[DrVenture]

Barron's Feb 24, 2025 highlights

Pg 8, It’s quiet before the storm. Be prepared for lurking deficits, inflation and volatility. There are unofficial explorations of special nonmarketable 100-yr zero-coupon Treasuries that the US allies with US military protections or guarantees would be required to buy and hold – a deal that they may not refuse. That may be Band Aid for the underlying US deficits and debt-servicing problems – historically, those caused the unraveling of the past great powers. But following aggressive dollar diplomacy (that the dollars you hold aren’t really yours), such demands for protection may backfire and accelerate the move away from the dollar and hurt its global reserve status. Moreover, the stock market hasn’t adjusted to rising inflation-expectations that are now around +3.5% over 5 years. Volatility (stock VIX, bond MOVE) is definitely mispriced now, so buy some protective puts (they aren’t cheap vs calls, note high SKEW) for portfolio or raise some cash.

EUROPEAN stocks (ETFs VGK, EWG; sectors – financials, industrials, etc) are bargain at fwd P/E of 14 (vs 22 for SP500). Several European economies are in/near recession, and some face elections, and that may be a good time to buy. The US tariffs would add to those woes. Europe may also have to spend more on defense. A big positive would be the end of Russia-Ukraine war that would lower energy prices in Europe and would provide huge boosts to the economy. Ukraine would require massive reconstruction. Many European companies have bulk of their revenues and sales outside of Europe. However, several US institutional investors are already overweight in Europe, and some European indexes appear technically overbought, so wait to buy the dips (in Europe, not in the US).

Pg 14, The energy sector is important for the economy as well as for lowering inflation through lower energy prices. Energy Emergency will selectively benefit areas of oil, gas and alternatives. Some early actions have hurt energy stocks (XLE, XOP, TAN, FAN) – halting existing grants and loans (some are in courts already), tariffs on Canada and Mexico. OPEC is operating at reduced production levels. If sanctions on Russian oil/gas are relaxed or lifted, the energy stocks would be lower.

Energy areas not much dependent on federal actions may be better bets – natural gas, nuclear, solar, etc. US oil and gas production is already at high levels. The US also has too much natural gas that it cannot export due to LNG facility limitations (several new ones are being built). Primary uses of natural gas are for power production and by industrial and residential customers. It’s also a great transitional fuel. As such there is no supply emergency for oil or gas. The emergency order focused on traditional areas of energy, transportation or transmission, but there was no mention of the fast-growing solar, wind and batteries. Mentioned are AR, FSLR, GTLS, LNG, VG; nuclear CCJ, EU, SMR, OKLO, UEC, ETF NUKZ.

Pg 26, Missed expectations and lowered guidance by Walmart/WMT killed the rally this week. Economic concerns arose about inflation and tariffs impacting the consumer. SP500 had new highs in a down week. Other economic data was also weak (UM sentiment, home sales). But bulls haven’t given up hope as YTD is still good for SP500.

Packaged-foods companies are struggling (lagging ETF XLP) as consumer preferences have shifted to fresher, healthier foods and store brands. The new obesity drugs have had negative impact. Potential tariffs also muddy the outlook. More attractive are MDLZ, POST, BRBR (protein powders and shakes).

Pg 31, The US wants Ukraine to payback the military aid with its rare-earth minerals and metals. But mining those will require huge capex in the post-war Ukraine needing extensive reconstruction. Rare-earths mining and processing will require huge amounts of energy and may cause extensive environmental damage. About a third of the rare-earths are in the Ukrainian territory controlled by Russians. The development period for rare-earths production may be 15+ years with payback period of 40+ years – that’s not the timeframe for private sector investments. In the reconstruction of Ukraine, mining of rare-earths may be only a tiny factor.

INTEREST RATES

TREASURY

T-Bills: 3-mo yield 4.32%, 1-yr 4.15%
T-Notes: 2-yr 4.19%, 5-yr 4.26%, 10-yr 4.42%
T-Bonds: 30-yr 4.67%
TIPS/Real yields: 5-yr 1.65%, 10-yr 2.00%, 30-yr 2.35%

Pg 55, Elon MUSK’s DOGE is going after Medicare. Looking at Project 2025 (a real blueprint after all), the plan may be to privatize Medicare, i.e. Medicare Advantage (MA) default for all new participants; the existing traditional Medicare participants (Parts B, D and private Medigap) may be grandfathered. Major changes may require Congressional approval. It’s time to review traditional Medicare vs MA choice. It’s hard to go back from MA to traditional Medicare in many states as medical underwriting for Medigap may be required. Advance planning is necessary as the premiums (including IRMAA) depend on income 2 years prior; limited Roth conversions may help (tradeoff is current tax liability vs no RMDs or no taxes on withdrawals in future). Keep in mind that even at the highest IRMAA levels, there is some subsidy (and the highest Medicare premium are still much lower than private health insurance).