Archive for September, 2014

• CWS Market Review – September 5, 2014
  Eddy Elfenbein, September 5th, 2014 at 7:12 am

  “The expectation of an event creates a much deeper impression
  on the exchange than the event itself.” – Jose de la Vega, 1688

  We’re now past Labor Day, and the stock market keeps on rolling. There are times when it seems like all the news is bad news for the market; then it suddenly switches, and everything is good for stocks! On Thursday, the S&P 500 got as high as 2,011.17, which is yet another new all-time intra-day record high. But in the course of the day, the bears showed up and pushed the index back below 2,000. Still, the bulls have been the rulers of Wall Street for the past month.

  As impressive as this rally has been, we have to bear in mind some important facts—the market’s volume and volatility have been low. Very low. Daily trading is the lightest it’s been in years. And look at the S&P 500’s recent price action. The index has now gone 11 days in a row of closing up or down by less than 0.5%. Seven of those days were less than 0.2%. Dear Lord, that’s barely a blip, and it’s especially small compared with the hyper-volatility of just a few years ago. The hot summer has been the Big Chill for Wall Street.

  

  I’m also pleased to see that many of our Buy List stocks are joining in on the rally. Fiserv ($FISV) continues to push to new highs. Bed Bath & Beyond ($BBBY) finally broke above $65 per share. Even CA Technologies ($CA) has perked up recently.

  The big news this week didn’t come out of the U.S. market. Instead, it came from Europe. Mario Draghi, the head of the ECB, said that the central bank will start buying asset-backed securities. In other words, they’re doing QE, too. The ECB also cut interest rates. Just like ours, their rates are on the floor, so they need a little experimenting to go negative. The ECB also cut their GDP forecasts for this year and next year.

  My take: Draghi is sending a message: “Please, please, pleeezze bring the euro down!” If that works—and I can’t say it will—that would take a lot of heat off the ECB, and it would help the Eurozone get back on its feet.

  I do want to caution investors that the U. S. market may be in store for a rough few weeks. Nothing dire, mind you. But I think some bears will soon be bold enough to launch assaults on some high-profile stocks (even Apple felt the sting this week), and the market as a whole may take a dip. You may have noticed that I’ve kept a leash on many of our Buy Below prices. Please understand that I only mean a few weeks, and nothing protracted. As always, investors should protect themselves by owning a diversified list of our Buy List stocks.

  In this issue, I’ll cover some of the recent economic news impacting our portfolios. I also want to focus on the goings-on in the gold market. The Midas Metal has been getting squeezed lately, and I think this will go on for some time. I’ll also highlight a few especially good bargains on our Buy List. But first, let’s take a look at the best ISM report in more than three years.

  August ISM Index = 59.0

  On Tuesday morning, the ISM Index for August came in at 59.0. That’s a very good number, and it tells us that the manufacturing sector is thriving. Let me explain why the ISM report is so important. It’s a survey of manufacturers, and they’re asked whether business is better or worse compared with last month. What’s interesting is that it doesn’t tell us the overall result, just where we are compared with one month ago. The ISM is also a “diffusion” index, which is a fancy way of saying it measures how broad the changes are.

  I like to keep a close eye on the ISM report for several reasons. One is that it’s reported on the first business day of each month. Other reports, like trade or GDP, take weeks or months before we know what’s truly happening. Also, the ISM isn’t subjected to countless revisions. What you see is what you get.

  With the ISM, any number above 50 means that the manufacturing sector of the economy is expanding. Below 50 means it’s contracting. The ISM has been 50 or better for 60 of the last 61 months. I’ve spliced the data carefully and found that we usually don’t hit recession territory until the ISM gets down to 45 or so. In other words, we’re well within the safe zone.

  The August ISM was at its highest level since March 2011. It came very close to matching the highest ISM in the last ten years (59.2 for February 2011). The ISM has now risen for six of the last seven months. The only downer was a small 0.1 drop in June. The ISM is important because if the manufacturing sector is doing well, it’s likely to spill over into other areas of the economy.

  The trouble spot continues to be the labor market. I’m writing to you on Friday morning ahead of the big August jobs report. All of Wall Street will be waiting to see how many jobs were created in August. Nonfarm payrolls have grown by more than 200,000 for the last six months, and August may make it seven. We got a sneak preview of the jobs report when ADP, the private-payroll firm, released its report showing a gain of 204,000 private-sector jobs last month. The weekly initial-unemployment claims have also been well behaved.

  I think The Wall Street Journal captured it well when they described the economy’s “solid-if-unremarkable growth.” The economy is indeed growing, but at a subdued pace. The good news is that it can keep this up for several more quarters.

  This past week, the Federal Reserve released its Beige Book report. If you want to get a good report on how well the economy is doing, the Beige Book is a good place to start. I’ll warn you, though, it’s fairly wonky. The most recent Beige Book confirmed a lot of what we already know: the economy continues to expand at a slow-to-moderate pace.

  On our Buy List, we saw more evidence of this trend in the surprisingly good sales report from Ford Motor. Wall Street had been expecting a sales drop for August. Instead, it was a small increase. Ford had its best August in eight years.

  Next week we’ll get more info on how consumers are behaving, but it looks as if the lower gas prices have lured more consumers to open their wallets. Remember the recent strong earnings report from Ross Stores ($ROST) and the higher guidance? In my book, watching business at a deep discounter like Ross is a lot more useful than a roomful of well-regarded government econ reports.

  What does this mean for us? The fundamentals of the economy are better than they were a year ago. All the signs point to a moderate expansion. Nothing great, but the arrows are finally pointing in the right direction. I expect to see more strength in consumer-related areas like eBay ($EBAY), McDonald’s ($MCD), Wells Fargo ($WFC) and others.

  What Does the Recent Weakness in Gold Mean?

  While the stock market has been quietly bullish lately, the gold market’s been in rougher shape. On Wednesday, the yellow metal dropped more than $20 an ounce. On Thursday, gold closed at its lowest level since June 11.

  Interestingly, this Saturday will mark the three-year anniversary of gold’s all-time intra-day high of $1,923.70. (Dear Lord, was it really that high?) Needless to say, this has been a rough bear market for the gold bugs. Gold is currently off by more than one-third from its peak price.

  

  Gold closed Thursday at $1,261.70, and I think there’s a chance it could soon test its closing low of $1,187.10 from last December. Here’s the important thing: Gold tends to move in long multi-year trends. Once the trend is in place, it’s darn hard to stop. At least, that’s been the historical behavior.

  So why has gold been heading down? I suspect that it’s in anticipation of the Fed’s raising interest rates sometime next year. There’s still some debate as to when that will happen, but I think more investors have reconciled themselves to the fact that it will be an event in calendar year 2015.

  Once real interest rates start to rise, gold will come under more and more pressure. I think a lot of gold investors got used to easy times. Gold had an amazing run for more than a decade. That’s over. For right now, I’m staying away from gold.

  Three Buy List Stocks That Are Especially Attractive Right Now

  I wanted to highlight a few Buy List names that look particularly good right now. I’m surprised by the recent weakness of McDonald’s ($MCD). I realize the company faces a number of hurdles, but I think this price is quite reasonable. The shares recently came very close to breaking below their low from February. The stock currently yields nearly 3.5%, which is quite good in this market. This is also the time of year when MCD traditionally raises its dividend. Since this year’s earnings will probably be about the same as last year’s, the company may forego a dividend increase. But it won’t lower it either. This one may take some time, but MCD is at a bargain price here.

  I also like Cognizant Technology Solutions ($CTSH). The shares took a big hit a few weeks ago, and I think the selling pressure has passed. Bear in mind that Cognizant didn’t plunge on lower earnings guidance; the stock fell due to the lower sales guidance. The company was very clear that its earnings forecast for this year ($2.54 per share) was the same. Also, CTSH’s lower sales guidance works out to a lowering of its growth rate from 16.5% to 14%. That’s still quite impressive. I’m keeping my Buy Below at $48 per share, but if you can snag these shares below $46, you got a very good deal.

  Shares of Ford Motor ($F) pulled back a bit on Wednesday and Thursday. The automaker reported another good month for sales. Last month was their best August in eight years. Ford’s sales rose 0.4%, while the Street had been expecting a decrease of 1.9%. The Ford Fusion did especially well. Some of Ford’s sales numbers are impacted by consumers’ waiting for the rollout of the aluminum-body trucks late this year. This could be a game changer.

  That’s all for now. The big August jobs report will come out later this morning. Next week we’ll get important reports on Consumer Credit and Retail Sales. It will be interesting to see how strong consumers were this summer. I suspect that shopping has been aided by the recent drop in gasoline prices. We’ll also get a clue when Bed Bath & Beyond reports later this month. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

  – Eddy

• Morning News: September 5, 2014
  Eddy Elfenbein, September 5th, 2014 at 2:18 am

  5 Takeaways From The ECB’s September Meeting

  Frugal Russians Fuel Alibaba’s Global Push Before IPO

  Private Sector Slows Slightly But Adds 204,000 Net New Jobs in August, ADP Says

  Ruling Against BP in Gulf Spill Could Mean $18 Billion More in Fines

  Fed Says Growth Lifts the Affluent, Leaving Behind Everyone Else

  U.S. Interest Rates Are Too High: Fed’s Kocherlakota

  US Trade Gap Narrows in July

  MetLife ‘Strongly Disagrees’ With FSOC Systemic Risk Tag

  Hong Kong Airlines Files For First HK$-Yuan Dual Currency IPO

  Samsung, Microsoft and Sony Try to Get Some Exposure Before They’re Eclipsed by Apple

  Court Rules Yelp Can Tamper With Reviews If It Wants

  El Pollo Loco Reports Strong Earnings in First Quarter After IPO

  Why USA Today Will Be The First Major Web-Only Newspaper

  Joshua Brown: Draghi’s Gambit

  Cullen Roche: I Really Want to Crush the Efficient Market Hypothesis….

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• Morning News: September 4, 2014
  Eddy Elfenbein, September 4th, 2014 at 2:10 am

  ECB Holds The Stage, Markets Hold Breath, With Deflation in Wings

  BOJ Keeps Record Easing as Kuroda Aims to Stoke Recovery

  House Leaders Said to Weigh Short-Term Export-Import Plan

  Regulators Propose Rule to Reduce Risk of Derivatives

  No Free Lunch for Companies as IRS Weighs Meal Tax Rules

  Michael Bloomberg Returning to Financial Company

  Nevada Appears To Have The Winning Hand For Tesla’s Gigafactory

  August Sales Fall for G.M. as Trucks Lift Chrysler

  Apple Stock Is Getting Killed

  Beige Book: U.S. Economic Outlook Brightens During Summer

  Delta Warns on Jet Fuel Prices, Outlook

  Elizabeth Warren Slams Eric Cantor’s Move to Investment Bank

  Why is CVS Walking Away From $2 BILLION A Year?

  Epicurean Dealmaker: Amakudari Revisited

  Jeff Carter: Why Are Governments Afraid of Ridesharing Like Uber and Lyft?

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• The Recent Weakness in Gold
  Eddy Elfenbein, September 3rd, 2014 at 4:24 pm

  Last November, Janet Yellen said, “I don’t think anybody has a very good model of what makes gold prices go up or down.”

  Well, she obviously doesn’t read Crossing Wall Street!

  While the stock market has been rather quiet lately, the gold market took a beating yesterday. The price of the yellow metal dropped more than $20 an ounce to close at its lowest level since mid-June.

  

  Interestingly, this Saturday will mark the three-year anniversary of gold’s all-time intra-day high of $1923.70. Dear lord, was it really that high? Gold was up a little bit today but it’s still off by more than one-third since its high from three years ago. This has been a rough bear market for the gold bugs.

  Gold closed at $1,270.70 today and I think there’s a chance it could soon test its closing low of $1,187.10 from last December. Gold tends to move in long multi-year trends. Once the trend is in place, it’s darn hard to stop. At least, that’s the historical behavior.

  So why has gold been heading down? I suspect that it’s in anticipation that the Fed will raise interest rates sometime next year. There’s still some debate as to when that will happen, but I think more investors have reconciled themselves to the fact that it will be an event in calendar year 2015.

  Once real interest rates start to rise, then gold will come under more and more pressure. I think a lot of gold investors got used to easy times. For right now, I’m staying away from gold.

• Morning News: September 3, 2014
  Eddy Elfenbein, September 3rd, 2014 at 1:50 am

  Russia-China Prove Cheap to Investors as Money Flows Rise

  Red Tape Holding Back Australia

  U.S. Delays Ruling on Norwegian Air’s Low-Cost Transatlantic Flights

  U.S. Manufacturing Grows at Fastest Pace in Three Years

  Dollar General Raises Bid for Family Dollar as Buyout Fight Heats Up

  CVS Pulls Last of Tobacco Items A Month Early, Plans Name Change

  Home Depot Probes Possible Customer Data Theft

  Dunkin’ Donuts Opens First Southern California Shop in Santa Monica

  Tesla Momentum ‘Is Like a Freight Train,’ Analyst Says as Stock Hits New High

  First Tesla, Now Toyota: States Battle Over Attracting Big Companies

  Halliburton to Pay $1.1 Billion to Settle Damages in Gulf of Mexico Oil Spill

  Compuware to Be Acquired by Thoma Bravo for $2.5 Billion

  Europe Crisis Is Resistant to Medicine of Low Rates

  Howard Lindzon: Passive Vs. Active Investing at S&P 2000

  Cullen Roche: Why Does the Power of the Hard Money/Fiscal Austerity Orthodoxy Persist?

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• August ISM = 59
  Eddy Elfenbein, September 2nd, 2014 at 10:02 am

  The ISM report came in at 59.0 for August. That’s a very good number. It’s the strongest number since March 2011, and we were very close to making a 10-year high.

• The Weakest Time of the Year for Stocks
  Eddy Elfenbein, September 2nd, 2014 at 8:45 am

  We’re coming up on what has historically been the weakest time of the year for the stock market. I took all 118 years of the Dow and crunched them into one average year (setting 100 for January 1). Here’s what it looks like:

  

  The Dow has historically peaked on September 6, a Saturday this year, and fallen 2.43% by October 29. That’s equal to about one-third of the Dow’s annual capital gain.

  I should caution against reading too much into these seasonal effects, and especially on acting on them. Remember that we’re talking about averages that come from 12 decades’ worth of data. In any one year, a drop of 2.43% over eight weeks would barely be noticed.

  The more important lesson is that summer is usually a good time for stocks. Once summer ends, there’s been a natural energy to take profits. That could certainly happen again this year. But that historic effect doesn’t last long, and the market soon rallies again as winter approaches.

• Morning News: September 2, 2014
  Eddy Elfenbein, September 2nd, 2014 at 4:13 am

  Draghi ABS Revival Depends on Regulators Defining Simple

  Merkel’s Generosity Tested by Surge in German Refugees

  Putin Kicks Off Gas Pipeline to China

  U.S. Companies Say China Subjectively Enforcing Laws

  Central Bank Says Analysts Cut Brazil Growth Forecast

  RBA Sees Currency Overvalued as Pause in Rates Extended

  Boot Camp for Bankers

  Eric Cantor to Join Wall Street Investment Bank

  Detroit Bankruptcy Battle Begins in Federal Court

  Six Steps to Alibaba’s Twelve-Figure Valuation

  Solar Company Seeks Stiff U.S. Tariffs to Deter Chinese Spying

  Burger King Has Maneuvered to Cut U.S. Tax Bill For Years

  Chrysler Luring Toyota Owners Helps Lift U.S. Share

  Roger Nusbaum: The Hard Work of Portfolio Protection

  Jeff Miller: Will Job Growth Sustain the Rally?

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• “1st September 1939” by W.H. Auden
  Eddy Elfenbein, September 1st, 2014 at 12:04 pm

• Morning News: September 1, 2014
  Eddy Elfenbein, September 1st, 2014 at 1:01 am

  China Manufacturing Growth Slows in August

  China’s Property Slump Leads to Record Loans to Builders

  China’s Stocks Rise to One-Week High as Data Boost Stimulus Bets

  Weak Data to Test BOJ’s Rosy Economic View, Policy on Hold

  P.R. Firm for Putin’s Russia Now Walking a Fine Line

  One Judge to Decide the Future of Detroit

  California Overhaul ‘Pump-As-You-Please’ Groundwater Rules In Midst Of Drought

  Alibaba IPO: Launch Set to Be Largest in Years

  Britain’s Barclays Sell to Sell Spanish Assets to Caixabank

  Hedge Funds Cut Gold Bull Bets to Lowest Since June

  Mental Floss Is Buoyed by Online Video

  Samsung to Merge Shipbuilding, Engineering Arms in Revamp

  Norwegian Cruise Nears $3 Billion Prestige Cruises Deal

  Howard Lindzon: Do You Cashtag? … and The Great Wall of Wall Street

  Joshua Brown: Safety Dance

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