Barron’s Weekend Summary: These new homesteaders are relocating to growing midtier cities across the country, contributing to a perfect storm of high demand and low supply
Cover Story:
For the professionals who showed they can succeed at remote work, the pandemic ignited a newfound flexibility that drove many to leave their daily commutes and relocate to farther-flung locales. “They can live and work anywhere, and that’s what they’re doing,” says Mark Zandi, chief economist at Moody’s Analytics. These new homesteaders are relocating to growing midtier cities across the country, contributing to a perfect storm of high demand and low supply that was already under way before the pandemic. The result is a surge in prices, delaying home purchases and sending rents higher. The median home in Boise sold for $469,100 in the second quarter, a 41% jump from a year earlier. Economists expect home purchases to remain strong and supply to increase with new construction. Still, the affordability issue isn’t about to go away.
Interview:
-Economist Laurence Kotlikoff thinks that most financial planners go about it wrong. Rather than helping clients amass wealth for a retirement-income target, the Boston University professor says the emphasis should be on smoothing and protecting spending throughout a person’s life and then saving toward that goal. Kotlikoff advises most retirees to wait as long as possible to claim Social Security to get the biggest possible benefit—even if it means spending down their savings. Kotlikoff founded a company 28 years ago to put his ideas into action. He sells software for both professional planners and households that uses an economist’s perspective to determine saving and spending. He sells separate software on how to maximize Social Security benefits.
Tech Trader:
Cisco has rallied 34% year to date. But the stock was down 2% in 2020 while the Nasdaq Composite surged 43%. The networking giant’s sales suffered last year as companies cut information technology spending early in the pandemic. But the trend has reversed in Cisco’s favor. For the fiscal fourth quarter ended in July, Cisco posted 8% revenue growth and better-than-expected profits. Cisco sees revenue growth of 5% to 7% for its July 2022 fiscal year, up from just 1% in fiscal 2021.
The Trader:
The hard-seltzer market has lost its fizz—and so have shares of Boston Beer. With the stock now worth less than half what it was at its peak, it might be time to take a sip. That might seem like the kind of idea someone who’s had too much beer might come up with. After all, the company’s stock, which peaked in April at $1,306.45, has tumbled 60% to a recent $527.25 in less than five months. The decline has been driven by the same thing that drove shares higher—hard seltzer. When sales were booming, so did Boston Beer’s stock (SAM). But now sales are slowing, the company has too much inventory, and growth is fading. On Wednesday, the company removed its earnings guidance of $18 to $22 a share for 2021, noting only that it would be lower.
-A rocky week in the markets has traders, investors, and strategists at ‘Defcon 2,’ peering into the horizon for the enemy—a stock market correction. But while there are some troubling signals, corrections—drops of 10% from recent highs—don’t just happen, just like bull markets don’t die of old age. There has to be a reason.
The Defcon level, however, can rise even without a reason. Time and valuation both have merit as signals, though neither can tip the market into correction on their own and neither is flashing Defcon 1, the highest level of concern. There is still time to prep for any selloff, even as trading gets rockier.
-Everything is coming up aces for Rocket Lab USA. It’s time to think about taking some profits. The space-launch and satellite-services company reported strong first-half 2021 sales this past Wednesday, its first quarterly report as a publicly traded company. It announced a big new business award too. The next day, Rocket Lab (RKLB) picked up its first Buy rating from Wall Street. All the good news has sent shares, well, skyrocketing, with the stock gaining 37% in one day. It’s now gained 77% over the past month, closing Friday at $18.69, while the S&P 500 is up about 0.5% and the Dow Jones Industrial Average is down about 2% over the same span. That has left even the most bullish investors wondering what to do next. Should they sell and risk losing their position in an exciting new business they believe in, or hang on for the long run? Fortunately, investors can do both.
Features:
-While 9/11 was a national tragedy, the day has a special significance for many of New York City’s financial firms, many of which were based downtown. Over the last 20 years, the financial industry has transformed itself. The attacks made for a challenging legacy for Wall Street firms, many of which were faced with the difficult choice of whether to close or rebuild. Those that chose to rebuild encountered an unreserved bout of camaraderie and support among financial firms in what is a notoriously competitive business. Two of the companies most severely affected were boutique investment firms Keefe Bruyette & Woods and Cantor Fitzgerald. They also have events planned to mark the anniversary of their more personal losses.
“The spirit after 9/11 was remarkable. We had competitors calling and offering to help. Our clients were amazing,” Tom Michaud, chief executive officer at KBW told Barron’s. “Our firm needed that reservoir of good will to help boost our morale and get us jumpstarted. Thankfully, it was full.”
-The World Trade Center towers collapsed on a Tuesday. Six days later, attention shifted a few blocks to the south of Ground Zero, to the New York Stock Exchange, where an aftershock was expected."All eyes will be on the market Monday morning,” Andrew Bary wrote in The Trader column of the Sept. 17, 2001, issue of Barron’s, its first after the terrorist attacks of 9/11. US trading had been halted from Tuesday—the first plane struck the North Tower at 8:46 a.m., less than an hour before the opening bell—through Friday, the longest closure since World War I. But markets in Europe and Asia remained open and had plunged. Would things play out the same in the US? The 9/11 terrorist attacks had changed everything, from the Manhattan skyline to the global political order to the price of nearly every asset in the world. What was true in the morning before the suicide jet strikes no longer held by afternoon. It was a new reality.
Europe:
-Media group Future has transformed itself from a print-magazine owner worth just 30 million pounds sterling ($41 million) in 2014 to a digital-content giant with a market value that has jumped to £4.6 billion. The transition is reflected in the stock price. In the past 12 months, shares (FUTR.U.K.) in the company that owns Marie Claire, Mac Life, Music Week, and Wallpaper jumped 151% to £38.22. The highly acquisitive Bath, UK–based company boosts its new brands’ earnings through e-commerce, the clever use of customer data, and expansion into new markets. The possibility of more acquisitions and Future’s focus on the US market means the stock still has momentum.
-The European Central Bank said it would slow down the pace of the bond-buying program it launched in March 2020 to counter the coronavirus pandemic’s effects, but confirmed its long-running stance that monetary policy would remain on the dovish side for months to come. The Eurozone central bank said after a meeting of its policy-setting governing council that the monthly purchases of bonds on the market would be conducted at a “moderately lower pace” than in the last two quarters.The expected decision comes as inflation has picked up in the Eurozone to a 3% annual rhythm, and the economy is expected to recover faster than expected this year.
Emerging Markets:
-In Thailand tourism remains a painful microcosm for the hopes of recovery that the Delta variant has delayed, if not dashed, especially across the Southeast Asian growth belt. Thailand’s neighbor Indonesia is nursing its own wounds from the empty beaches of Bali. A recent stock bounce—the iShares MSCI Thailand exchange-traded fund (ticker: THD) is up 8% in the past month, and Indonesian equities have climbed 7%—looks more dead-cat than sustainable rally. “There has been some rotation from China into the ASEAN markets, but fundamentally not much upside,” says Arthur Budaghyan, chief emerging markets strategist at BCA Research. Thailand’s Eden-esque coastline and fascinating historic sites lured 39 million foreign visitors in the pre-pandemic year of 2019, accounting for up to 20% of the nation’s gross domestic product. Any rebound will be gradual, even with the welcome sign back out.
-Ford Motor announced Thursday that it would cease to make vehicles in India. But Ford is not abandoning the country, choosing instead to focus its Indian operations on engineering, technology and business operation functions. Ford makes the Figo, Aspire, Freestyle, EcoSport and Endeavour in India. Restructuring operations always result in charges against income. Investors, very likely, don’t care so much about the charges as much as they do about progress new management is making toward improving profit margins for the long haul. Still, Ford shares were down about 1.3%, while the S&P 500 and Dow Jones Industrial Average were both little changed.
* Commodities:
-Nuclear energy has moved back into the spotlight, with climate change an increasing worry for a world ravaged by floods, droughts, and extreme weather events. “As there is growing momentum to achieve net zero [carbon emissions], governments will soon realize that nuclear is currently overlooked,” says Bruno Brunetti, head of Global Power Planning Analytics, S&P Global Platts. China stepped up its efforts, with the nation accounting for over 60% of the new plants commissioned over the past decade, he says. The World Nuclear Association said the globe’s roughly 440 nuclear reactors require some 79,500 metric tons of uranium oxide concentrate each year and in a 2019 report, it forecast a 26% increase in uranium demand from 2020 to 2030.
* Streetwise:
-S&P 500 index funds will tumble by Christmas, one Wall Street strategist predicts. Not necessarily, says another—but they’ll lose money over the next decade. I can’t decide whether to panic or just sulk. The index decides the fate of more than $5 trillion in linked investor assets. My only exposure is in my retirement, joint, college, healthcare, and, come to think of it, all other investment accounts. I don’t think my Chipotle Rewards account is affected, but I haven’t read the small print. The concern, of course, is that S&P 500 trackers have had it too good for too long. The index has returned 376% over the past decade, or close to 17% a year, compounded. Among active managers tasked with beating the index, four out of five failed during the 10 years through 2020.