Archive for November, 2016

• OPEC Agrees to Cut Production and Oil Soars
  Eddy Elfenbein, November 30th, 2016 at 10:48 am

  Apparently, OPEC ain’t quite so dead just yet. The oil cartel just surprised a lot of folks, including me, by overcoming a mess of internal squabbling and agreeing to cut back oil production.

  The move is intended to boost the economies of the big oil producers which have been shattered by lower oil prices. Russia’s economy, for example, has been in a tailspin. Venezuela’s is reaching crisis levels.

  On the other hand, the production cut is a big help for U.S.-based shale drillers. Right now, crude oil is up about 7% on the day. The Energy Sector ETF is up over 4%. Halliburton is up more than 10%.

• Personal Income Rose 0.6% Last Month
  Eddy Elfenbein, November 30th, 2016 at 9:56 am

  Today is the final trading day of November. It looks like the S&P 500 is about to snap its three-month losing streak. November may go down as the index’s best month since March.

  This morning, the government said that personal income rose 0.6% last month. That’s a good number as it suggests that the Q3 GDP may be followed by another good one for Q4.

  Consumer spending rose by 0.3% in October, and the figure for September was revised up to 0.7%.

  Solid spending and income growth this fall could be a sign that consumers have the capacity to step up purchases during the holiday-shopping season. Steady hiring and modest wage gains are allowing some households to spend more. Spending on goods intended to be used quickly, such as gasoline and clothing, rose sharply in October. Spending on services fell.

  Here’s how income and spending have fared since the recession ended.

  The futures market now thinks there’s a 94% chance that the Fed will raise rates in two weeks. After that, however, it’s not so clear. Futures traders don’t expect another hike until June, and even that is nearly 50-50.

• Morning News: November 30, 2016
  Eddy Elfenbein, November 30th, 2016 at 6:40 am

  Euro-Area Inflation Accelerates Before Key ECB Decision on QE

  German Joblessness Extends Decline as Growth Seen Picking Up

  RBS Fails UK Regulators’ Stress Tests. Now What?

  China Adds Curbs on Pulling Money Out of the Country

  China Warns of Safety Risks as Rally in Coal Price Spurs Mining

  OPEC Members Meet in Vienna Amid Market Optimism

  Justin Trudeau Approves Oil Pipeline Expansion in Canada

  U.S. Bank Earnings Up Nearly 13% in 3Q

  Cabinet Pick Wilbur Ross Has Used Trade to His Benefit

  Paying Breitbart’s Bills: Advertisers Pulling Away From Hateful Content Now That Steve Bannon Is In The White House

  Trump to Announce Carrier Plant Will Keep Jobs in U.S.

  Philip Morris CEO Sketches a Future Where the Company Doesn’t Sell Cigarettes

  Baker Hughes to Place Some Operations Into New Land Pressure Company

  Howard Lindzon: iRobot is Unhinged

  Roger Nusbaum: Market Melting Up

  Be sure to follow me on Twitter.

• BC Forbes Says It’s Time to Buy!
  Eddy Elfenbein, November 29th, 2016 at 1:49 pm

• How Do You Know If You’re Ready To Invest?
  Eddy Elfenbein, November 29th, 2016 at 1:31 pm

  At MarketWatch, Shawn Langlois noticed a young investor with $10,000 asking for advice.

  “I have $10k sitting in my TDAmeritrade taxable account, ready to trade with, but I’ve been learning about investing for the last 1-2 months. I bought ‘The Intelligent Investor,’ and ‘A Random Walk Down Wall Street.’ I’m not done reading the books, yet, but how will you know when you’re ready to start investing? I’m anxious to get started, but how do I know if I’ll be ready?”

  Shawn then reached out to some stock bloggers to hear what they had to say. Here’s a sample:

  Michael Batnick, director of research at Ritholtz Capital Management:

  Start now! I would never recommend somebody do this with their retirement money, but taking risks for huge gains isn’t a terrible idea for a young person, especially given how favorable market conditions have been recently. But I will warn you of a few things: The likelihood of you doubling or tripling your money is slim at best. And if you do stumble upon beginner’s luck, the odds that you’re going to walk away with those gains is slim to none. Here’s why: There are a lot of really smart people who will be more than happy to take the other side of your trade. 90% of trading volume is done by institutions who spend millions of dollars a year on research. They have more information and resources than you can possibly imagine.

  If you’re reading those two books, especially “A Random Walk,” you already know how difficult it is to beat the market. But this is one of those things that you have to find out for yourself. Nobody opens up a brokerage account, buys the total global stock market and forgets about it. So take risks. Double your money, lose it all. The only way to learn is by doing, so get going!

  Eddy Elfenbein of the Crossing Wall Street blog:

  When it comes to “how do I know if I’ll be ready,” I always tell investors to try paper investing first. It sounds corny, but it works. Draw up a fictional account, but one that you think you’d like. Compute the number of shares, expected dividends, etc. There are countless resources where you can follow this on the web. Then, sit back and follow it.

  You’ll soon learn things about yourself. Do you constantly check it every five minutes. Are you freaking out if it drops a little bit? Trust me, you may realize you’re not the kind of investor you thought you were.

  And if you want to really test yourself, see how your portfolio acted in 2007-08. Could you watch yourself take a 50% bath? It ain’t so easy. If you can do that, then you’re ready.

• Q3 GDP Revised to 3.2%
  Eddy Elfenbein, November 29th, 2016 at 10:29 am

  This morning, the government revised the economic growth numbers for the third quarter. The U.S. economy grew by 3.2% during the third three months of the year. That’s an increase of 0.3% over the initial report from last month.

  The latest data showed stronger consumer spending over the summer compared with the government’s initial estimate, but business investment was weaker than earlier thought.

  Tuesday’s report also showed that a key measure of U.S. corporate profits increased for the third consecutive quarter. Profits after tax, without inventory valuation and capital consumption adjustments, rose 3.5% from the second quarter to a seasonally adjusted annual rate of $1.694 trillion in the third quarter.

  While this is good news, it’s also a bit of old news. After all, the third quarter began five months ago and ended two months ago. Still, I’m willing to take all the good news we have. The third quarter was the best quarter for the economy in the last two years. Unfortunately, that really says more about how poor the other seven quarters were.

  

• Morning News: November 29, 2016
  Eddy Elfenbein, November 29th, 2016 at 7:06 am

  Trump Bubble Burst Will Drive Yen to 98 per Dollar: UBS Wealth

  What Does Italy’s Constitutional Referendum Mean for Its Banks?

  Gloom and Graffiti Cast Shadow as Tunisia Courts Investors

  OPEC Discord Sends Oil Prices Lower

  Facebook Runs Up Against German Hate Speech Laws

  Samsung Tries to Appease Investors But Delays Big Changes

  Amazon Gets Real About Fakes

  AT&T Appeals to Cord-Cutters With DirecTV Now, a New Streaming Service

  Activist Elliott Management Calls for Change at Cognizant

  Patagonia Donating $10 Million to Charity

  HP Enterprise Unveils Prototype of Next-Generation Computer ‘The Machine’

  Time Inc. Is Said to Turn Away From a Takeover by Edgar Bronfman

  Supersonic Is Coming Back. Will the Airlines Buy It?

  Josh Brown: I Dare You

  Jeff Carter: Capital and Capitalism

  Be sure to follow me on Twitter.

• The Cuba Fund
  Eddy Elfenbein, November 28th, 2016 at 1:12 pm

  The market approves of the recent news.

  

• Will Trump Impact Gold?
  Eddy Elfenbein, November 28th, 2016 at 9:41 am

  At Bloomberg, Luke Kawa looks at “Trumpflation.”

  Eddy Elfenbein, portfolio manager at AdvisorShares Investments LLC and founder of Crossing Wall Street, has built a model predicting where gold prices will go based on the deviation of short-term real interest rates from their natural level. The Globe and Mail’s Scott Barlow has also explained the relationship between the two assets on a number of occasions.

  The thinking here is that the value of a hard asset with a yield of zero (net of storage costs) will be affected by the relative real yield on assets that are considered risk free, an alternative holding. In other words, the so-called opportunity cost of buying gold rises as real Treasury yields increase.

  So if you want to know how the president-elect is changing the outlook for gold, looking at inflation-protected Treasury yields instead might prove more useful than searching for nascent signs of Trumpflation.

• Elliott Management Sends Letter to Cognizant Technology
  Eddy Elfenbein, November 28th, 2016 at 9:10 am

  I hope everyone had a great Thanksgiving. There’s an interesting news story this morning. Elliott Management has sent a letter to Cognizant Technology Solutions outlining how the company can get its stock to $80 to $90 per share by the end of next year. CTSH closed Friday at $53. Elliott owns more than 4% of the stock.

  You can see the full letter here. Elliott believes that CTSH is far from its potential. Here’s a sample:

  In addition, Cognizant’s relative valuation illustrates a profound loss of confidence amongst the shareholder base. Historically, Cognizant had been viewed as the premier franchise within the large-cap IT services space and had therefore traded at a meaningful premium to its peers and the broader market. However, Cognizant’s valuation premium has now entirely eroded. Despite maintaining an industry-leading growth outlook, Cognizant now trades at near parity to its Indian heritage peers and at a significant discount to both Accenture and the S&P500 for the first time.

  For the most part, their complaint seems to be that Cognizant has been too conservative (too much cash, too little debt). Frankly, I’d take that as a compliment.