Barron\'s - 16.09.2019

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M4 BARRON’S September 16, 2019


era and today. One is the massive amount of


pessimism today versus the optimism of


nearly 20 years ago. Then there’s the fact


that the cost of capital, as signaled by the


level of real rates, is far lower today than it


was in 2000, says Michael Arone, chief in-


vestment strategist at State Street Global


Advisors. That fact makes companies with


fast growth but no profits attractive to inves-


tors today, he says, and is the reason that


value stocks will continue to lag behind as


long as real interest rates remain near zero.


Given that the Federal Reserve is getting


ready to cut rates again on Sept. 18, that


doesn’t look likely to change. “The compari-


son to 2000 is unfair,” Arone says. “In a zero


cost-of-capital environment, companies oper-


ating at a loss can grow to incredible size.”


The sheer number of those companies


could be pointing to problems ahead. Nearly


15% of the fastest-growing companies by


sales in the S&P Global Broad Market index


are money losers, says Jason Williams, a


portfolio manager at Lazard Asset Manage-


ment, while more than 80% of initial public


offerings coming to market are also profit-


less, equaling the peak of the dot-com bubble.


That doesn’t mean the market has topped,


he says, but it does make him worry. “Of


course, no one can ring the bell,” Williams


says. “All you can do is signpost it.”


Remember: Chasing road runners can be


hazardous to your health.


Squeezing the Shorts


There’s little worse than getting caught on


the wrong side of a bet that had been work-


ing—especially when that bet is a short.


Betting that a stock will fall by borrow-


ing its shares and selling them in the open


market is a beautiful thing when it works.


On the trading floor, we used to say that a


stock can get too expensive to buy, but


never too cheap to sell.


Be that as it may, a short trade is terri-


fying when it goes against you. That’s espe-


cially true in a classic short squeeze, when


everyone who has bet against the stock is


trying to buy it back at the same time. That


can cause the stock to quickly shoot up in


price—beyond what fundamentals would


suggest. Theoretically, a short seller’s losses


are potentially infinite. A stock that inves-


tors own can only go to zero.


We bring this up because a lot of great


short trades suddenly don’t look so great


right now. This past week’s reversal of some


of the market’s most popular themes saw


many of the biggest losers become big win-


ners. And many of them were also popular


shorts.Newell Brands(NWL), a popular


stock to bet against with 10.5% of its float


shorted, was down 7.2% in 2019 before gain-


ing 7.1% this past week.


And though some of the moves have


been large, they could get even larger,


writes J.P. Morgan strategist Shawn Quigg,


if short sellers need to buy back their bor-


rowed shares to cover mounting losses.


“We find this rotation particularly pro-


nounced in those heavily shorted value


stocks where performance anxiety may now


be driving forced short covering,” Quigg ex-


plains. He recommends buying call options


onUnitedAirlinesHoldings(UAL),Cen-


turyLink(CTL), and Newell Brands to play


the potential short squeeze.


We feel more comfortable when these


trades match our fundamental views, and


that happens to be the case with United. Its


stock has been range bound for much of the


past year, as investors fretted about its abil-


ity to weather the impact of higher oil


prices and potentially slowing growth. More


recently, United has had to deal with the


side effects from the grounding ofBoeing’s


(BA) 737 MAX jet—and worries about over-


capacity once the airplane flies again.


VITALSIGNS


Friday's Week's Week's
Close Change %Chg.

DJIndustrials 27219.52 + 422.06 + 1.58


DJTransportation 10813.62 + 510.70 + 4.96


DJUtilities 846.99 – 1.31 – 0.15


DJ65Stocks 9056.67 + 186.90 + 2.11


DJUSMarket 746.74 + 7.69 + 1.04


NYSEComp. 13124.34 + 190.96 + 1.48


NYSEAmerComp. 2536.55 + 74.19 + 3.01


S&P500 3007.39 + 28.68 + 0.96


S&PMidCap 1963.16 + 51.65 + 2.70


S&PSmallCap 975.95 + 45.84 + 4.93


Nasdaq 8176.71 + 73.64 + 0.91


ValueLine(arith.) 6329.18 + 247.98 + 4.08


Russell2000 1578.14 + 72.97 + 4.85


DJUSTSMFloat 30823.92 + 354.02 + 1.16


LastWeekWeekEarlier

NYSEAdvances 1,852 2,158


Declines 1,218 880


Unchanged 38 61


NewHighs 283 412


NewLows 35 136


AvDailyVol(mil) 3,952.0 3,431.1


Dollar
(Finexspotindex) 97.86 98.39

T-Bond
(CBTnearbyfutures) 157-200 164-160

CrudeOil
(NYMlightsweetcrude) 54.85 56.52

InflationKR–CRB
(FuturesPriceIndex) 174.79 172.62

Gold
(CMXnearbyfutures) 1490.90 1506.20

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