Precious metals remain strong, AT&T and Discovery not so much
WASHINGTON – After a late inning rally last week, the Dow Jones Industrials as well as its pals the D&P 500 and the tech-heavy NASDAQ continued to ominously lose air near Tuesday’s closing bell. Wednesday lousy follow up action offers zero improvement. Perhaps finally returning to their traditional roles, however, gold and silver have quietly rallied during the same period. Yet much of the market remains in serious face-plant mode. That includes the notably declining shares of AT&T and Discovery, Inc.
Precious metals: Lagging ETFs finally getting a bid?
Someone is finally getting worried about inflation. No problem. Gold and silver (and sometimes platinum and palladium) are the classic hedges. Yet oddly, due to the bizarre and continuing fixation with Bitcoin and it’s fake currency pals, the precious metals have traded out of synch over at least the past few years, even in negative investing environments.
But more recently, given Bitcoin’s wild recent gyrations, attention may already have shifted back to the precious metals, those traditional stores of value.
We have decided to start ramping up – slowly – our rather small positions in gold, silver and palladium ETFs as a result. We’ll see how that works out as this week’s market action continues to gravitate toward chaos. Our current preferred ETFs include one lesser-known Swiss gold ETF by Aberdeen (NYSE:SGOL), one better-known silver iShares Silver Trust ETF (NYSE:SLV), and Aberdeen’s volatile palladium ETF (NYSE:PALL).
The continuing (failing) media adventures in Telecom Land
Precious metals aren’t the only games on Wall Street these days. The continuing adventures involving AT&T (NYSE:T) and cable media company Discovery, Inc. (NASDAQ:DISCA and NYSE:DISCK). In an earlier article Monday, we highlighted what was reported as AT&T’s acquisition of Discovery, which had briefly promised to put some pep in the step of these lagging stocks that currently live in the S&P Communications Sector:
“…T’s continued entertainment acquisitions, like all that Warners stuff, haven’t yet worked major magic [for this old Baby Bell]. And worse, hand-over-fist acquisitions have caused AT&T to keep racking up costly debt even as they attempt to keep paying that fat traditional telco dividend. It’s currently a whopping 6.45%, way better than a moribund moneymarket fund.”
Well, the other shoe in this transaction was later dropped, resulting in a Tuesday smackdown for AT&T and Discovery shares.
The Dow / DuPont analogy
It appears that AT&T’s “acquisition” of Discover is – similar to Dow Chemical’s merger-acquisition of DuPont a couple of years ago – serves only as an acquisition of convenience.
Dow and DuPont, after mixing and mingling their various assets for at least two years, finally executed their ultimate plan last year. They put all their various conglomerated activities into the appropriate packages and magically transformed them into three more specific and synergistic businesses. At which point they spun them back out into three separate stocks, the new Dow, the new DuPont, and, well, I forget the third one but you get the picture.
In other words, both large cap companies used what was effectively a merger of convenience to reshape their companies by moving assets to and fro to create more concentrated and less diverse companies, while hiving the assets they least desired into a synergistic third company. They then split off into more manageable and synergistic thirds.
AT&T / Discovery combo looks the same, only different
Well, it looks like AT&T and Discovery are essentially up to the same trick. After only 3 years of involvement in Big Media assets and issues, AT&T looked at its massive indebtedness and media losses and decided the whole thing had been a mistake.
So now, undoubtedly destined to encourage large writedowns, AT&T decided to undertake a creative exit strategy right now. They’ll bring in Discovery, which already owns and operates a number of popular cable channels.
Discovery will then latch onto AT&T’s Warner properties, along with AT&T’s great media millstone, CNN, and spin them, and itself, back out, relieving AT&T of its media misery while itself acquiring potentially lucrative properties that, as a true media company, Discovery should be far more adept at managing for a profit.
What about DirecTV?
We’re not quite clear whether Discovery (or its successor company) would also inherit another AT&T boat-anchor, the money losing DirecTV business, in the eventual spinoff. But things should become clearer as the AT&T / Discover mix-and-mingle game thrashes itself out.
One thing’s for sure right now. Investors in both companies hate this game. Evidence? They continue to dump these shares hand over fist. Making things worse, AT&T announced an imminent cut to its handsome dividend. Currently over 7%, T plans to cut that fat payout by roughly 20% to help pay for this corporate open-heart surgery.
Even today, most AT&T investors are in this generally moribund stock for the dividend. And with that announced cut, which still guarantees an above average dividend payment, these investors – including this writer – are outta there. At least for now. We managed to exit yesterday, with a modest profit on the shares, no less. We left simply because, for the moment at least, these shares are dead money in this market.
Wednesday’s market action? Don’t look…
So who said precious metals were the only pockets of fun in this week’s market action, right?
Joviality aside, US markets in general continue to suck Wednesday. (That’s a technical term.) The tech-heavy NASDAQ continues its vanishing game yet again today, although it’s only down 0.28% as of 2:30 p.m. ET. But the broader-based S&P 500 is off 0.65%. And the Dow Jones list of 30 top US industrials (which includes Apple and Microsoft) is down close to 0.90%.
The ongoing worldwide chip shortage and America’s AWOL president don’t inspire market confidence
So what’s with the continuing tech weakness plus the disturbing weakness in America’s largest cap companies? Both may be connected to the ripple effect of the ongoing worldwide chip shortage. This surprise supply-chain crisis threatens to derail a the potentially massive world industrial recovery from the foolishly overlong Covid-19 lockdowns.
Pressure for a recovery is irresistible, given pent-up demand. But if vendors don’t have enough product to sell into that pent-up demand, any expected vigorous recovery may soon go bust, leading to another ruinous recession, given the monstrous levels of debt Western governments have racked up to cope with the Covid overreaction.
Translation: we’re currently in a hell of a mess. And it’s not helped by allowing our betters to keep America’s current imaginary president in power. Alas, more commentary on this requires another column in another CDN section. So we’ll leave this issue here. For now.
Any way, stay tuned for any updates. But today’s bearish market action is not so hot. But, like Yogi Berra said, this market action “ain’t over ‘til it’s over.” We just hope it’s over soon. Before it’s back to the 2008 future.