Archive for June, 2017

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

  US, EU Urge China to Limit Food Import Control

  MSCI Forgets Its Doubts About China

  Saudi Prince’s Elevation Will Have Far-Reaching Consequences in Energy

  Inside Travis Kalanick’s Resignation as Uber’s C.E.O.

  Kalanick’s Ouster Shows Founder Control Doesn’t Mean Job Security

  Why Nike May Start Selling Directly on Amazon

  Ebay’s New Price Match Guarantee Makes Sure Shoppers Get Lowest Prices On New Products

  Oracle Surges 10%: Well On Our Way to Passing Salesforce, Says Ellison

  Tesla Is Shaking Up Its Entire Autopilot Team At a Critical Time for the Program

  Tesla Reaches Pact With Shanghai for China Production

  Takata to File for Bankruptcy Monday, SMFG to Provide Bridge Loan

  Airbus Concedes Defeat to Boeing in Paris Order Race

  A Kansas Investment Firm Spurring Change on Wall Street

  Roger Nusbaum: The Crash That Will Bring Down The Entire Galaxy

  Joshua Brown: What Investors Need to Know About MSCI’s Historic China Decision

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• Morning News: June 21, 2017
  Eddy Elfenbein, June 21st, 2017 at 7:02 am

  Liquor Titans to Coal Miners: the Chinese Stocks in MSCI’s Club

  OPEC Should Heed Lessons From Achnacarry Agreement: Kemp

  The Fed Rate Hike And Gold – Precious Metals Supply And Demand

  I Know Why Mutual Funds Fail to Perform

  Ford’s Big Bet: Americans, and Trump, Are Ready for Chinese Cars

  ExxonMobil Lends Its Support to a Carbon Tax Proposal

  Uber Founder Travis Kalanick Resigns as C.E.O.

  Uber and Lyft Messed With Texas – And Won

  Amazon Bites Off Even More Monopoly Power

  Amazon Will Let Customers Try On Clothes Before Buying

  Toshiba Picks Preferred Bidder for Microchip Business

  Apple Tells Court Qualcomm Chip Licenses Are Invalid

  Adobe Notches Beat Again With Sales Outlook on Cloud Demand

  Cisco’s Next Big Bet Is Years in the Making

  Jeff Miller: Fed Balance Sheet Unwind? No Reason to Worry!

  Ben Carlson: Money Manager Cliches

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• Morning News: June 20, 2017
  Eddy Elfenbein, June 20th, 2017 at 7:08 am

  Barclays and Former Executives Charged Over Qatar Fund-Raising

  Lockheed Signs Pact With Tata to Make F-16 Planes in India

  Hammond, Carney Fight for City of London as Brexit Talks Start

  Trump May Have A Lot Of Money, But Documents Show He Owes A Lot, Too

  Millennials Are Helping America Save More Money

  Texas Is Too Windy and Sunny for Old Energy Companies to Make Money

  UPS to Add Delivery Surcharges for Black Friday, Christmas Orders

  Amazon and Whole Foods Could Revolutionize Grocery Delivery. But Do Shoppers Want It?

  Blue Apron Pursues I.P.O. as Amazon Looms Over Industry

  Boeing Lifts 20-Year Industry Demand Forecast to $6 Trillion

  To Prevent Fantasy Monopoly, FTC Blocks DraftKings-FanDuel Merger

  Time Warner Signs $100 Million Deal With Snap for Shows and Ads

  Samsung Electronics Plans Galaxy Note 8 Launch Event for August

  Roger Nusbaum: The Hike Everyone Was Expecting

  Cullen Roche: Discipline vs. Knowledge

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• Morning News: June 19, 2017
  Eddy Elfenbein, June 19th, 2017 at 6:49 am

  A Plan For Brexit

  Chinese State Oil Giants Take Petrol Price Battle To The Pumps

  Bitcoin Is Digital Gold. But Will You Buy a Sandwich With It?

  Banks Were Told to Keep Skin in Game. They Securitized That, Too

  Western Union Built Its Business on Migrants. Can It Survive the Backlash Against Them?

  YouTube Sets New Policies to Curb Extremist Videos

  Whole Foods Deal Shows Amazon’s Prodigious Tolerance for Risk

  Is Spotify Ready for the Big Time?

  Lockheed Nears $37 Billion-Plus Deal to Sell F-35 Jet to 11 Countries

  The Last Hurrah of Airbus’s Trillion-Dollar Man

  Breweries Worry About Anheuser-Busch InBev’s Stake in RateBeer Stite

  The Decline of the Baronial C.E.O.

  Jeff Miller: Is The Housing Rally Over?

  Josh Brown: Flattening is Not Threatening

  Michael Batnick: These Are The Goods

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• CWS Market Review – June 16, 2017
  Eddy Elfenbein, June 16th, 2017 at 7:08 am

  “If you’ve followed my forecasts, you’ve probably lost a lot of money.”
  – St. Louis Fed President James Bullard

  Well…it happened. As expected, the Federal Reserve raised interest rates again this week. I don’t like it, but we can’t always choose the ideal environment to invest in. If you wait for things to be perfect, then you’d never be in the market.

  This was an important meeting for the Fed because they also explained what they intend to do with their enormous balance sheet. This has been a big concern on Wall Street. I’ll explain what it all means. Additionally, the central bankers updated their economic projections. I should explain that the Fed has a pretty dismal track record of predicting where things will go, but it’s still useful to look at their outlook for the economy.

  

  Fortunately, the stock market continues to hold up well. The S&P 500 closed at another all-time high on Tuesday. However, there’s been a significant weak link in the market recently, and that’s big-cap tech stocks. Don’t feel too bad for these guys. They’ve been running up the score lately, so I can’t say it’s not wholly surprising to see them face a little pain. Outside of Microsoft, this recent trend hasn’t had a big impact on our Buy List. In fact, our Buy List has been doing quite well of late. Before I get to all that, let’s look at what the Fed did this week.

  The Federal Reserve Raises Interest Rates

  On Wednesday afternoon, the Federal Reserve released its latest policy statement. The central bank said they raised their range for the Fed funds rate to between 1% and 1.25%. That’s an increase of 0.25%. This was the second rate hike this year, and the fourth of this cycle.

  As I’ve said before, I think this move is a mistake, and I won’t belabor the arguments against the increase. It happened, and we have to move on. I’ll note that there was one dissenting voice, Neel Kashkari of the Minneapolis Fed, who agrees with me.

  On Wednesday morning, just hours before the Fed’s statement, the government released the inflation report for May. The report again showed that there’s absolutely no threat of inflation on the horizon. If anything, the rate of inflation has fallen off sharply over the last three months. It’s hard to justify rate increases to fight off an inflation threat that doesn’t exist.

  During May, the headline rate of inflation fell by 0.1%. Economists had been expecting no change. Some of that was due to falling prices for gasoline. That’s why we also want to look at the “core rate,” which excludes volatile food and energy prices. But the core rate for May only rose by 0.1%. There’s simply not much inflation out there.

  You may recall that March was the weakest month for core inflation in over 30 years. As with all stats, we don’t want to be fooled by one-point trends. There are always outliers, so we want to see more evidence. Indeed, that evidence came in the last two months. Core inflation for April and May were the second- and third-weakest of the last three years, trailing only March. So it’s not only that inflation is low: it’s actually going lower.

  More troubling is that we’ve seen a swift reaction in the bond market. On Tuesday, the yield on the 10-year Treasury dropped to 2.1%. That’s the lowest point all year. After the election last year, Treasury yields soared on economic optimism, but that’s largely faded in recent weeks. The spread between the two-year and ten-year Treasuries is now less than 80 basis points.

  

  In the Fed’s policy, they acknowledge the recent weakness in the economy, but they seem to feel that it will soon pass. I hope they’re right, but I just don’t see the evidence just yet. In fact, this week’s retail-sales report was another dud. Economists had been expecting a gain of 0.1%. Instead, retail sales fell 0.3% in May. This was the biggest drop in 16 months.

  But the Fed thinks they’ve only started raising rates. According to the latest Fed projections, they expect to raise rates one more time this year. After that, the outlook becomes a lot less clear (the blue dots get much more dispersed). The Fed sees three more hikes in 2018, and possibly three more in 2019. That means it’s possible that the 2/10 spread could be negative as early as next year. Still, I don’t want to be too alarmist. By the Fed’s own projections, they see real interest rates staying negative for another 18 months. My point is that we’re not in the danger zone just yet, but we can see it on the horizon.

  The Fed also unveiled its plans for what they intend to do with their $4.2 trillion balance sheet, or as the Fed calls it, their “normalization plans.” The Fed said they plan to stop reinvesting the proceeds of their bonds in gradually increasing increments. It will be a long, long time before the balance sheet gets back to normal. But the key point is that the Fed intends to raise rates at the same time they address their balance sheet. That point wasn’t always so clear.

  The Great Tech Stock “Crash” of 2017

  What’s happening with tech stocks? The tech sector has fallen four times in the last five sessions, and some of those drops have been pretty sharp. The stock market had been so placid for so long that a fairly minor bump in the road for large-cap tech stocks has rattled a lot of investors.

  Let’s add some context here: tech stocks had been leading an already powerful rally. In fact, the rally hasn’t even affected the whole sector. A huge part of the gains have fallen on just five major stocks; Facebook, Apple, Amazon, Microsoft and Google. That’s right: the latest acronym hitting Wall Street is FAAMG.

  At one point, Facebook, Amazon and Apple were all up over 30% for the year. That was more than three times the rest of the market. Not anymore! In the last week, the Tech Sector ETF (XLK) has dropped from $57.44 to $55.57.

  

  I want to stress that the damage we’re seeing in tech is hardly unprecedented. What’s been unusual is the exceedingly low volatility visible until now. It’s the change from very, very low volatility to normal behavior that’s jarred Wall Street. Frankly, the current losses are very normal.

  Our Buy List has largely side-stepped the FAAMG phenomenon, with the exception of Microsoft (MSFT). Shares of MSFT just pulled back below our $70 Buy Below price. Again, that’s following an impressive run-up. Of all the FAAMG stocks, Microsoft is the one I’m least worried about. The last few earnings reports have been quite good. Also, I’m expecting another dividend hike in September. For now, I’m not worried about Microsoft, but I think we’ll see more losses in the tech sector for a few more weeks. Now let’s look at some of our Buy List stocks.

  Buy List Updates

  There hasn’t been a lot of news impacting our Buy List stocks this week. The good news is that our performance versus the rest of the market continues to be strong.

  This week, I want to make a few adjustments to some of our Buy Below prices. As always, please bear in mind that these are not price targets. Instead, they’re guidance for current entry into a stock.

  First up is AFLAC (AFL). I’m lifting my Buy Below on the duck stock to $80 per share. AFL has gapped up recently. Paul Amos, the current president and CEO’s son, said he’ll be leaving the company. That probably takes him out of the running to be the next CEO.

  I’m also raising our Buy Below on Fiserv (FISV) to $131 per share. This stock is as strong and steady as it’s ever been. I’m looking forward to another good earnings report next month.

  I’m dropping my Buy Below on Ross Stores (ROST) to $66 per share. I still like Ross a lot, but the stock has been caught up in a poor environment for retail. I’m not worried about Ross. This will be a real bargain if you can get Ross below $60 per share.

  Finally, I’m lowering my Buy Below on Snap-on (SNA) to $168 per share. This is another good stock caught in a downtrend.

  That’s all for now. There’s not much in the way of economic news next week. On Wednesday, we’ll get the existing-home sales report for May. Then on Friday will be the new-home sales report. For now, the housing sector is a bright spot in the economy, while consumer spending looks tired. We’ll see how long this can last. 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: June 16, 2017
  Eddy Elfenbein, June 16th, 2017 at 7:03 am

  BOJ Upgrades View on Consumption, Rules Out Early Exit From Stimulus

  The Housing Recovery Is Leaving Out Most of America

  Major Changes Are Coming to the U.S. Grocery Industry

  Google Faces Record EU Antitrust Fine

  At Last, Jeff Bezos Offers a Hint of His Philanthropic Plans

  Dow Chemical and DuPont Have Won U.S. Antitrust Approval to Merge

  Nestle’s ‘Quiet Man’ Shows Hand in Move to Sell U.S. Sweets

  Nike to Cut Jobs Amid Struggle Against Adidas

  Snapchat’s Stock Just Dipped to Its IPO Price for the First Time

  Booz Allen Hamilton Says It Is Under Federal Investigation

  Air Bag Maker Takata To File For Bankruptcy This Month

  Anbang’s Sales Dry Up In New Challenge For Chinese Insurers

  Jeff Miller: Can Psychology Be Applied to Market Behavior?

  Cullen Roche: The Era of Irrational Apathy

  Jeff Carter: Sunk Costs and Investing

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• Morning News: June 15, 2017
  Eddy Elfenbein, June 15th, 2017 at 7:08 am

  Greece Set to Get Cash to Pay Bills, But Debt Relief Elusive

  Oil Sinks to November Lows on Shock U.S. Gasoline Build

  Who Will Be The Next Fed Chair?

  Saudi Aramco IPO Hits Speed Bump as Prince, Executives at Odds Over Where to List

  Tesla Seeks Import Duty Exemption from Government for India Launch

  Amazon’s Debit Card Discount Is One More Weapon in Its Battle Against Walmart

  Why Jeff Immelt’s GE Succession Will Go Much Better Than Jack Welch’s

  Starbucks: Can It Deliver?

  A Russian Software Billionaire Takes on SAP and Oracle

  Advertisers, Afraid to Offend, Weigh in on Shakespeare and Megyn Kelly

  Western Digital Seeks Court Injunction to Block Sale of Toshiba Chip Unit

  Wells Fargo Is Accused of Making Improper Changes to Mortgages

  Ben Carlson: How Markets Respond to Geopolitical Crises

  Roger Nusbaum: Retirement Reading Roundup

  Howard Lindzon: Fractionals and the Instividual

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• Weak Inflation Again
  Eddy Elfenbein, June 14th, 2017 at 9:22 am

  The Federal Reserve wraps up its meeting later today, and the central bank looks to raise interest rates again.

  There’s some interesting timing because the inflation report for May came out this morning and it showed that inflation is still pretty weak.

  The headline inflation rate fell 0.1% in May while economists had been expecting no change.

  The “core rate” rose by 0.1%. That’s the second-lowest in the last four years. There simply isn’t much inflation to worry about.

• Morning News: June 14, 2017
  Eddy Elfenbein, June 14th, 2017 at 7:01 am

  May Is Essentially Being Forced to Either Reverse Article 50 or Seal a ‘Soft Brexit’ Deal For Britain

  Gangsters, Grandmothers and Gold: Japan’s New Crime Wave

  IMF Raises China 2017 Growth Forecast Again, Partly Due To ‘Policy Support’

  Oil Falls as U.S. Stockpiles Rise and IEA Sees 2018 Supply Surge

  Coal No Longer King as China Spurs Shift to Cleaner Energy

  Mnuchin Reversal on Rich Tax Cuts Stirs Clash With Democrat

  Bond Traders’ Roadmap to the Fed, Rates and What’ll Move Markets

  Uber Fires More Than 20 Employees in Harassment Probe

  Anbang Chairman’s Mysterious Absence Caps Months of Intrigue

  Verizon Seals $4.5 Billion Yahoo Purchase as Mayer Heads Out

  Zara-Owner Inditex’s Sales May Be Slowing After Upbeat First Quarter

  Abu Dhabi’s Etihad Airways to Drop San Francisco Route From October

  EU to Investigate Nike, Sanrio, Universal Studios Over Licensing Practices

  Joshua Brown: It Has Nothing To Do With Which ETF To Pick

  Michael Batnick: All-Time High

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• Morning News: June 13, 2017
  Eddy Elfenbein, June 13th, 2017 at 7:05 am

  U.K. Inflation Rate Rises More Than Forecast to Four-Year High

  Markets Unfazed as Federal Reserve Nears Plan to Shed Bonds

  Trump Administration Calls for Major Revamp of Wall Street Rules

  Jeff Immelt Ends 16-Year Tenure as CEO of General Electric

  Will Walgreens-Rite Aid Deal Fall Flat on FTC Blockade?

  Cash Faces a New Challenger in Zelle, a Mobile Banking Service

  Cook Says Apple Is Focusing on Making an Autonomous Car System

  How Tesla Can Become Worth More Than Apple, According to Morgan Stanley

  Hyundai Motor Bets on New Small SUV as China Sales Skid

  How Uber’s Chief Is Gaining Even More Clout in the Company

  Gymboree Files For Bankruptcy, Plans To Close At Least 375 Stores

  Viking Hedge Fund to Return $8 Billion to Investors

  The Ether Thief

  Ben Carlson: Bulls, Bears & Charlatans

  Roger Nusbaum: The Dark Knight Passes

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