Bullseye Brief presents three thematic, actionable investment ideas every other week. My goal is to help identify only those opportunities most worthy of your time… by analyzing data, distilling complexity and sharing insights from a deep network of experts. I love what I do and invite you to join me. Bullseye Brief Members and Subscribers receive the following: 1. Bullseye Brief Twice a Month: 3 actionable ideas every 2 weeks 2. Bullseye View: What’s happening in key markets 3. Week Ahead Preview: Sunday night email on alternating weeks 4. Podcast: Thoughtful conversations about money and life bi-monthly 5. Access: Call or email Adam directly, anytime, with questions or comments

Adam Johnson

Adam Johnson anchored several business programs at Bloomberg Television over five years, interviewing CEOs, heads of state, and Nobel laureates. His daily video investment blog, Insight and Action was sponsored by a major U.S. lender. Previously he managed global risk assets for ING Furman Selz and Louis Dreyfus, trading oil futures, listed equities and equity options. Adam began his career at Merrill Lynch with a degree in economics at Princeton.


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Mall Rats Not REITs

Shorting Into the Hole

  • e-Commerce sales account for 8.7% of total retail sales and are rising 30% annually
  • Macy’s, K-Mart, Target and Sears have announced over 250 store closings in recent quarters
  • Large anchor tenants occupy significant square footage in malls but generate little gross rent
  • Mall REITs are scaling back development projects as retail brick and mortar sales fall

Going to The Mall as a kid on Thursday nights was right up there with church on Sunday morning. Attendance was mandatory. Dad was typically out on biz (#MadMen), so mom would take my sister and me to Stamford Town Center where we’d meet friends, have dinner and buy stuff we didn’t need. The 1991 movie Scenes from a Mall was filmed there, and it was really great. Until it wasn’t. Anchor tenants J.C. Penny, Filene’s and Saks sunk millions into megastores, only to shut their doors because foot traffic dried up. Last year P.F. Chang’s closed it’s pantheon to Asian fusion and Cosi filed Ch. 11. Barnes & Noble still sells books and mags there, but its 40,000 square feet space is bigger than my high school library… and now I read online, which is the whole point. e-Commerce is dramatically changing how we shop and mall REITs are struggling to redefine themselves. Rents have held up surprisingly well, but the big players are playing defense and their stocks are falling. Malls aren’t what they used to be, as cash flow morphs into cash crunch. Sorry old friend. We had fun, but REITs look like rats.


March 11, 2017

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Have It Both Ways

1×2 Put Spreads On the Banks

  • Banking’s 39% return since elections ranks #1 among all sectors and is double the S&P 500 Index
  • Fundamentals improve as economy strengthens and rates rise but stocks may have overshot
  • One-by-Two put spreads generate returns down 15-20% and create purchases at lower bound
  • Current market pricing points to late-summer as optimal timeframe for maximizing risk/reward

Few guests on my podcast have elicited as many responses from all of you as former world #1 sovereign wealth fund PM Neil Grossman. His dual background studying physics at Cambridge and law at Georgetown has enabled him to spot opportunities many of us tend to overlook, like owning one-by-two put spreads on the banks without spending a dime. As Neil and I talked through the strategy, I found myself drawn into the trade and wanting to know more.“Oh man, this got my head spinning…” wrote one listener, “I never squinted this hard while listening lol. Great great podcast, thank you.” Thank YOU Nelson. Neil clearly struck a chord with many of us, and after running a few scenarios on my Bloomberg, I realized we should be doing this trade too. For little or no expenditure, we can profit from an initial decline in the banks of 15-20%, provided we’re also willing to actually step in and buy them should they trade lower. If you think banks are vulnerable to a correction but you want to own them on weakness, this is your trade. Now let me explain how we do it.


March 11, 2017

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Hold & Roll

Buying High Yield

  • Strong credit quality creates additional upside for high yield bonds even as spreads narrow
  • Large asset managers are the most long 10-yr Treasuries in over a year despite pending rate hikes
  • Global yield scarcity highlights USD assets as attractive on a relative basis
  • High Yield ETF (HYG) approaching long-term support at its 200-day moving average

Fixed income managers get a bad wrap, especially among starry-eyed equity analysts talking growth trends and takeouts. They pour over bond indentures looking for everything that could go wrong, knowing the most they’ll make is par plus a coupon. It sounds like drudgery, except bond investors rarely have to sell. Unlike stock traders looking over their shoulder should the bottom fall out, bond traders can easily hold to maturity. Even in a rising rate environment, they simply clip coupons and wait to reinvest principal when their bonds come due. Upset your Sprint bonds maturing next year only yield 3.27%? Don’t be. They’re money good and the 2022s are 5.51%. Call it sweet revenge, and the ability for managers to Hold & Roll is especially relevant now as the Fed begins raising rates. Bond investors may have to tolerate negative marks for a few quarters as prices adjust, but retiring bonds will simply roll off the sheets and capital will get reinvested at higher rates of return. For anyone predicting Armageddon in bonds, think again.


March 11, 2017

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10

As in U.S. unemployment remains under 5% for a 10th consecutive month.
#YesWeCan

30

As in broker-dealers are offering to pay Sears shareholders 30% interest if they loan their shares to short sellers.
#NiceDividend

13,600,000,000

As in global central bank assets top $13.6T as The Fed looks to hike its benchmark borrowing rate another 25 basis points.
#PenniesFromHeaven 

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“We will exceed mandated cuts in March and April.”
–UAE’s Oil Minister at the CERA Conference in Houston, as oil falls below $50 for the first time since November.

#NotBuyingIt

“For a long time people thought low-cost long-haul routes were not economically possible. Now aircraft makers are producing aircraft which can go far longer and far cheaper.”
–Emirates President Tim Clark on Bloomberg

#LetsGo!



“The self righteousness of the statement, and the overall UK arrogance about their shih tzus rubs the rest of us the wrong way.”
–California breeder Kathy Garcia expressing dismay as Cufts Dog Show in London disallows breeders from showing dogs with bows tied in their hair.
#GetALab