TheChek News Flow

Weekend Papers Summary

NEW YORK TIMES

-Nadine Arslanian, who would eventually marry Sen. Bob Menendez, quickly introduced him to longtime friend Wael Hana, an Egyptian-American businessman in New Jersey. The future Ms. Menendez was eager to connect her influential new boyfriend with Mr. Hana’s high-level connections in the Egyptian government. What unfolded in the next four years is what prosecutors described on Friday as a sprawling corruption scheme that would ensnare the halal meat industry, American military aid to Egypt and the appointment of a top New Jersey law enforcement official. Prosecutors accused Mr. Menendez of abusing his power to influence arms sales to Egypt and to attempt to interfere with criminal investigations into Mr. Hana’s web of business associates.

-One day on the border: 8,900 migrants arrested, and more on the way. A sudden surge of people is arriving at the southern border, despite danger. “If you don’t take risks, you cannot win,” said one man who traveled from Peru.

-What does social media do to the teenager’s brain? Despite the headlines, the impact of social apps on adolescent mental health isn’t so clear.

-Europe pledged ammunition for Ukraine. Providing it is another challenge. After 30 years of atrophy, experts say, Europe’s shrunken defense industry will struggle to provide the Ukrainians with a million artillery shells by next March.

-Ukrainian forces targeted occupied Crimea with an air attack on Saturday, the second in two days, Russia said.

-An Ohio town struggles between President Biden’s clean energy agenda and union support. Contract talks at an electric vehicle battery plant in Lordstown could have even more of an impact than the autoworkers’ strike on the labor standards of the emerging electric-vehicle industry.

-Tyson and Perdue are facing child labor investigations. The Labor Department has opened inquiries into whether migrant children were working inside slaughterhouses owned by the poultry-processing giants.

-An ambitious antiracism center scales back amid a funding slowdown. Ibram X. Kendi, the author of “How to Be an Antiracist,” and leader of Boston University’s Antiracism Center the center’s leader who has become a flashpoint of national controversy, also faces an inquiry into the center’s management.

-Tropical Storm Ophelia makes landfall in North Carolina. As the storm hit the Carolina coast, its winds were near hurricane force. The storm was expected to weaken over the weekend.

-The man who trapped americans in databases. Hank Asher was a drug smuggler with a head for numbers — until he figured out how to turn citizens’ private information into a big business.

-Cassidy Hutchinson reappears. She Has More Trump Stories to Tell.

The former White House aide has a new memoir about her journey down a political rabbit hole. “I would like not to be a hermit,” she said in an interview.

-Fear and chaos grow in Nagorno-Karabakh after takeover. With food shortages and blackouts, rumors of revenge-taking abound — and are flatly denied by the Azerbaijani authorities.

THE FINANCIAL TIMES

-The US government is heading for a shutdown from next weekend, as lawmakers look increasingly unlikely to strike a budget deal in the face of hardline opposition from the right wing of the Republican Party. Legislators have just one week to come up with a spending plan that can make it through both chambers of Congress, which will not be easy, given that the Republicans control the House of Representatives by a slim majority and Democrats holding the Senate by a similarly razor-thin margin.

-Shareholders and top bosses at General Motors, Ford and Stellantis have fared far better than workers in the past five years, as the US auto industry enjoyed a stunning recovery following the 2008 financial crash, according to Financial Times analysis.

-US president Joe Biden has decided to send American long-range missiles known as ATACMS to Ukraine after months of deliberations. Washington will send a version of the missiles armed with cluster munitions rather than a single warhead, the people said.

-EU trade chief Valdis Dombrovskis has warned over “new areas of concern” in the bloc’s relationship with China, as part of a maiden visit that aims to confront “unbalanced” dealings between the two regions. In an interview with the Financial Times in Shanghai, the EU vice-president cited “implications of the anti-espionage law” in China and “data flows” as concerns, alongside market access for foreign companies in the mainland.

-French billionaire Xavier Niel has bought Czech energy tycoon Daniel Kretinsky out of his stake in Le Monde, in a move that will advance Niel’s longstanding plan to put ownership of the newspaper in a foundation to protect its future.

-The North American fossil fuel sector is undergoing a wave of transactions tied to changes in the energy mix, with companies placing their bets on the relative values of oil, natural gas or clean power. The moves are happening as electricity consumption rises in response to demand from sources such as electric vehicles and data centers. More EV use may in turn mean less petrol burnt in the years ahead.

-The US Dollar achieved a six-month high on Friday at the end of a week when US stock and bond markets weakened and investors prepared for a prolonged period of high interest rates.

NY POST

-Queens is bearing the brunt of the Big Apple’s migrant crisis, with more settling in the borough than anywhere else in the city, immigration court data shows. At least 39,131 migrants listed a Queens address on their initial paperwork upon entering the country this fiscal year through the end of August, edging out Brooklyn, where at least 36,579 migrants planned to settle, according to stats tracked by the Transactional Records Access Clearinghouse (TRAC), a nonprofit at Syracuse University.

-The Federal Trade Commission is expected to file an antitrust lawsuit against Amazon over its alleged anti-competitive business practices as early as Tuesday. This was long expected and FTC Chair Lina Khan will likely target “Amazon’s monopolistic behavior in the online retail space.”

Khan rose to prominence with a 2017 paper she wrote as a Yale Law School student that was highly critical of the Jeff Bezos-founded company — wants the court to break up Amazon’s $1.3T empire.

Barron’s Weekend Summary: Novo Nordisk and Eli Lilly are about to earn billions of dollars a year on their new obesity drugs, say Wall Street analysts

Cover Story:

-Novo Nordisk and Eli Lilly are about to earn billions of dollars a year on their new obesity drugs, say Wall Street analysts. The new medicines, known as GLP-1 receptor agonists, promise body weight reductions of as much as 20%, and may cut patients’ risk of heart attack or stroke. By all appearances, they’re the most effective safe weight-loss drugs in history. No surprise, then, that the demand for these medicines is huge and projected to get even larger as more supply comes on-line and more GLP-1s win Food and Drug Administration approval for weight loss. That’s great news for the drugmakers, certainly, but it could be a disaster for the companies and government agencies set to pick up the bill. The financial crunch would probably peak from 2025, when Medicare coverage of the medicines might begin, to 2027, when the cost of some of the drugs could start to drop.

Interview:

-Last week, Barron’s interviewed Dave Goodsell the executive director of the Natixis Center for Investor Insight. Goodsell is a retirement expert. He has been taking investors’ pulse on retirement for more than a decade. As, he has overseen research that reveals Americans’ complex and seemingly contradictory attitudes about life after work. His surveys show that Americans are optimistic about their prospects for retirement—on the surface. Beneath it lie worry and avoidance, and not without reason: The average 401(k) balance was $112,400 in this year’s second quarter, according to Fidelity. While that is far from enough to sustain a stage of life that could last for decades, there are encouraging trends: Millennials are saving a healthy 16.3% of their income for retirement, while baby boomers and Gen Xers are saving just under 10%, according to Natixis’ research. Goodsell told Barron’s how Americans can do a better job of preparing for retirement.

Tech Trader:

-Beware the IPO’s? Over the past two weeks, there have been three closely watched initial public offerings, and the results have been decidedly mixed. Rather than opening the door wide open, launching a new and exciting IPO season, the results have felt more as “if someone hurled a brick through the glass: You can get through the window, but you might get hurt.”

This past week, Instacart priced at $30 a share, opened at $42, and then began sinking. At Thursday’s close, it was 65 cents above the IPO price. Klaviyo, a marketing software company, also priced at $30, than started trading at $36.75; the stock at Thursday’s close was below $34. Meanwhile, Arm Holdings, the British -based semiconductor design house that kicked off this mini tech IPO parade earlier in the month, is now hovering right around its IPO price and 20% below its first day close.

The Trader:

-The market feels unbalanced. Ot’s been experiencing a spooky season, which will hopefully end as October begins. Still, the Dow Jones Industrial Average fell 1.9% this past week, while the S&P 500 index was off by 2.9% and the tech-weighted NASADAQ Composite slid 3.6%. For the S&P and the NASDAQ, it was the worst week since March. Some will be quick to blame the Federal Reserve. While it left interest rates unchanged, its dot-plot showed only two cuts next year, down from previous projections for four, in what was taken to be a hawkish pause. In his comments, Fed Chairman Jerome Powell tried to bring balance to the statement, to no avail.

The higher-for-longer rates put pressure on Treasuries. Those higher rates will also make it harder for the Fed to achieve a soft landing, something that Powell acknowledged by saying that’s not his base case.

-Unloved sectors sometimes make for great investment opportunities. This year, few sectors have received more scorn than banks. Higher-for-longer interest rates will keep funding costs high, eroding future profits. Recession worries haven’t faded, and borrowers will have a tougher time paying back their loans. Looming regulation—notably higher capital requirements imposed by the so-called Basel III framework—will raise costs and limit growth. None of that is good news for banks, but –it’s largely baked into the stocks. So far this year, the SPDR S&P Regional Banking ETF is down 30% and trading at nine times 12-month forward earnings. Several bank stocks, including Truist Financial—this week’s Barron’s stock pick—and Huntington Bancshares, trade at or below their book value, further suggesting that they are undervalued. The timing looks good from a technical perspective as well. One indicator, known as the TD Sequential, is now implying that the downward trend in the Financial Select Sector ETF (XLF) is ready to reverse at least for the next month or two, according to Rick Bensignor, founder of the Bensignor Group.

Features:

-Berkshire Hathaway sold 4.8M shares of HP worth about $130M in recent days, according to a Form 4 filing with the Securities and Exchange Commission late Friday. This follows the sale of 5.5M HP shares by Berkshire from Sept. 11 to 13 valued at about $160M. Berkshire Hathaway now owns 110.6M of the maker of personal computers and printers, a stake worth $3B. The stake amounts to an 11.2% interest in HP, whose shares closed Friday at $26.77, down 0.1% in the session. Berkshire accumulated the stake in HP in early 2022 and the sales last week were the first since the company finished buying the stock in April 2022. The recent sales could be a sign that Berkshire CEO Warren Buffett, who oversees the company’s roughly $350B equity portfolio, plans to continue reducing the HP stake.

-Edward Price, principal at Ergo, a global intelligence, consulting, and forecasting firm As Pax Americana disintegrates, the U.S. needs new friends. Relying on the UK, Germany, and Japan isn’t enough. Instead, America needs the VIPS: Vietnam, India, the Philippines, and Saudi Arabia. These are the countries Uncle Sam must really woo in the 21st century: Vietnam, India, the Philippines and Saudi Arabia. Each is far from a firm American ally. But each is also critical to America’s strategic success. They could prove to be the strategic counterweight to the BRICS.

Europe:

-German foreign minister Annalena Baerbock, with respect to the all-but-sacred auto sector. “The auto industry is faced with the question of whether and how we will be a global leader in the future,” she declared at the annual IAA Mobility trade show. While the US Big Three grapple with a strike organized by a revived United Auto Workers union, German counterparts Volkswagen, Mercedes-Benz Group and BMW have troubles of their own—trailing badly in the race toward the electric vehicle future.

Emerging Markets:

-US companies are feeling weary of China. Bilateral tensions and China’s economic slump have contributed to a low point in confidence among American businesses operating there.

Companies and US officials have shifted from talking about “decoupling,” or disengaging from China entirely to “de-risking,” or diversifying their businesses, a shift that emphasizes the difficulty in unplugging completely from a $1.8T economy with 1.4B people. China is still a top trading partner for 120 countries and is the biggest buyer of a range of goods, not to mention an irreplaceable part of the supply chain ecosystems. But pessimism about the trajectory for China’s economy and geopolitics prevails.

Commodities:

-Refining stocks have risen this year, boosted by growing demand for gasoline and diesel and a relative shortage of those products around the world. But this could change in 2024 as two long-delayed refineries outside the US are set to ramp up production, pumping out about 1M more barrels a day of fuel. Large new refineries in Mexico and Nigeria are ready to start producing fuel after a long start-up process that had left Wall Street skeptical that they’d open soon. The VanEck Oil Refiners ETF has gained 16% this year, and some stocks have performed even better. Valero Energy stock is up 23%, for instance. Added capacity could also weigh on gasoline prices, as it would add to global supplies of gasoline.

Streetwise:

-Higher interest rates appear to have wiped out much of the wackiness that has characterized the financial markets. Two years ago, the Federal Reserve was targeting a core interest rate of 0% to 0.25%. Now it’s at 5.25% to 5.5%. Suddenly, it costs real money to convert interest-earning deposits into something speculative. Meanwhile, prices for ordinary investments are as agreeable as they’ve been in years, with the possible exception of a handful of US stocks. A plain-vanilla US bond index fund like the Vanguard Total Bond Market ETF pays 4.7%, or a point more than the latest year-over-year reading on inflation. Policy makers this past week left rates unchanged but held open the possibility of another hike, and indicated that they expect rates to remain above pre-pandemic levels for years longer.

Le milliardaire tchèque Daniel Kretinsky revend à Xavier Niel ses parts dans le Groupe Le Monde

Cet accord scelle la sortie de l’homme d’affaires du capital, où il était entré en 2018 ; ses actions seront apportées par Xavier Niel au Fonds d’indépendance de la presse, qui devient ainsi le premier actionnaire du groupe.

NJJ Presse, la holding du milliardaire français Xavier Niel, a annoncé samedi 23 septembre dans un communiqué avoir racheté les parts de Daniel Kretinsky dans le Groupe Le Monde.

« L’entièreté des parts détenues depuis 2019 par la société de Monsieur Daniel Kretinsky dans la société Le Nouveau Monde a été acquise par NJJ Presse (…) avec l’engagement irrévocable de NJJ Presse de transférer ces parts, conjointement avec les parts déjà détenues directement, au Fonds pour l’indépendance de la presse », peut-on lire dans ce communiqué.

Daniel Kretinsky, qui a multiplié ces dernières années les investissements dans de grands médias, précise qu’il « continuera à soutenir des titres français et à garantir leur indépendance en tant qu’actionnaire » par exemple chez Elle, Marianne, ou la revue Franc-Tireur, « ou en tant que prêteur » pour le quotidien Libération. Le Financial Times avait rapporté peu avant qu’un accord était proche sur un rachat des parts du magnat tchèque de l’énergie, une transaction d’environ 50 millions d’euros.

Accord unanime du Pôle d’indépendance

« Cet accord scelle la sortie de Daniel Kretinsky du capital de notre groupe. Xavier Niel apportera ces actions, avec celles qu’il détient déjà, au Fonds pour l’indépendance de la presse, fonds de dotation qui deviendra ainsi le premier actionnaire » du Groupe Le Monde, ont annoncé Louis Dreyfus, président du directoire du Monde et Jérôme Fenoglio, directeur du Monde, dans un message adressé samedi aux salariés.

NJJ Presse précise qu’au terme de ces mouvements, « les deux premiers actionnaires de la Société Éditrice du Monde seront d’une part le Fonds pour l’indépendance de la presse qui prévoit dans ses statuts l’incessibilité des parts de la Société Éditrice du Monde, et d’autre part le Pôle d’Indépendance qui regroupe les sociétés de rédacteurs, les sociétés de personnels et la société des lecteurs du Monde. »

Le Pôle d’indépendance du Groupe Le Monde, qui regroupe notamment les sociétés de journalistes et de personnels, s’est félicité dans un communiqué « du rachat par Xavier Niel des actions détenues indirectement par Daniel Kretinsky en vue de les transférer au Fonds pour l’indépendance de la presse, constitué en 2021 ». « Sollicité au préalable comme le veulent nos statuts, le Pôle a approuvé à l’unanimité ces opérations de rachat et de transfert qui se traduisent par le départ d’un actionnaire n’ayant, par ailleurs, jamais sollicité son agrément par le Pôle », précise-t-il.

La holding de Xavier Niel ajoute que la société Le Nouveau Monde demeure une société en commandite dont le contrôle reste entre les mains de Matthieu Pigasse. Le banquier d’investissement, membre du trio d’hommes d’affaires, avec notamment Xavier Niel, qui avait investi dans le journal la décennie précédente, « s’assurera du transfert de ses actions dans la société Le Nouveau Monde au Fonds de dotation », précise NJJ.

Utility Stocks Won’t Be This Cheap for Long—and Their Dividends Still Shine

Utility stocks, a popular haven for dividend investors, have lost some power this year as investors pile into technology names and other growthier parts of the market.

Utilities aren’t alone. The relative strength of a basket of defensive stocks, including consumer staples, utilities, and healthcare, against a basket of all other sectors “fell to its weakest level in 23 years in early September,” notes Bespoke Investment Group.

Still, utility stocks have had an especially hard time of late. The Utilities Select Sector SPDR exchange-traded fund (ticker: XLU), a proxy for large-cap utilities, is down 7% year to date, dividends included_the worst performer of the S&P 500’s 11 sectors.

By contrast, technology stocks in the S&P 500 have gained 38% through Sept. 18, Communication services was up 44%.

Nevertheless, there could be a silver lining for utility shares. Income-seeking investors looking for stable and growing dividends have a chance to at least nibble at stocks in an attractively valued sector. The relative valuation of utilities versus the S&P 500 is at “near historic lows,” says Teresa Ho Kim, an equity research analyst at J.P. Morgan Asset Management.

Adds Stephanie Link, chief investment strategist at Hightower Advisors: “You can get some of the biggest utilities in the country for pretty cheap multiples.”

Bobby Edemeka, a portfolio manager of the PGIM Jennison Utility fund (PRUAX), expects annual dividend growth for electric utilities to average around 5%, in line with earnings growth. “The fundamental outlook for utilities continues to be very, very strong,” says Edemeka.

The poor showing of utility stocks has been chalked up to several factors—one being rising bond yields. The Utility Select Sector SPDR ETF was recently yielding about 3.3%. That’s attractive for stocks, but it’s well below the 10-Year U.S. Treasury’s recent yield of 4.32%.

Until the Federal Reserve began to raise short-term rates early last year, utility stocks had the upper hand over many bonds for a long time.

These higher yields have increased borrowing costs for utilities, which tend to be very capital intensive as they build out their grids and related infrastructure.

No one knows just when the Federal Open Market Committee will decide to stop raising short-term interest rates and pivot to cutting rates. What we can know is that the FOMC is a lot closer to the end of its rate-tightening regimen than the beginning.

Whenever that turn does occur, it will take some pressure off the utility sector. “You’ve got to stay patient,” says Link, referring to utility stocks. “It is a real challenge at this point in the near term.”

One of her holdings is American Electric Power (AEP). The company, based in Columbus, Ohio, has a sizable geographic footprint that stretches over 11 states, including Michigan, Texas, Virginia, and Tennessee. It serves about 5.6 million U.S. customers with about 40,000 miles of transmission lines.

The stock, which yields 4.2%, has returned minus 13% this year, including dividends.

The company has faced some setbacks such as announcing earlier this year that it had terminated an agreement to sell its Kentucky subsidiary. And Texas regulators recently rejected $2 billion of planned renewable energy projects for Southwestern Electric Power, one of American Electric’s regional utilities, according to Morningstar.

Like other utilities, American Electric Power is spending heavily on capex to improve its grid and other infrastructure, including building out its production of renewable energy. Most of the company’s nearly $40 billion in capital spending through 2027 is for regulated investments—that is, utility assets that are overseen by government regulators, according to Morningstar.

Investors often prefer the stability and returns that these assets offer as opposed to businesses subject to the ups and downs of daily pricing.

To revamp its portfolio, American Electric Power is unloading assets. The company, for instance, announced last month that it had sold its 1,365-megawatt unregulated, contracted portfolio of renewable energy assets, including wind and solar.

Link says she is keeping close tabs on the company’s spending, including its capex. “They can get more efficient at what they are doing,” she says. “It really is a [return on equity] story. They have to improve that.”

Portfolio manager Edemeka likes CenterPoint Energy (CNP), a Houston-based electric and gas utility. The company’s portfolio includes electric transmission and distribution, power generation and gas distribution. It operates in seven states, including Texas.

Edemeka is confident the company can generate earnings per share growth of around 8% through next year, per CenterPoint’s guidance, and at the mid to high end of 6-8% from 2025 through 2030—helped by strong population growth in the Houston area. Its holdings include Houston Electric. “It has one of the highest growth rates in the country,” says Edemeka. “The Texas economy continues to do well.”

Dividends, he says, should grow in line with the company’s earnings.

The stock, which has returned about minus 1% this year, yields 2.6%.

Another of his holdings is NiSource (NI), a large regulated utility based in Indiana. It distributes natural gas and electricity to more than three million customers. Its six-state footprint includes Kentucky, Pennsylvania and Maryland.

The stock, which yields 3.6%, is up about 3% this year. Edemeka calls the company’s earnings guidance of 6% to 8% a year through 2027 “a very realistic outlook with upside potential.”

Travis Miller of Morningstar observed in a note last month that NiSource stock’s yield and what he foresees as a “7% annual earnings growth outlook for the next five years, offer investors what we consider [to be] an attractive total return.”

Miller expects NiSource to close its $2.15 billion minority interest sale of its Indiana utility by the end of this year, “eliminating most financing needs in 2024.”

Utility stocks are down at the moment—but their dividends are far from out.

German Auto Makers Are Pouring $406 Billion Into EVs. The Race Is On.

VW’s lineup sprawls from economy Skodas to luxury Audis and Porsches. Moves to focus and slim down could hit a governance roadblock: Unions hold half of the seats on its board, and the state government of Lower Saxony, 20% of shares. “VW is like a state-owned company,” Dudenhoeffer concludes. “It will become less important over time.”

Mercedes and BMW are rolling out electric luxury models that could challenge Tesla two or three years from now. Fat margins on their gas guzzlers give them deep pockets for the expensive electric transition, says Philippe Houchois, head of European and U.S. auto research at Jefferies.

“They can fund new technology and still pay a dividend, where some pure-play EV start-ups are hitting a funding wall,” he says. His stock pick is BMW, with a current dividend yield north of 8%.

German auto makers as a group have budgeted an impressive 380 billion euros ($406 billion) on research and development and factory construction over the next five years, chiefly focused on electromobility, says industry lobby VDA.

One thing that Germany’s Big Three have in common is heavy dependence on China—for sales and, increasingly, technology. Volkswagen spent $700 million for 5% of Guangzhou-based XPeng (XPEV) in July, hoping to collaborate on a better EV platform, Houchois says.

BMW opened its fifth Chinese R&D center in Shanghai this summer. “BMW believes that China is the place to be for future mobility,” a company release read.

That makes the European Union’s recent move to investigate Chinese EV imports, with an eye toward higher tariffs, a mixed blessing at best for Germany, says Dudenhoeffer. “This is a crazy idea that risks much more damaging Chinese retaliation,” he says. He sees a wily maneuver by France, whose car complex is much less China-exposed.