(New York)

One the most brutalized stocks on Wall Street is going through a renaissance. The agricultural stock Mosaic has been beat up lately. The fertilizer specialist has been hammered because of weakness in crop prices and corresponding falls in fertilizer. Shares are down 18% this year. The company just released earnings where it cut profit forecasts and then something amazing happened—it surged 7%. Analysts and the market suddenly decided the stock was too cheap. One JP Morgan analyst summarized, saying “Mosaic has been a poor equity performer over a one, three, five, and 10 year period … And we think the shares are now priced to create a favorable risk-reward balance”.

FINSUM: This is a classic blood-in-the-streets type purchase, but the stock is so cheap compared to almost every valuation metric that there does seem to be asymmetric risk to the upside.

(Washington)

The Fed has a big new worry that is not presently on the market’s radar. With all the worries about headline economic data and the trade war, very little attention has been paid to the potential shock equities and bonds may feel from climate change. The Fed, however, is very focused on the risk. The Fed says that climate change can have a jarring effect on the economy that may “affect national economic output and employment”. “As such, these events may affect economic conditions, which we take into account in our assessment of the outlook for the economy”, says Fed Chairman Powell.

FINSUM: Calculating climate risk is tough because it can have short-term effects, but also much longer and more challenging ones, such as migration and agricultural output. That said, no one is expecting a climate change-induced financial crisis.

(New York)

Investors are currently worried about corporate bonds. On the one hand performance has been pretty good, especially for the riskiest bonds. But therein lays the problem—highly indebted companies have not been punished and there appears to be way too much corporate debt at the moment. This is the Fed’s view and many market participants, but Goldman has shared another—that the amount of corporate debt in the economy is just fine and corporate balance sheets look healthy. The bank says US companies are in an “unusually healthy position this deep into a business cycle expansion”. Goldman notes that companies are spending a smaller share share of their cash flow on interest than they were a decade ago, and that they are earning more than they are spending.

FINSUM: The corporate debt situation is all about perspective. Things look better than in the last crisis, but anyway you slice it, the debt burden looks at least somewhat daunting.

(New York)

The trade war is scaring investors and tightening up markets. Benchmark indices have had a rough time this week and new data on investor flows should add to worries. UBS group, the world’s largest wealth manager, has just put out data on the holdings of its high net worth portfolios. The info shows that the world’s wealthy have 32% of their capital sitting in cash. In the US the figure was lower, at just 23%. UBS think that investors have become too conservative.

FINSUM: This is actually quite a bullish indicator for us. The markets have managed to rise a lot this year and there is still a lot of dry powder to push them higher.

(New York)

Investors are currently worried about the trade war between China and the US. Tensions have reached a new peak this week after threats from President Trump regarding hiking the tariff rate to 25%. This big development, and the trade war generally, prompted JP Morgan CEO Jamie Dimon to weigh in this week. “The odds of something bad happening [in trade negotiations] is now double. Whatever you thought they were — 2%, 5%, 10% is probably doubled. That’s why the market is reacting to it because they’re not just afraid of the direct effect, they’re afraid if it reverses global trade, it reverses global growth and hurts trade around the world”. All that said, he sees an 80% likelihood a deal will occur because smart people on both sides will make it happen.

FINSUM: We agree with Jamie. Both sides have a lot on the line and we think everyone will eager to seal a deal, even if a modest one, and move on. Perhaps that is western-centric thinking though.