Archive for January, 2018

• Earnings from Alliance Data and Sherwin-Williams
  Eddy Elfenbein, January 25th, 2018 at 12:18 pm

  We had two more earnings report this morning.

  Alliance Data Systems (ADS) had a very strong fourth quarter. Revenue rose by 15% to $2.11 billion, and core EPS rose 34% to $6.26 per share. The recent tax reform law boosted Q4 by $1.02 per share. Even adjusting for that, Alliance’s results were well above Wall Street’s consensus of $5 per share.

  The company also raised its full-year guidance for 2018. Earlier, ADS said to expect full-year earnings of $21.50 per share. Now they say core EPS should range between $22.50 and $23 per share. ADS also boosted its quarterly dividend by 10% to 57 cents per share.

  The stock is down about 4% which may be due to lower revenue guidance. I’m not sure what the market is thinking but I’m impressed by these results.

  The numbers for Sherwin-Williams (SHW) are a little complicated due to the recent acquisition of Valspar. Not including that, Sherwin’s sales were up 6.9% last quarter. Adjusting for several items, the company made $2.95 per share for Q4. That was below Wall Street’s consensus of $3.12 per share.

  Commenting on the financial results, John G. Morikis, Chairman, President and Chief Executive Officer, said “2017 was a year of record sales, net income, earnings per share, cash and EBITDA, but it will best be remembered as the year in which we joined forces with Valspar. The enormous amount of effort and energy invested over the past seven months in bringing these two great companies together, strengthening our customer relationships, defining the right organizational structure and building momentum in every line of business is transforming Sherwin-Williams into a faster growing, financially stronger and more profitable enterprise. These efforts will continue throughout 2018 with similar effect.

  I’m not too concerned by the earnings miss since the company is still adjusting to the big merger. For 2018, Sherwin-Williams expects earnings in the range of $16.05 to $16.45 per share. The shares are down about 0.5% in Thursday’s trading.

• Morning News: January 25, 2018
  Eddy Elfenbein, January 25th, 2018 at 7:05 am

  Why Strong Growth Is a Headache for the European Central Bank

  Trump Vs. China: Is A Trade War On The Way?

  U.S. Efforts to Weaponize the Dollar Are Doomed to Fail

  U.S. Heads for 3% Growth Trifecta on Spending, Investment Punch

  The Dark Side of America’s Rise to Oil Superpower

  Coal’s Decline Seems Impervious to Trump’s Promises

  How U.S. Tariffs Will Hurt the Solar Industry

  Under Trump Appointee, Consumer Protection Agency Seen Helping Payday Lenders

  Ford Says It’s a New Era. Wall Street Isn’t Buying It.

  Bank Of America Ends Free Checking Option, A Bastion For Low-Income Customers

  GE Woes Deepen as SEC Investigation Throws Wrench in Turnaround

  China’s Sinovel Convicted in U.S. of Stealing Trade Secrets

  Ben Carlson: 10 Money Revelations in My 30s

  Michael Batnick: What’s Wrong With Value?

  Howard Lindzon: Meet Your New Ruler – Jack Ma

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• Moody’s Raises Dividend by 16%
  Eddy Elfenbein, January 24th, 2018 at 6:13 pm

  After the bell, Moody’s (MCO) announced a 16% dividend hike. The quarterly payout will rise from 38 to 44 cents per share. The dividend will be payable on March 12, 2018 to stockholders of record at the close of business on February 20, 2018.

• Buy-and-Hold Is Pretty Darn Good
  Eddy Elfenbein, January 24th, 2018 at 12:12 pm

  Buy-and-hold investing comes in for a lot of criticism, but I want to present a measured defense of it. Of course, what matters is what you’re after. Buy-and-hold isn’t perfect, and you’ll certainly experience some pain. But by staying in the market, your returns can be good enough.

  Let’s consider the fate of the world’s unluckiest investor — the person who went all in at the market’s 2007 peak. Within 18 months, they lost half their money. They didn’t even see a profit for nearly five years. (I’m using the S&P 500 Total Return Index.)

  

  Now here we are, more than 11 years later and the S&P 500 Total Return Index is up about 130%. That’s every $1 becoming $2.30. That’s about 7.7% annualized. That’s something to keep in mind the next time you hear someone talk about how they “called the crisis.”

• Jay Powell Confirmed as Next Fed Chair
  Eddy Elfenbein, January 24th, 2018 at 11:36 am

  Yesterday, the Senate voted to confirm Jay Powell as the 16th Chairman of the Federal Reserve. The vote was 84-13.

  Powell, 64, has been a Fed governor for five years and helped shape policy under Janet Yellen, who will leave after a single term as the first woman to lead the world’s most influential central bank. Powell has said his leadership would represent continuity with his predecessors.

  Since Powell was nominated by President Trump in November, progressive Democrats like Senator Elizabeth Warren of Massachusetts have raised concerns about whether he would be too aggressive in dialing back post-financial crisis reforms.

  “I’m deeply concerned that as soon as Governor Powell unpacks his boxes in the Chairman’s office, he will begin weakening the new rules Congress and the Fed put in place after the 2008 financial crisis,” Warren said according to prepared remarks. “We need someone who believes in tougher rules for banks — not weaker ones. That person is not Governor Powell.”

  Despite those objections, Powell easily won confirmation on Tuesday by a vote of 84-13 with strong bipartisan support. Nearly 40 Democrats — with Charles Schumer, Sherrod Brown and Ron Wyden among them — crossed the aisle to support him.

  Janey Yellen’s term ends on February 3. Over the last 67 years, we’ve only had seven Fed chairs. Eisenhower, JFK and LBJ never appointed one.

  Of the 13 no votes, I can’t help noticing that many of them seem to be senators who wouldn’t mind being president someday: Booker, Cruz, Gillibrand, Harris, Paul, Rubio, Sanders and Warren.

• Morning News: January 24, 2018
  Eddy Elfenbein, January 24th, 2018 at 7:03 am

  Trump Team at Davos Backs Weaker Dollar, Sharpens Trade War Talk

  Blame Central Banks for the U.S. Dollar’s Dark Days

  Senate Confirms Jerome H. Powell as Fed Chairman

  CFPB Chief Mulvaney Says Days of ‘Pushing the Envelope’ Are Over

  Trump’s Failing War on Green Power

  Google Outspends Tech Rivals on Washington Lobbying in 2017

  Qualcomm Gets $1.2 Billion EU Fine for Apple Chip Payments

  GE Misses Fourth-Quarter Earnings Estimates as Power Sales Fall

  Amazon’s AI-Infused Grocery Store Is Open: What Investors Need to Know

  Disney to Give Employees $1,000 Bonuses in Wake of Tax Reform

  JPMorgan Rolls Out $20 Billion Investment Plan After Tax Gains

  About That Joint: Marijuana Startups Pass

  Joshua Brown: Cutting Losses

  Jeff Carter: The Crypto Repo

  Jeff Miller: Is This an Inflection Point for Both Stocks and the Economy?

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• What if the Stock Market Were a Bond?
  Eddy Elfenbein, January 23rd, 2018 at 10:03 am

  Here’s an update to one of my more off-the-wall ideas. I was curious to see what the historical performance of the stock market looks like, but in the form of a bond.

  Crazy? Let me explain.

  I took all of the historical market performance of the Wilshire 5000 (including dividends) and invented a hypothetical long-term bond that matched the market’s daily gains step-for-step.

  I assumed that it’s a bond of infinite maturity and pays a fixed coupon.

  There’s one hitch, though. I had to choose a starting yield-to-maturity for the beginning of the data series in December 1970. So this isn’t a completely kosher experiment because the starting point is based on my guess.

  If I chose a number that’s too high, the historical performance wouldn’t be able to keep up and the yield-to-maturity would grow higher and higher and soon leave orbit. Conversely, if my starting YTM was too low, the yield would gradually get pushed down to microscopic levels.

  Fortunately, the data made my job easy. After four decades, the window I had to work with is pretty narrow. Starting with 10% is too high and 8% is too low. After playing with the numbers, I finally settled on 8.93%.

  Even though this “bond” is completely make-believe, it reflects what the actual stock market really did for the past 47 years. It’s the same old stock market but it’s expressed in the form of a bond. Through yesterday, the “bond’s” yield stood at 4.65%.

  Here’s what the actual stock market looks like, expressed in the form of a bond. For comparison, I added Moody’s AAA Bond Index (in red). That series starts in 1983.

  

  It’s been more than ten years since the red line was higher than the blue. This is why I often say that the math still favors stocks. When you hear people say that the stock market is expensive, you have to wonder “compared to what?” Lower bond yields are tough competition for stocks and that ought to raise valuations.

• Morning News: January 23, 2018
  Eddy Elfenbein, January 23rd, 2018 at 7:04 am

  Singapore Soars Up Innovation Rankings, U.S. Falls Out of Top 10

  South Korea to Ban Cryptocurrency Traders From Using Anonymous Bank Accounts

  Murdoch’s Fox Takeover of Sky Is Dealt a Blow by U.K. Regulators

  U.S. Tariffs, Aimed at China and South Korea, to Hit Targets Worldwide

  Montana Governor Signs Order to Force Net Neutrality

  Netflix, Inc. Shrugs Off Price Increases to Grab 8.3 Million New Subscribers

  Elon Musk’s Pay at Tesla Will Now Have Nothing to Do With Making Cars

  Rupert Murdoch Wants Facebook to Pay for the News

  Immunotherapy M&A In Focus as Celgene Buys Juno; Good, Bad of Activism

  Amazon’s Pointless Obsession With Cashiers

  Millennials Brought About the Downfall of One of America’s Most Iconic Beer Brands

  Bacardi Moves To Buy Patrón Tequila, Valuing It At $5.1 Billion

  Cullen Roche: Why Does Momentum Investing Work?

  Ben Carlson: 180 Years of Stock Market Drawdowns

  Roger Nusbaum: Isn’t ROC Supposed To Be A Bad Thing?

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• Highest Gap Above 200-DMA Since 2013
  Eddy Elfenbein, January 22nd, 2018 at 2:34 pm

  Not only has the market’s rally been impressively upward, but it’s been impressively calm. As a result, the S&P 500 has been above its 200-Day Moving Average almost nonstop for nearly two years.

  

  As I’ve written before, the 200-DMA isn’t bad for tracking the market. It’s a good example of a dumb rule that works for very smart reasons. The reason is because the S&P 500 tends to be very trend-sensitive. The hard part, quite naturally, is spotting the turning points.

  Here’s me from a few years ago:

  Since the beginning of 1933 to yesterday, the S&P 500 has traded above its 200-DMA 67.8% of the time. It’s traded below the 200-DMA the other 32.2% of the time. When the S&P 500 is above its 200-DMA, it’s risen by an annualized rate of 11.29%. But when it’s below the 200-DMA, it’s fallen at an annualized rate of -1.06%.

  Here’s a look at the S&P 500 and its distance from the 200-DMA. On Friday, we got to more than 12% above the 200-DMA. That’s the biggest gap in nearly five years.

  

• Morning News: January 22, 2018
  Eddy Elfenbein, January 22nd, 2018 at 7:02 am

  Recent ‘Odd’ Market Moves May Be a Warning Sign for Stocks

  There Is Nothing Virtual About Bitcoin’s Energy Appetite

  Inside Amazon Go, a Store of the Future

  Icahn, Deason Push for Xerox to Explore Sale

  Sanofi to Buy Biogen Hemophilia Spinoff for $11.6 Billion

  GE Engine Venture May Oust Rolls From Emirates A380 Contract

  UBS Smashed by $3 Billion Tax Law Hit, Plans Big Wealth Management Push

  Biggest U.S. East Coast Oil Refinery Files for Bankruptcy

  Richemont, In Online Push, Looks to Take Over Yoox Net-a-Porter

  Wal-Mart Shops Brazil Unit Stake to Advent, Other Funds

  AIG to Buy Reinsurer Validus Holdings for $5.56 Billion in Cash

  Diamond Miner Can’t Stop Finding Huge Stones

  Joshua Brown: A Momentum Signal That Occurs Just 1% of the Time

  Cullen Roche: 2 Annoying Myths About Low Rates

  Michael Batnick: These Are the Goods

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