Archive for March, 2017

• Morning News: March 16, 2017
  Eddy Elfenbein, March 16th, 2017 at 7:09 am

  Bank of Japan on Hold Falls Further Behind Its Global Peers

  Here’s How Russian Agents Hacked 500 Million Yahoo Users

  How Fed Hike Will Affect Mortgages, Car Loans, Credit Cards

  Trump Picks a Regulator Who Could Help Reshape Dodd-Frank Act

  Trump Using Detroit as Stage For Loosening Obama’s Fuel Economy Rules

  Oracle’s Cloud Business Shows Momentum as Sales, Profit Beat

  Monsanto Weed Killer Roundup Faces New Doubts on Safety in Unsealed Documents

  Billionaire Agarwal to Buy $2.4 Billion Anglo American Stake

  Canada Goose Raises C$340 Million in Dual-Listing IPO

  Can Ambarella Inc Survive Without GoPro?

  Nvidia And Bosch Teaming Up To Make Computer Brains For Automated Cars

  Fury Road: Did Uber Steal the Driverless Future From Google?

  Tesla To Raise About $1.15 Billion in Stock, Notes; Musk to Buy Shares

  Josh Brown: The $40 Trillion President

  Howard Lindzon: The Digital Boom in a Few Charts and Fire Tim Cook

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• Updated Fed Projections
  Eddy Elfenbein, March 15th, 2017 at 2:17 pm

  Here are the updated projections from the Fed. They’re a bit more hawkish since December.

  Nine of the 17 Fed officials who submitted projections indicated three rate increases would be appropriate in 2017, up from six in December. Only three officials saw the need for fewer than three moves this year versus six in December.

  The latest projections are a sign that officials believe they are moving towards a faster pace of rate increases than in the past few years. The Fed began 2015 expecting to raise rates three times and 2016 expecting to raise them four times. But they ended up having to backtrack on those projections and made only one move in each of those years.

  Fed Chairwoman Janet Yellen indicated in a March 3 speech that she expects a faster pace than in those earlier years.

  The Fed sees two more rate hikes this year. For next year, they see three more. The 2018 outlook was just one vote short of having the median at four hikes.

  The Fed sees hitting the long-run rate of 3% by 2019.

• The Fed Raises
  Eddy Elfenbein, March 15th, 2017 at 2:05 pm

  What was expected to happen, happened. Here’s the statement. The new range for Fed funds is 0.75% to 1%. The one dovish dissent came from Neel Kashkari.

  Information received since the Federal Open Market Committee met in February indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace. Job gains remained solid and the unemployment rate was little changed in recent months. Household spending has continued to rise moderately while business fixed investment appears to have firmed somewhat. Inflation has increased in recent quarters, moving close to the Committee’s 2 percent longer-run objective; excluding energy and food prices, inflation was little changed and continued to run somewhat below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

  Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

  In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

  In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

  The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

  Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action was Neel Kashkari, who preferred at this meeting to maintain the existing target range for the federal funds rate.

• Morning News: March 15, 2017
  Eddy Elfenbein, March 15th, 2017 at 7:23 am

  Oil Gains on U.S. Supply as IEA Says Time Needed to Drain Glut

  Trump Wrote Off $100 Million in Losses in 2005, Leaked Forms Show

  What Suddenly Lit A Fire Under The Fed? The Bubbly Market?

  U.S. to Plan Indictments Related to Yahoo Hacking, Source Says

  Big Business Looks Past D.C. Turmoil To Tax Reform And Regulation Slashing

  Kushners, Trump In-Laws, Weigh $400 Million Deal With Chinese Firm

  Unsealed Documents Raise Questions on Monsanto Weed Killer

  Cathay Pacific’s Cost Crisis

  Toshiba Said to Offer Equity, Real Estate as Loan Collateral

  Neiman-Marcus Is Not An Interesting Acquisition Candidate

  CEO of Australia’s Atlassian Says He’ll Meet Seven-day Tesla Batteries Deadline

  Airlines Take A Proactive Approach to Weather Woes

  How Mississippi Is Worse Off Than Bangladesh

  Jeff Carter: The Board

  Cullen Roche: The Biggest Myths in Investing, Part 8 – More Information Will Give Me An Immediate Advantage

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• Oil Is Down Ten Times In Eleven Days
  Eddy Elfenbein, March 14th, 2017 at 11:31 pm

  I spent this past weekend in Florida. Unfortunately, my flight back was canceled due to the blizzard. The make-up flight was canceled as well.

  I finally caught a Tuesday afternoon flight back only to learn that the much-hyped blizzard really wasn’t that bad.

  The stock market was mostly quiet on Tuesday. On Wednesday, the Fed will announce the decision of their meeting. I’m expecting a rate increase, but it will be interesting to see if there are any changes to the Fed’s economic forecast. Janet Yellen will hold a press conference as well.

  This morning, Cognizant Technology Solutions (CTSH) announced an accelerated buyback plan. The company will buy $1.5 billion worth of CTSH. The stock rose in early trading but then pulled back. As I’ve said many times, I’m not a fan of share buybacks, but it does show that the company is doing well.

  The most interesting movements have been happening in the oil market. Crude has dropped seven days in a row, and ten times in the last eleven. Over that span, West Texas Intermediate has fallen from $54.01 to $47.72 per barrel. The Energy ETF dropped to a four-month low.

  

  Oil is now below its 50- and 200-DMA.

• Morning News: March 14, 2017
  Eddy Elfenbein, March 14th, 2017 at 6:58 am

  Iceland, Symbol of Financial Crisis, Finally Lifts Capital Controls

  Gazprom Makes Concessions in E.U. Gas Deal, But Trouble Looms for Russian Giant

  Why So Few Are Worried About Likely Fed Rate Hike This Week

  Why Robert Shiller Is Worried About the Trump Rally

  Boeing, Aerospace Manufacturers Back U.S. Tax Overhaul

  Toshiba Just Missed Its Earnings Deadline For The Second Time

  Intel Buys Mobileye For $15.3 Billion In Bid To Lead Autonomous Car Market

  New York City Sues Verizon, Claiming Broken Promises of Fios Coverage

  William Ackman Throws In The Towel on Valeant

  Boeing and Ford Power Ahead With China Expansion

  Citrix Is Working With Goldman Sachs on Potential Sale Process

  Fall in Volkswagen Brand Profit Shows Long Road to Recovery

  Gordmans Shows The Importance Of Efficient Bankruptcy To A Free Market Economy

  Josh Brown: The Trick Is To Survive!

  Roger Nusbaum: The Best Week Of The Year!

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• Morning News: March 13, 2017
  Eddy Elfenbein, March 13th, 2017 at 7:09 am

  BOJ March Plan Would Taper Bond Buying by 18% in Coming Year

  After $225 Billion in Deals Last Year, China Reins In Overseas Investment

  Oil Bulls Exit Before Market Dive on Swollen U.S. Stockpiles

  Trump’s Trade ‘Hammer’ Aims to Pound China, Mexico and the WTO

  Trump Wants Faster Growth. The Fed Isn’t So Sure.

  Troubled Nuclear Builder Seen Best Fit for Asian Ambitions

  Intel To Buy Mobileye for $14-$15 Billion: Israeli Media Report

  In Tucker, HSBC Gets Mr. Right

  Snap’s ‘Long-Term’ Investment Value & Share Structure Seriously Questioned

  Soda Loses Its U.S. Crown: Americans Now Drink More Bottled Water

  Miscue Calls Attention to Amazon’s Dominance in Cloud Computing

  Ford’s Lincoln Plans To Produce Luxury SUV in China By Late 2019

  Google’s Deepmind Wants to Cut 10% Off The Entire UK’s Energy Bill

  Jeff Carter: More On The Basic Income Debate

  Howard Lindzon: The Ten Best Stocks of The Last Ten Years…Do Not Underestimate The Power of a Good List

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• February NFP = +235,000
  Eddy Elfenbein, March 10th, 2017 at 8:48 am

  The government reported that the U.S. economy created 235,000 net new jobs last month. The unemployment rate fell to 4.7%. Average hourly earnings rose six cents to $26.09.

  Here are some charts. We’ll start with the monthly change in NFP.

  Here’s the unemployment rate:

  Here’s the jobs-to-population ratio, which is at an eight-year high:

  Here’s the broader U6 rate which is now down to 9.2%:

  Growth in average hourly earnings with core CPI:

• CWS Market Review – March 10, 2017
  Eddy Elfenbein, March 10th, 2017 at 7:08 am

  “It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait.” – Charlie Munger

  Thursday marked the eighth anniversary of the start of the great bull market. Not only is this one of the longest and largest bull markets in history, it’s also one of the most hated.

  I have to confess that I didn’t personally experience many of the other great rallies, but I doubt they were greeted with as much hostility as the present bull run. Over the last eight years, the S&P 500 has gained 246%. Yet it seems that from Day One, people have claimed that it was a crazy bubble induced by the Fed, and that it was due to pop at any moment.

  

  They’ve been wrong, wrong and wrong. Naturally, you won’t hear any apologies. But I’m happy to say that by keeping our heads while everyone else was losing theirs (and blaming us!), our Buy List has made steady gains.

  In this week’s issue, I want to look at some of the issues affecting Wall Street at the moment. It looks as if Janet Yellen is going to raise interest rates next week, but suddenly the stock market isn’t so worried about inflation. Also, for the first time this year, oil dropped below $50 per barrel. The Trump Trade is suddenly on the ropes! What does it all mean? We’ll also look at some of our Buy List stocks. But first, let’s look at this hated rally.

  No, the Stock Market Is NOT a Bubble

  Commentators love to proclaim that the stock market, and every market really, is a bubble. Hey, it’s an easy call to make. You’re rarely held accountable if you’re wrong. Also, you have an easy out. If the market goes higher, then you can always say that the bubble and its ensuing crash will be that much worse. The crash is always just around the corner.

  I’ll let you in on a little secret: the stock market is rarely a bubble. Don’t get me wrong—the market takes its lumps. You can expect a 20% selloff every few years. But that’s not necessarily a bubble.

  For example, the big bad bear market of 2007 to 2009 wasn’t, in my opinion, preceded by a bubble. By that I mean that I don’t believe that equity valuations were excessive. Prices largely reflected fundamentals. The problem is that the fundamentals crashed. Sure, there was a bubble, but it was in real estate. Or more precisely, it was in credit, which manifested itself in real estate. But stocks? Nope, nothing crazy.

  For those of you who remember 1999-2000, now that was a bubble. The valuations had no bearing on reality. The flimsiest companies were going public. Why? Well, they were being funded! No one wanted to be left out. “Your company is nothing but a URL and a sock puppet? Here, take a few billion dollars.“

  That’s what a bubble is all about. The tech bubble was so intense that it actually pulled money away from sensible value stocks. I remember that several REITs were yielding over 10% or 12%. My point is that a bubble isn’t merely elevated valuations but totally crazy, insane valuations. That happens, but it’s rare.

  Now back to this market, and let’s bust out some math. The S&P 500 closed Thursday at 2,364.87. Last year, the S&P 500 earned $106.64 per share. That’s the index-adjusted number. The issue is that profits last year were held back for a variety of reasons, and we should expect a decent earnings rebound this year and next.

  For 2017, Wall Street currently expects the S&P 500 to earn $130.67 per share. For 2018, the expectation is for $148.35 per share. Let me add an important caveat: Wall Street’s earnings are notoriously optimistic, especially that far out. It’s typical to see estimates gradually pared back as earnings day approaches.

  Here’s a chart of the S&P 500 (blue line, left scale) along with its earnings (red line, right scale). The two lines are scaled at a ratio of 18 to 1. If the predicted earnings recovery is accurate, then the S&P 500 isn’t overpriced.

  

  With that in mind, I think the Street’s estimates are reasonable, and that’s what we’re looking for. If the Street’s estimate for 2018 is accurate, that means the S&P 500 is currently going for 16 times next year’s earnings. To my mind, that’s a bit above average, but it’s hardly excessive. Let’s also remember that earnings estimates could be too pessimistic. The earnings estimates for Q3 and Q4 of this year are already higher than they were at the start of the year. It’s been a while since I’ve seen estimates go up!

  So the more pressing concern for us right now isn’t excessive prices but rather the threat of a recession. Fortunately, that, too, doesn’t appear to be on the horizon. If anything, growth may be ramping up this year. I’m also relieved to see some bullish economic reports recently. Consumer confidence, for example, just touched its highest point since July 2001. Job growth is strong, and interest rates are still low. We’ll get the jobs report later this morning, but Wednesday’s ADP was very good. I’ll be more concerned about the threat of a recession when interest rates get higher. The good news is that we’re still a long way from that happening.

  Let me summarize by encouraging you not be scared out of the market. We’ll see some ups and downs. After all, that’s what markets do. But there’s no reason for us to expect any severe troubles for the next several months. Investors should concentrate on a portfolio of high-quality stocks such as you’ll find on our Buy List.

  Get Ready for Another Fed Rate Hike

  A few weeks ago, Janet Yellen testified before Congress on monetary policy. At the time, Wall Street was pretty sure that the Fed wasn’t going to raise interest rates in March. Since then, several events have come together which have convinced traders that a March rate hike is in play. We had Janet Yellen all but admit that she’s going to raise rates again next week. The Fed’s meeting will be next Tuesday and Wednesday, March 14-15.

  We can really trace the events back to the election when Wall Street was taken by the Trump Trade. Or another name for it is the Reflation Trade. The thinking behind the Reflation Trade was that President Trump would press for a large stimulus plan that would boost the economy and take a more relaxed approach to higher inflation. As a result, Industrial stocks rallied with Materials and Energy shares. At the opposite end, long-term bonds did poorly.

  Six months ago, the five-year Treasury was going for 1.24% more than the five-year TIPs. That means Wall Street has been expecting inflation over the next five years to average 1.24%. Now it’s expecting inflation to average 1.90%.

  Suddenly this week, the Reflation Trade backed off. The primary reason is that oil is sinking again. For the first time this year, West Texas Crude slipped below $50 per barrel. OPEC has tried to cut production, but there’s still a glut of oil. In the U.S., supplies have risen nine weeks in a row and are currently at an all-time record. The price of oil has fallen seven times in the last eight sessions.

  

  The immediate effect of this is that Energy stocks have slipped over the past several days. In fact, the Energy ETF (XLE) is technically in correction territory, which is defined as a 10% drop from its high. What’s interesting is that falling oil has previously been tied to a rising stock market. That’s what happened in 2014-15. Now it appears to be a negative.

  The stock market gapped up last Wednesday, after President Trump’s Congressional address. Since then, it’s gradually slipped back. The S&P 500 has now gone 82 days in a row closing within 1.5% of its all-time high. The streak very nearly came to an end on Thursday, but it was saved by an afternoon rally.

  Over the last few issues, I’ve warned you to expect to see a modest pullback. I still think that’s quite possible. I simply want you to be aware of what’s happening. Most of all, there’s no need to panic. If anything, a pullback would be a great buying opportunity for disciplined investors.

  There’s been some talk that the drop in oil might cause the Fed to forego a rate hike next week. Don’t count on it. The move in oil is too little, too late. Plus, the Fed has already announced its intentions. If it failed to follow through, its credibility would be shot. But if the Trump Trade continues to unravel, it could put off any further rate hikes for this year.

  Buy List Updates

  With no earnings reports this week, there’s not a whole lot to say about our Buy List stocks. I wanted to pass along two comments. One is that shares of Express Scripts (ESRX) dropped a bit after President Trump tweeted about drug prices. Companies like Express are easy targets to blame for higher drug prices, but these criticisms are off base. Don’t let the downdraft or tweets rattle you. Express Scripts is a very good buy if you can get it below $68 per share.

  A U.S. company named PPG Industries made a $22 billion offer to buy Akzo Nobel, a Dutch company. Akzo said thanks, but no thanks. Once that happened, traders immediately thought PPG would turn its sights on someone else, and a leading candidate for someone else is our very own Axalta Coating Systems (AXTA).

  Traders don’t mess around when speculating. AXTA jumped 2.9% on Wednesday and another 3% on Thursday. Bear in mind that there was absolutely no news on this.

  

  It’s also just guessing by the market. I love AXTA, and I love seeing our Buy List stocks gap up, but let me caution you not to get your hopes up. Axalta is a great company, but don’t pin your hopes on a buyout.

  That’s all for now. The big jobs report is later today. I think the Fed will raise rates even if the report is below expectations. More important will be the level of wages. The FOMC meets on Tuesday and Wednesday. The policy statement will come out on Wednesday afternoon, and it will be followed by a press conference with Janet Yellen. 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 10, 2017
  Eddy Elfenbein, March 10th, 2017 at 5:58 am

  As E.C.B. Charts Economic Course, Politics Complicate the Picture

  Japan Bats Away U.S. Complaint on Autos

  Donald Trump Has Call Centers in the Philippines Worried

  Treasury Calls on Congress to Raise Debt Limit, Begins Steps To Delay Default

  An Aging, Maligned Bull Market Gets Some Birthday Love

  Oil’s Prize Fight: The Select Versus The Swarm

  The ASCE’s Infrastructure Report Is Like Asking Your Barber Whether You Need A Haircut

  Who Will Lead AIG?

  Tesla’s Elon Musk Just Offered to Help Tackle a Blackout Crisis in Another Country

  Staples and Office Depot Are Being Ripped to Shreds by Amazon and the Internet

  Why a Short-Selling Pro Would Hold Onto His Snapchat Shares

  The Latest Victim of Uber’s Disruption May Be Itself

  Jeff Miller: Can Humans Compete with High Frequency Traders?

  Howard Lindzon: Another Digital Revolution Milestone – One Bitcoin Worth More than An Ounce of Gold

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