Smith Total Return Bond fund, which returned minus 12.4% last year, but which has bounced back this year with a gain of 2%.
Tech Trader:
-Microsoft’s Bing Chat is a big leap ahead from the already remarkable capabilities of the recently launched ChatGPT, which can answer questions and create original materials like poems, essays, and computer code. But ChatGPT doesn’t have access to the open internet like a search engine—it has no sense of current events. It can’t tell you the weather, or what’s up with the UFO balloons, or who won the Super Bowl. The new Bing doesn’t have that limitation—and talking to Bing Chat is a world-shaking experience. Yusuf Mehdi, a Microsoft corporate vice president who runs Bing, says there are millions of people on the waiting list to try out the new experience.
The Trader:
-Investors have heard the dictum “sell in May and go away.” This year they might want to consider selling in March. The May adage follows from market seasonality. Historically, investors have realized about 75% of annual yearly returns in the fall and winter. Explanations for why that’s the case vary. Perhaps it’s because investors start looking out to the next year around that time, though they don’t have much information about how the year will turn out. Perhaps they’re just enjoying the warmer weather. The selling period could come early this year; because, the rally that has pushed stock prices up roughly 15% from October lows is running out of steam as the narrative that has led it starts to shift. The market has been driven by the hope that inflation would slow and allow the Federal Reserve to stop raising interest rates—and maybe even start cutting them. Not anymore.
-Walmart may have an earnings surprise. Walmart reports its fiscal fourth-quarter numbers on Tuesday. Wall Street is looking for earnings per share of $1.52 from just under $160 billion in sales, roughly flat with the year-ago quarter. Those numbers look more than achievable, and its same-store sales—a common industry metric that, for Walmart, tracks revenue at stores that have been open the previous 12 months—could really pack a punch. While the Street expects them to grow at a 3.6% clip, Gordon Haskett analyst Chuck Grom expects them to jump 6.5%. Holiday sales were likely stronger than what analysts had called for, he says. If Grom is right, the quarter will be much better than expected—but in the what-have-you-done-for-me-lately world of Wall Street, it’s the fiscal 2024 guidance that will really matter.
Features:
-If you are interested in preserving brain function as you age, some of the clearest benefits come from staying socially connected, scientists have found. That means getting a hearing aid if you can’t hear what people around you are saying. People with untreated hearing loss have a 90% higher rate of dementia than others in their age group, according to the 2020 report of the Lancet commission on dementia prevention, intervention, and care. As Americans get older, seniors are looking for answers to make sure their cognitive abilities don’t expire before they do. They are told they should eat a Mediterranean diet. Get enough sleep. Avoid stress. Walk 10,000 steps a day. Lose weight.
Probably all of these help. Barron’s has been talking to brain scientists to learn what the research tells us about maintaining brain function. There is no one thing that protects against dementia, they tell us.
-Almost a full year of monetary-policy tightening by the Federal Reserve appears to be having little impact on price pressures, putting policy makers in danger of needing to do much more, according to former US Treasury Secretary Larry Summers. A steady stream of data from January underscores just how resilient the US economy—and, with it, inflation—remains, despite eight straight interest-rate hikes by the Fed since last March, which together have taken borrowing costs to their highest levels since 2007. Until recently, few could imagine that the U.S. would be able to withstand interest rates of close to 5% without tipping into a recession. In an interview with Bloomberg Television, Summers said that “we clearly have an economy where demand is superstrong,” and there’s a “possibility that we’re not landing at a terminal rate sometime in the next several months.”
European Trader:
-Many may dream of having a Porsche sports car in the garage, but owning the company’s stock could be just as rewarding. Shares of Porsche, maker of the iconic 911 since it made its debut in 1964, only recently came back on the market. Porsche was spun off by Volkswagen last year, and its stock has since risen 40%. The reason it has sped higher is because it trades more like a luxury good than a traditional car maker. Porsche trades at 20.6 times earnings. Volkswagen, the company with which it has deep business and historical ties, trades at 5.7 times earnings. Ford Motor is at 8.8 times.
Emerging Markets:
-Turks got used to living with low-double-digit inflation during Erdogan’s two decades in power, and before. Real incomes were cushioned by heavy indexation of wages and pensions, and easy access to hard-currency savings accounts. Then you have the worst earthquake with the death toll topping 40,000. And there’s an election in a few months. This balance didn’t withstand global post-pandemic inflation, aggravated by the 68-year-old president’s insistence that low interest rates would cure high prices. “Erdogan’s voodoo economic policy has really devastated middle-income Turks over the past year or two,” says James Jeffrey, a former U.S. ambassador to Turkey who now chairs the Wilson Center’s Middle East program. The earthquake could further damage confidence in Erdogan, who has pushed construction-led growth as an economic panacea. Collapsed buildings included some of the recently built ones. “A lot of the lives lost were an act of poor building,” says Emre Akcakmak, a senior consultant to emerging markets investor East Capital.
Commodities:
-Lithium is the metal at the center of the electric vehicle revolution and shares of lithium producers have beaten the market for years. Not so on Friday. Shares were down, a lot, leaving investors to wonder what was going on. But there doesn’t seem to be an obvious reason, other than investors getting too much of a good thing. Stock in Albemarle, the world’s largest lithium producer, was off 10% in midday trading Friday. The S&P 500 and Nasdaq Composite were down 0.8% and 1.1%, respectively.
Streetwise:
-Jack Hough is feeling an aviation vibe this week, describing the markets in terms that Maverick of Top Gun fame would find highly familiar. Financially speaking, he’s “keeping his flaps down and tray table up, and while I’m not sure about the landing, it’s safe to assume that we’re all spending the night together at O’Hare. Dibs on a lounge chair in Terminal 3.” A “soft landing for the US economy is still very much on the table,” writes the financial flight crew at UBS. But we can’t rule out a “hard-landing recession, induced by more than two additional Federal Reserve rate hikes.” That part makes my jumpsuit ride up. See, the Fed just raised interest rates at the fastest pace since it started its current targeting approach 40 years ago. But some economic measures remain stubbornly upbeat, like job gains. Strategists at LPL Financial recommend using a six-month average there: “Minimal turbulence in the trend line is consistent with a pathway to a smooth landing.” Torsten Slok, chief economist at Apollo Global Management, sees a “no-landing scenario” marked by sticky inflation, more tough action from the Fed, and poor performance for traditional 60/40 stock and bond portfolios. Northern Trust is a bit more optimistic, but views stock valuations as a “headwind,” whereas BofA Securities says that inflationary and deflationary “crosscurrents” call for better diversification.