Barron’s Weekend Summary:The new SEC Chairman Gary Gensler, has made it clear that he is interested in the mechanics that burst into the open during the meme-stock turmoil.
* Cover Story :
-This week’s cover is an interview with the new Securities and Exchange Commission chairman, Gary Gensler, who has made it clear that he is interested in the mechanics that burst into the open during the meme-stock turmoil. He seems intent on overhauling market structure in ways that he thinks will make it fairer for the new retail traders and everyone else. The infrastructure that allows investors to tap on a phone and instantly buy stocks and options has been revolutionary for investors and the financial industry. Yet the trading system is extremely complex underneath, and it could be in for a remake. “We cannot take for granted that the U.S. equity markets will always be considered the most efficient, the most liquid in the world. ”
* Tech Trader:
Justin Kotzin, an operating partner and head of capital markets at growth equity firm General Atlantic, says he expects a “robust pipeline of companies” seeking to go public after Labor Day, similar to what the IPO market saw in June and July. “There continue to be a lot of really high-quality growth companies that have yet to go public,” he says. Jordan Stuart, a market strategist for the Federated Hermes Kaufmann funds that focus on small-, mid-, and large-cap companies and invests in IPOS, agrees. “With Zoom [meetings] and things normalizing a little bit, there will be a lot [of IPOs] in September and October,” he says.IPOs expected for September include restaurant software company Toast; On Holding, the sneaker company backed by Roger Federer; Dutch Bros Coffee; Authentic Brands, owner of Forever 21; and sports betting provider Sportradar Group.
* The Trader:
September’s arrival usually means fresh school supplies and investment ideas, but for now Wall Street is expecting more of the same—and that may not be a bad thing. The S&P 500 is up 21% this year and while few on the Street expect that it can continue climbing at such a rapid pace for the last four months of the year, there’s little reason to doubt that stocks will continue marching on despite what happens elsewhere in the world. Over the past week, much of the East Coast was pummeled by the remnants of Hurricane Ida. Many lost their homes and others remain without power and yet stock indexes notched new highs.
* Features:
-In the late 1990s, PayPal co-founder Peter Thiel invested less than $2,000 in founder shares in his Roth IRA. Those shares reportedly have climbed to roughly $5 billion, and Thiel won’t owe taxes on the gain if he waits until age 59½ to withdraw the money. A gain of that magnitude—featured in a recent ProPublica report based on Internal Revenue Service documents—isn’t likely to be replicated by ordinary investors. But they ought to follow Thiel’s lead in one respect: Roth accounts are a great place for high-risk, high-return investments. (Thiel hasn’t commented on the report.) Unlike a traditional individual retirement account or 401(k), Roths are funded with after-tax dollars. All money you take out of a Roth individual retirement account is tax-free, as long as you’re at least 59½ years old and you’ve had a Roth account open for five years or more.
-What a year this has been for the markets! Fueled by a torrent of monetary and fiscal stimulus, economic and earnings growth, and (until recently) a mostly receding pandemic, the S&P 500 stock index has rallied 20%, notching seven straight months of gains and more than 50 highs along the way. And that’s on top of last year’s 68% rebound from the market’s March 2020 lows. Tailwinds remain in place, but headwinds now loom that could slow stocks’ advance. Stimulus spending has peaked, and economic and corporate-earnings growth are likely to decelerate through the end of the year. What’s more, the Federal Reserve has all but promised to start tapering its bond buying in coming months, and the Biden administration has proposed hiking corporate and personal tax rates. None of this is apt to sit well with holders of increasingly pricey shares.
- Home-builder stocks are up 37% this year, reflecting dizzying demand, ultralow mortgage rates, and maddening construction delays. Just 34,000 completed new homes were on the market in July, well below the 87,300 average for the month since 1973. Bidding wars have broken out, including camp-outs where buyers set up umbrellas and barbecues on the sidewalk, waiting to be first in line for a new house, says BTIG analyst Carl Reichardt. If there’s still a value play, it may be Taylor Morrison’s own stock (ticker: TMHC). It’s up just 10% this year and has gained less than half the 97% industry average over the past three years. Taylor trades around book value, compared with 1.8 times book for the industry. At a recent price of $28, it goes for 4.3 times estimated 2022 earnings, a 30% discount to peers.
-Ride-hailing platforms Uber Technologies and Lyft are the latest companies to set aside funds for people affected by a Texas law that restricts abortions.The law bans abortion providers from carrying out terminations after fetal cardiac activity can be detected, which usually occurs around six weeks into a pregnancy. The law, which went into effect after the Supreme Court declined to intervene Wednesday, makes some exceptions for emergencies but none for cases involving rape or incest. Under the law, private citizens can sue anyone who aids or abets an abortion for alleged violations. That could include doctors, nurses, and also potentially drivers transporting a person to an abortion procedure. The plaintiff will receive $10,000 from the accused if their case is successful. On Friday, Lyft (LYFT) CEO Logan Green tweeted the ride-hailing company plans to create a fund to cover all legal fees for its drivers if they are sued. Rival Uber (UBER) followed suit. CEO Dara Khosrowshahi responded to Green’s post on Twitter, saying the firm would do the same for its drivers.
* Europe:
Beiersdorf, the German personal-care products maker that owns the Nivea and La Prairie brands, had a few tough years before the pandemic, and it went downhill from there. Advertising and promotion—key to sales of cosmetics and toiletries—were reduced between 2012 and 2018, a period in which the company struggled to adapt to a changing market in which smaller players won customers with premium niche products. Pandemic lockdowns meant that fewer people took vacations and more people stayed home. Sales of Beiersdorf’s beauty and sun-care products declined, and its $550 million purchase of Coppertone in 2019 was unfortunately timed. the past three years, Beiersdorf stock (BEI) has failed to glow, gaining just 1.84% to 102.65 euros, compared with a 90.25% jump in the shares of rival L’Oreal (OR) and a 144.69% increase for Estee Lauder (EL).
* Emerging Markets:
-The MSCI Emerging Markets Index is down almost 8% since its February peak. Much of that is due to trouble in China, given that many components of the index are reliant on strong demand there. China’s nonmanufacturing and manufacturing purchasing managers indexes, which measure levels of economic activity, have declined sharply from early in the year, according to Citigroup economists. A renewed surge in cases of Covid-19 has hit growth. And for much of the year, the People’s Bank of China’s monetary policy was less supportive of expansion than it had been. Citi’s global equity strategists advise holding off on buying emerging-market shares. Chinese stocks account for roughly 35% of the total market capitalization of the emerging market index, and they still look expensive, according to Citigroup.
-China’s entertainment industry is the latest sector put on edge by increased regulatory scrutiny, in an environment already stifled by the pandemic and the country’s overall slowing economy. Authorities have previously exerted control over its multibillion-dollar celebrity and entertainment sectors, from banning broadcasters from showing tattooed music artists to requiring programmers to air more patriotically-themed content. But the recent crackdown comes as a bigger swell. In early August, the official Xinhua News Agency—largely a press-release forum for the government—published a series of articles on the unhealthy phenomenon of fan groups that use their massive online presence to drive traffic to celebrities and products they hawk.
* Commodities:
Labor Day weekend traditionally signals the conclusion of the US summer driving season, but it may not mark the end of the peak period for gasoline prices, which stand near their highest since 2014. Atlantic storm Ida, which hit the U.S. Gulf Coast as a Category 4 hurricane on Aug. 29, led to the shutdown of some key Gulf Coast refinery operations, and it’s still not clear when those may fully resume. On Wednesday, Entergy (ETR), which provides power for states including Louisiana and Mississippi, said it would take time to fully restore power given significant damage across the region. The Wall Street Journal reported it could take weeks to resume refinery operations due to widespread power outages.
* Streetwise:
- School’s back, and the pandemic has set some students behind. That creates a hazard that your high-schooler will soon ask for help with the quadratic formula. Don’t panic. Respond in a way that shows that you know that’s algebra, not a car engine additive. Then, riff about the importance of learning to seek knowledge independently, while pulling out your credit card and subscribing to an online tutor. For about $20 a month, you can avoid having to admit you remember everything about high school and college except the course material. The 'Netflix of Homework Help' Chegg CEO Dan Rosensweig talks about online tutoring, fixing college, and what he learned from Guitar Hero. A more difficult call is whether to make a stock investment in education technology, or ed-tech. Industry spending has surged, as have stock listings and share prices. Soon, investors will learn whether that’s a pandemic pop or the start of a longer shift toward hybrid learning—part during class hours, and part available anytime online. Companies that stand to profit include ones that went public years ago, like Chegg (ticker: CHGG) and 2U (TWOU), and ones that have done so recently amid a surge in industry spending, like Duolingo (DUOL) and PowerSchool Holdings (PWSC). And there are private players like Udemy that investors are watching for news of a stock offering.