Archive for March, 2017

• Morning News: March 31, 2017
  Eddy Elfenbein, March 31st, 2017 at 6:54 am

  Draghi Dials Down ECB Stimulus as QE’s Far Future Debated

  U.S. Economic Growth Revised Higher, Boosted By Consumer Spending

  The FCC Wants To Block Dozens of Companies From Providing Low-Cost Internet

  AT&T Is Building a New Cell Network That’ll Give Cops and Firefighters Priority In a Crisis

  Apple, Wal-Mart Stick With Climate Pledges Despite Trump’s Pivot

  McDonald’s to Start Using Fresh Beef in `Watershed Moment’

  Huawei’s Sales Jump But Profits Go Nowhere

  Amazon Is Worth More Than Berkshire Hathaway – What That Means For You

  Amazon’s Household Goods Unit May Have Been a Casualty of Prime’s Success

  Qatar and Etihad Airways Are Loaning Free Laptops and Tablets to Some U.S.-Bound Passengers

  Elon Musk’s Real Moonshot: Five Things We Learned This Week

  Westinghouse Bankruptcy Shakes The Nuclear World

  Airlines Make More Money Selling Miles Than Seats

  Jeff Carter: Are Strategic Investors’ Interests Aligned With Entrepreneur Interests?

  Roger Nusbaum: Hindsight Bias Catches Up With Even The Best Of Us

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• Morning News: March 30, 2017
  Eddy Elfenbein, March 30th, 2017 at 7:09 am

  Oil Stays Above $49 as U.S. Fuel Demand Blunts Crude Supply Gain

  Beginning `Brexit’ and Bracing For Impact

  Lloyd’s of London Chooses Brussels for Post-Brexit EU Hub

  Coal Mining Jobs Trump Would Bring Back No Longer Exist

  Why Buffett and BlackRock Think You Should Fire Your Fund Manager

  Jeff Bezos Had A Good Ass Day

  ‘Toshiba Has Become a Laughingstock’: Angry Shareholders Vent at CEO After Westinghouse Bankruptcy

  ESPN Has Seen the Future of TV and They’re Not Really Into It

  BofA Shakes Up Merrill Lynch Leadership Under New Chief Sieg

  Toyota Recalls 2.9 Million Vehicles Globally Over Airbags

  Lululemon Says Lack of Bold Colors to Blame for Poor Start to 2017

  In China, `Disney’ Deals Turn Out to Be Fantasy

  Ackman Is ‘Profoundly’ Sorry for $4 Billion Valeant ‘Mistake’

  Jeff Miller: Headline Spin – Recession Forecasting Is Back!

  Cullen Roche: Why Capitalism Can’t Fix Healthcare

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• Morning News: March 29, 2017
  Eddy Elfenbein, March 29th, 2017 at 6:37 am

  Britain Heads Into the Unknown as May Signs Brexit Letter

  EU Blocks Deutsche Boerse’s $14 Billion Takeover of London Stock Exchange

  India’s GST, Complicated, Yes, But An Excellent Idea All The Same

  China Poised To Take Lead on Climate After Trump’s Move to Undo Policies

  The House Just Voted To Wipe Away The FCC’s Landmark Internet Privacy Protections

  The Great Nevada Lithium Rush to Fuel the New Economy

  Westinghouse Files for Bankruptcy, in Blow to Nuclear Power

  Wells Fargo Reaches $110 Million Fake Accounts Settlement

  Ford’s Biggest News Is About The Michigan Data Center, Not Warmed-Over Words About Truck Jobs

  Amazon’s Ambitions Unboxed: Stores for Furniture, Appliances and More

  BlackRock Cuts Dozens of Jobs and Fees in Stock-Picking Unit

  Didi Chuxing, China’s Ride-Hailing Giant, Holds Talks With SoftBank

  Tencent of China Takes 5% Stake in Tesla

  Jeff Carter: You Cannot Chase A Trade

  Cullen Roche: The Biggest Myths in Investing, Part 10 – Forecasts are Useless

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• The Trump Trade Is Dead—What Now?
  Eddy Elfenbein, March 28th, 2017 at 1:33 pm

  My latest from The Observer:

  Yesterday, the Dow Jones Industrial Average dropped for the eighth day in a row. For the venerable index, this is its longest losing streak since 2011. The Dow is currently on pace for its worst month since January 2016.

  So does this portend bad times? Has President Trump finally pushed the economy off the cliff?

  Doubtful. Instead of witnessing a new bear market, what we’re really seeing is the implosion of the “Trump Trade.” This was the furious—and largely unexpected—rally that took hold of the U.S. market after President Trump’s surprise victory. It was the unexpected outcome of a still-less expected event.

  Turn back the clocks to election night where, at one point, the Dow futures were down 862 points. That’s how much global markets freaked out over a Trump administration. But Doomsday Day, alas, was a no-show. Cooler heads prevailed and in the following day’s trading, stocks rallied. The Dow closed higher by 257 points. From there, the Dow went on to add more than 2,500 points in less than four months.

  Read the rest at The Observer.

• Morning News: March 28, 2017
  Eddy Elfenbein, March 28th, 2017 at 7:05 am

  Trump’s Take on Corporate Tax Rate Could Look Very Much Like Obama’s

  The Biggest Risk From the Dollar’s Drop May Not Be What You Would Guess

  Supreme Court Considers Why Patent Trolls Love Texas

  Amazon Clinches Deal To Buy Middle East Online Retailer Souq.com

  Elon Musk Launches Neuralink to Connect Brains With Computers

  American Airlines Takes $200 Million Stake in China Southern

  Jack Dorsey Rings in Square’s Debut in the U.K.

  Uber to End Services in Denmark After Three Years

  Akzo Nobel to Detail New Strategic Plan on April 19

  Virgin Atlantic Braces for a Loss and Blames the Pound

  YouTube Ad Boycott May Cost Google $750 Million

  Record 220-pound Gold Coin Stolen From German Museum in Mysterious Heist

  Bond King Bill Gross Agrees to Settlement in Lawsuit Against Pimco, Ending Nasty Dispute

  Josh Brown: Investors Underperforming Their Own Investments

  Howard Lindzon: The Craft

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• Morning News: March 27, 2017
  Eddy Elfenbein, March 27th, 2017 at 7:05 am

  German Business Confidence Increases to Strongest Since 2011

  Dollar Hits Four-Month Low as Trump Trade Deflates

  Oil Slips Towards $50 On Doubts Over Output-Cut Extension

  These Charts Show Alarm Bells Ringing on the Trump Trade

  California’s Vow to Reduce Auto Pollution May Be Setting Up a Full-Out War With Trump

  Push For Internet Privacy Rules Moves to Statehouses

  EU Antitrust Regulators Clear $130 Billion Dow, DuPont Merger

  Publishers Retreat From the Risks of Google-YouTube Advertising

  Can GameStop Stock Bounce Back After Last Week’s 16% Drop?

  BT Shares Extend Losses As Regulatory Headwinds Mount

  Walmart Moving Upmarket Does Not Presage The Death Of The American Middle Class

  Tesla Model 3 Ramp Up Aims to Crush BMW and Mercedes

  Icahn Raises Ethics Flags With Dual Roles as Investor and Trump Adviser

  Jeff Miller: What Does the Health Care Decision Mean for Stocks?

  Roger Nusbaum: It Doesn’t Have To Be Doom & Gloom

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• CWS Market Review – March 24, 2017
  Eddy Elfenbein, March 24th, 2017 at 7:09 am

  “If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.” – Jack Bogle

  The streak finally came to an end. On Tuesday, the stock market did something it hadn’t done in the previous 109 trading days. It closed down by more than 1%.

  

  This was the longest such hot streak in more than 20 years, and it was close to becoming the longest in over 50 years. If we look more closely, the recent streak was even more impressive because there were only two days in which the S&P 500 fell more than 0.7%. Of course, we have to remember that not that long ago, a 1% drop was barely a scratch. In 2008, it happened 75 times.

  As we know well, Wall Street has a notoriously poor memory.

  So, is this the beginning of the end? Have the walls come crashing down? Eh…probably not. Bear in mind that the Trump Rally has endured four North Korean missile launches, two Fed rate hikes, and of course, President Trump himself. Through all that, it’s quietly powered ahead.

  But this may be the end of the Trump Trade. It’s a little more complicated than has often been portrayed. I’ll explain what it all means. I’ll also cover some of the recent stories impacting our Buy List stocks. But first, let’s look at the fading Trump Trade.

  The Death of the Trump Trade

  While there’s been a lot of talk of the Trump Trade, properly speaking, there were two separate trades in recent months.

  The first Trump Trade came immediately after the election. That’s when stocks soared. The stock rally was matched by a big downturn for bonds. Within a few days, the yield on the 10-year Treasury jumped from around 1.8% to close to 2.3%. That’s an unusually large move for such a short period of time. Combine that with the fact that the 10-year yield had been creeping higher since the summer, and you can see how dramatically the interest-rate outlook had changed.

  Within the stock sectors, the small-caps saw the biggest gains. On November 3, the Thursday before the election, the Russell 2000 stood at 1,156.89 (see below). By November 25, the index had risen to 1,347.20. That’s a jump of more than 16% in just over three weeks. That’s a huge leap for an entire size category.

  

  Among stock sectors, the big winners were Industrials and Financials. The move in the latter was astounding. On our Buy List, shares of Signature Bank (SBNY) soared 21% in four days. Prior to the election, Goldman Sachs warned of dire consequences if Trump were to be elected. That outcome, apparently, didn’t include a massive rally in shares of Goldman. Shares of GS gained more than 60% in the second half of 2016. (The bank’s former COO, Gary Cohn, is now President Trump’s top economic advisor.)

  Here’s what was happening. This first stage of the Trump Rally was based on the idea of a markedly improving economy. Traders thought policies in Washington would shift towards fiscal stimulus. That’s why the Cyclicals stocks led the way. The yield curve widened, and defensive areas like Utilities and Staples didn’t fare so well.

  But by early December, that stage of the rally had petered out. By December 13, the S&P 500 had reached a near-term peak of 2,271.72. The stock market was pretty flat for a few weeks after that. By Inauguration Day, the S&P 500 closed at 2,271.31.

  Stage Two of the Trump rally really got going in February. This second stage was led by large-cap tech stocks. Unlike stage one, this time the long end of the bond market was relatively stable. The yield on the 10-year bond peaked around mid-December and has mostly been in a trading range since then (between 2.3 and 2.6%).

  Instead, the interest-rate action has been at the short end. The second stage of the Trump Rally happened at the same time there was a perceived need for higher interest rates. This is when we saw yields at the short end of the yield curve touch levels they hadn’t seen in seven or eight years. This move in the market foreshadowed last week’s Fed rate hike. In fact, it also caused traders to think more hikes were on the way.

  But now, that thesis is starting to show holes. For one, we can’t help noticing the price of oil. One month ago, West Texas Crude got as high as $54.45 per barrel. Everything was going right for OPEC. The production cuts were holding. Finally! But the latest numbers show that there’s still an oil glut. In fact, it’s a big one, and the oil markets are taking notice. At one point, the price of oil fell ten times in eleven days. This week, West Texas Crude came close to falling below $47 per barrel.

  

  Goldman Sachs noted that OPEC’s production cut has had an unintentional side effect—it has spurred the biggest productions in history. It’s hard to say that the Fed needs to raise interest rates to combat inflation when the price of oil is dropping.

  Both parts of the Trump Rally have seen rising share prices and low volatility. If I had to pinpoint a single day when the Trump Rally peaked, it would probably be the day after President Trump’s congressional address. Traders loved the speech. The Dow shot up 300 points the following day.

  Since then, however, the market has had a tough time getting its footing, and some cracks are starting to show. For example, 217 stocks in the S&P 500 are currently below their 50-day moving average. The overall index is just 0.72% above its 50-DMA. There are now 171 stocks in the index that are more than 10% below their 52-week high, which is the traditional definition of a market correction. In other words, more than one-third of the index is effectively in a correction already.

  On Tuesday, the S&P 500 lost 1.24%. Ryan Detrick notes that the average worst day of the year is three times worse than Tuesday’s loss, which is our current worst day of the year. It wasn’t bad, but it was different from the trend, and that’s what catches our attention. The Nasdaq Composite, actually, hit a new all-time high on Tuesday, which shows the impact of large-cap tech.

  

  So stage one of the Trump Rally (November and December) was about a resurgent economy. Stage two (February) was about taking on more risk due to higher rates.

  What to do now: I’m still holding onto my view that stocks are due for a modest pullback. It may have already started, since the S&P 500 has now gone three weeks without making a new high. But let me caution you not to worry. I’m not expecting a major decline.

  Make sure that you’re well diversified and look for decent dividends. Microsoft (MSFT), for example, currently yields 2.4%. Cinemark (CNK) yields close to 2.7%. I think there’s a very good chance that we’ll be looking at a lot of bargains in the spring. Now let’s look at some news affecting our Buy List stocks.

  Buy List Updates

  Sherwin-Williams (SHW) said the acquisition of Valspar will take longer than expected. It doesn’t seem to be a major problem. They have to work through some divestitures. Originally, Sherwin thought the deal would close by April. Now they’re thinking it will be June. Going into the deal, SHW knew they were going to have to sell off some units to appease regulators. They just didn’t know what. Don’t let this news worry you. Sherwin-Williams is doing fine.

  HEICO (HEI) announced a 5-for-4 stock split. This means investors will get an extra share for every four they currently own. The share price will be expected to fall about 20%. The semi-annual dividend will stay at nine cents per share, so that’s effectively a 25% increase.

  I’m never sure why companies like to do small splits like this. If I had my way, only 2-for-1 splits or higher would be allowed, and the share price needs to be over $100. This will be HEICO’s 15th stock split since 1995. The split is payable on April 18 to shareholders of record as of April 7. Cash will be paid in lieu of fractional shares. If you had invested $100,000 in HEICO in 1990, today it would be worth $18.7 million.

  That’s all for now. Next week is the final week of the first quarter. On Thursday, the government will update the Q4 GDP report for a second time. Before that, on Tuesday, we’ll get the report on consumer confidence for March. Then on Friday, we’ll get the reports on personal income and spending for February. 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: March 24, 2017
  Eddy Elfenbein, March 24th, 2017 at 4:39 am

  China Bets on Sensitive U.S. Start-Ups, Worrying the Pentagon

  Venezuela’s Fuel Shortage Is Getting Worse

  Oil Set for Weekly Drop on U.S. Supply Before OPEC Meet on Cuts

  Scrapping TPP a Mistake as China Fills Void, Ex-USTR Froman Says

  Planning for a Low-Tax, High-Deficit World

  Senate Panel Presses SEC Nominee on Conflicts

  The Senate Just Voted To Undo Landmark Rules Covering Your Internet Privacy

  YouTube Advertiser Exodus Highlights Perils of Online Ads

  Lessons From Richard Branson’s Goodbye Letter to Virgin America

  Why Morgan Stanley Is So Bullish on Tesla and the Model 3

  Micron’s Earnings Reveal Cloud and SSD Demand Have Joined Rising Prices as Growth Engines

  Samsung Elec Rejects Calls For Holding Company Structure, For Now

  Credit Bureau Experian Fined $3 Million Over Misleading Credit Scores

  Jeff Miller: Stock Exchange: Trading in a Time of High, News-Driven Risk

  Cullen Roche: The Biggest Myths in Investing, Part 9 – Risk Is Something We Can Quantify

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• Morning News: March 23, 2017
  Eddy Elfenbein, March 23rd, 2017 at 6:45 am

  World’s Biggest Meat Producer Struggles With Bad Beef Allegations

  North Korea Said to Be Target of Inquiry Over $81 Million Cyberheist

  Big Oil Replaces Rigs With Wind Turbines

  China Bets on Sensitive U.S. Start-Ups, Worrying the Pentagon

  Virgin America Will Disappear Into Alaska Airlines in 2019

  Nike Suffering Its Own Brand of March Madness

  Tencent-led Funding Said to Value Video App at $3 Billion

  Wells Fargo Banks on New Ad Campaign to Regain Customer Trust

  Why Airbnb’s New China Push Could Actually Work

  AT&T and Johnson and Johnson Pull Ads From YouTube

  With Sears’ Future In Doubt, Vendors Begin Pulling Back

  Where De Beers Hid Its $5 Billion Diamond Stash

  Bebe Plans to Shut Its Stores and Focus on Web Sales

  Jeff Carter: The Blockchain, Cryptocurrency and Trust

  Joshua Brown: QOTD: The WSJ Unloads on “Fake President”

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• Morning News: March 22, 2017
  Eddy Elfenbein, March 22nd, 2017 at 7:08 am

  Dublin Is Best EU City for Bankers Fleeing Brexit, Study Says

  Chinese Supermarkets Pull Brazil Meat From Shelves As Food Safety Fears Grow

  Devices Banned on Flights From 10 Countries Over ISIS Fears

  Stocks Retreat, Havens Gain as Trump Trade Wobbles

  What to Expect When You’re Expecting Acosta as Labor Secretary

  Airbnb Adopts New Name, Doubles Investment to Woo China

  Li Ka-Shing’s Main Companies to Increase Dividend Payments

  Amazon Has a New Tactic to Fight Counterfeits

  FedEx Earnings Are Worth a Second Look

  Akzo Nobel, Maker of Dulux Paint, Rejects 2nd Offer From American Rival

  Parent of Sears and Kmart Issues Warning as Its Losses Mount

  Acushnet: Looks Like An Amazing Short At $18

  A.I. Expert at Baidu, Andrew Ng, Resigns From Chinese Search Giant

  Josh Brown: Dun Dun Dun…

  Howard Lindzon: Pepsi Can Buy Russia and Make America Smoke Again

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