Warren Buffett Is Leaving the Neighborhood... But an Up-and-Comer Has a Chance to Thrive
"Location, location, location." That's what you hear when people talk about real estate. Noisy neighbors are bad enough.
Warren Buffett Is Leaving the Neighborhood... But an Up-and-Comer Has a Chance to Thrive
By Marc Gerstein, director of research, Chaikin Analytics
"Location, location, location."
That's what you hear when people talk about real estate.
Noisy neighbors are bad enough. But it's a lot worse if they own tanks and start threatening to invade your property.
That's what recently sent Warren Buffett off script.
The revered "Oracle of Omaha" loves to invest in businesses that will stay great for a long time. In fact, his favorite holding period is "forever."
But earlier this week, Buffett sold a large stake in Taiwan Semiconductor Manufacturing (TSM)... just a few months after adding it to Berkshire Hathaway's (BRK-B) investment portfolio.
The company didn't suddenly go bad. Actually, he said:
Taiwan Semiconductor is one of the best-managed companies and important companies in the world, and you'll be able to say the same thing five, 10, or 20 years from now.
It was the "neighborhood" that went bad.
Buffett fears that Taiwan could be the epicenter of escalating geopolitical tensions between China and the U.S. And that led him to cash in and walk away.
But there's another, bullish side to this coin. As one neighborhood goes bad, another looks to be up and coming...
The largest hedge funds like Millennium Management, Citadel, Point72, and more are now anxiously awaiting the greatest Wall Street event of 2023. Over $10 trillion and more than half of the U.S. stock market will be impacted... And abnormally large gains – and losses – are set to follow. Click here to prepare now.
Over 1 million people around the world follow 50-year Wall Street veteran Marc Chaikin for his surprisingly accurate stock predictions. And he just gave them an urgent SELL ALERT for one of the most popular stocks in U.S. history. He says, "After years of breathtaking gains, this company's day in the sun is coming to an end. You must sell this stock – NOW!" Get the ticker here.
Investors love buzz words. Last week, I discussed "AI" as one example.
Here's another one... and it's likely to have a more immediate impact...
It's called "nearshoring." (You may have heard terms like "friendshoring" and "deglobalization"... They mean the same thing.)
It's the opposite of offshoring.
Essentially, U.S. companies want to manufacture in places where labor costs are cheaper. And in the past, that led to sending factories overseas.
After China joined the World Trade Organization in 2001, it became the destination of choice for U.S. manufacturing.
But that's not the case today...
Over time, wages rose. Trade tensions heated up when Donald Trump became president. And those tensions haven't gone away with the Biden administration.
The feeling is mutual... Chinese President Xi Jinping looks to compete, rather than partner with, the West.
Then came the pandemic-induced global shutdowns. Suddenly, goods couldn't move across borders at any price.
And now, we have increasing military tension involving the future of Taiwan.
The bottom line is: Cost is no longer the top priority. Now, companies want resilience and reliability.
And that's pushing another up-and-coming manufacturing country to the forefront...
Mexico tops China in nine out of 14 business-friendly categories surveyed in October 2022 by a unit of Morgan Stanley Research.
Key among them were cost, proximity, currency exchange rate, and intellectual-property protection.
Now, everything isn't perfect in Mexico. A U.S. recession will hit Mexico's economy, too. Exports to the U.S. would weaken. And there would be less money flowing over the border from the U.S.
One major positive is that U.S. banking woes have not spread to Mexico. The country has stricter rules regarding capitalization and liquidity buffers.
And now, thanks to nearshoring, the Mexican stock market is emerging from what had been a lost decade, due to sluggish gross domestic product growth and crashing oil prices.
Nearshoring should give a major long-term boost to Mexico's financial, industrial, real estate, and transport sectors as more companies look to do business closer to home.
The Power Gauge is picking up on all of this...
The iShares MSCI Mexico Fund (EWW) earns a "bullish" rank overall.
In fact, EWW checks all three boxes of what I might call the "Chaikin Trifecta."
In addition to its overall "bullish" rank, we also see strength in two important indicators.
Take a look at the two lower panels of the chart below – Chaikin Money Flow and relative strength versus the S&P 500 Index...
The Chaikin Money Flow indicator shows that the so-called "smart money" is flowing into this fund. As you can see, it's in the green.
EWW has also outperformed, relative to the S&P 500, since last September. That tells us good things are in store for this up-and-coming market.
As geopolitical tensions continue rising between China and Taiwan, investors are looking to friendlier shores like Mexico.
The Power Gauge helps us see the opportunity in that market.
In real estate, urban pioneers who plant stakes in rising neighborhoods typically do well in the long term.
In investing, that approach could benefit EWW shareholders, too.
Good investing,
Marc Gerstein
Market View
Major Indexes and Notable Sectors
# Hld: Bullish Neutral Bearish
Dow 30
-0.13%
10
17
3
S&P 500
-0.42%
138
281
79
Nasdaq
-0.63%
43
47
10
Small Caps
-0.31%
384
961
535
Bonds
-0.36%
— According to the Chaikin Power Bar, Small Cap stocks are somewhat more Bearish than Large Cap stocks. Major indexes are mixed.
* * * *
Sector Tracker
Sector movement over the last 5 days
Real Estate
+0.82%
Discretionary
+0.75%
Utilities
+0.66%
Information Technology
+0.33%
Industrials
-0.12%
Financial
-0.22%
Energy
-0.29%
Communication
-0.39%
Staples
-0.75%
Health Care
-0.93%
Materials
-1.29%
* * * *
Industry Focus
Regional Banking Services
0
54
88
Over the past 6 months, the Regional Banking subsector (KRE) has underperformed the S&P 500 by -48.91%. Its Power Bar ratio, which measures future potential, is Very Weak, with more Bearish than Bullish stocks. It is currently ranked #21 of 21 subsectors.
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