Archive for June, 2018

• Smucker Drops on Earnings Miss
  Eddy Elfenbein, June 7th, 2018 at 12:08 pm

  This morning, JM Smucker (SJM) reported fiscal Q4 earnings (after a few adjustments) of $1.93 per share which was well below the company’s own guidance of $2.17 to $2.27 per share. The CEO blamed the miss on “industrywide headwinds and certain discrete items.”

  The company also had disappointing guidance for the coming year. Smucker sees this year’s earnings coming in between $8.40 and $8.65 per share. Wall Street had been expecting $9.18 per share.

  The WSJ reports:

  J.M. Smucker is among several companies trying to figure out what consumers want in their kitchens. Other food companies like Kraft Heinz Co. and Campbell Soup Co. have struggled with sales in recent times as customers’ food choices change.

  At the same time, J.M. Smucker has been working to change its business mix.

  In April, the company said it was looking at options for its baking business, such as selling it. That business includes the Pillsbury brand. That same day, the company said it had agreed to buy Ainsworth Pet Nutrition LLC, a deal J.M. Smucker said it valued at $1.7 billion.

  The company also launched a higher-end version of its Folgers brand in April. Mr. Smucker had said the company was “trying to strike the right balance between leading, iconic brands and emerging brands.”

• Morning News: June 7, 2018
  Eddy Elfenbein, June 7th, 2018 at 7:15 am

  Hong Kong’s China Loan Pipe Is Gurgling Too Loud

  U.S. Trade Deficit Falls to 7-Month Low as Exports Set Fresh Record

  U.S. Congress Has Few Options to Stop Trump from Saving China’s ZTE

  The Simple Message From the Trustees of Social Security and Medicare

  Mick Mulvaney Effectively Fires CFPB Advisory Council

  Landline Phone Service, Which Still Exists, Goes Down Across the U.S.

  New Bitcoin ETF Would Set Buyers Back $200,000

  Coinbase Expands With Deal for Broker-Dealer Keystone Capital

  Uber Jumps Into Europe’s Crowded Bike-Sharing Market

  How I Learned to Stop Worrying and Love Electric Scooters

  You Can Now Drive As Many Mercedes-Benz Cars As You Want For $1,095 a Month

  IHOP Is Changing Its Name And The Internet Can’t Handle It

  Cullen Roche: The Vollgeld Proposal is Bad. Very Bad.

  Ben Carlson: Animal Spirits: Big Mistakes

  Joshua Brown: Breaking Away

  Be sure to follow me on Twitter.

• The Surging Market
  Eddy Elfenbein, June 6th, 2018 at 12:10 pm

  The S&P 500 is now up for the fourth day in a row. The index is near its highest levels in more than two months.

  

  The S&P 500 is also above its 50- and 200-day moving averages. The real winner lately has been the Nasdaq Composite which just touched a new all-time high.

  

  I’m glad to see Alliance Data Systems (ADS) up to $220 today. ADS was down to $193 a month ago.

• Morning News: June 6, 2018
  Eddy Elfenbein, June 6th, 2018 at 7:16 am

  India Sees Record Low Solar Prices Returning on China Reforms

  The Next Bond Rout: It’s Bigger Than Italy

  The ECB is About to Take a Key Step Toward an Easy-Money Exit

  Social Security to Tap Into Trust Fund for First Time in 36 Years

  Teamsters Vote to Authorize Strike as UPS Contract Talks Heat Up

  China’s ZTE Signed Preliminary Agreement to Lift U.S. Ban

  Wells Fargo Pulls Back from U.S. Midwest, Selling 52 Branches to Flagstar

  Elon Musk Appears Emotional As He Overcomes Vote to Remove Him as Tesla Chairman

  David Koch Steps Down From Business and Conservative Political Group

  Scooters Are Cool, But Not $1 Billion Cool

  IHOP Is Getting a New Name. And It Doesn’t Include Pancakes

  Why Women Hold the Majority of Student Loan Debt in America

  Nick Maggiulli: Reps, Reps, Reps

  Howard Lindzon: Momentum Monday…You Do Not Need to Own Everything

  Michael Batnick: Animal Spirits: Big Mistakes

  Be sure to follow me on Twitter.

• College Investor’s Top Investing Blogs of 2018
  Eddy Elfenbein, June 5th, 2018 at 12:50 pm

  Thank you to College Investor for naming me as one of their top investing blogs for 2018. Check out the whole list here. There are many outstanding blogs listed.

• Howard Schultz is Stepping Down at Starbucks
  Eddy Elfenbein, June 5th, 2018 at 10:40 am

  Howard Schultz said he’s stepping down as executive chairman of Starbucks (SBUX). There’s been talk that he might run for president.

  I’ll skip that topic to focus on the long-term performance of Starbucks. It’s been a truly remarkable company. They IPO’d 26 years ago this month at 27 cents per share (that’s $17 adjusted for six 2-for-1 splits.) Today, it closed at $57.07. Not bad.

  

  Schultz had two runs as CEO, from 1986 to 2000 and then again from 2008 to 2017. He came on after the stock’s one terrible stretch.

  Thanks to over-expansion, the stock fell from an intra-day high of $10 per share on November 16, 2006 down to $1.765 on November 21, 2008. Eighty percent losses tend to upset shareholders and that’s why Schultz was brought back. He helped turn the ship around, and today, there are more than 26,000 locations.

  The company started paying a five-cent quarterly dividend in 2010. That’s been raised every year since then, and it’s now up to 30 cents per quarter. That’s a payout ratio of around 50%.

• Morning News: June 5, 2018
  Eddy Elfenbein, June 5th, 2018 at 7:15 am

  Crude Oil Kissing $80, OPEC Whispers, and the Implications for E&P

  Trump Plan to Prop Up Coal, Nuclear Won’t Protect the Electric Grid

  ANZ, Citi, Deutsche Bank Accused of Engaging in Cartel Conduct

  Gilt Groupe Sold to Rival Rue La La

  What to Watch for as Tesla Investors Decide the Future of Musk’s Board

  GitHub Billionaires Will Own More Microsoft Stock Than Its CEO

  Toshiba to Close the Book on Its Laptop Unit

  Qantas Gives In to Beijing’s ‘Orwellian’ Demand to Change How It Refers to Taiwan

  Walmart Sheds Majority Stake in Brazil Operation

  In Biotech, $6 Billion Can Vanish Quickly

  McDonald’s Is Making a Big Bet on Self-Service Kiosks

  Michael Batnick: The Next Fifty Years

  Howard Lindzon: Financial Pardons (Do Not Count on Them) and Taking Profits is Not a Crime

  Jeff Carter: Crypto And Term Sheet & Regulation and the Retail Investor

  Be sure to follow me on Twitter.

• Looking at Peter Drucker
  Eddy Elfenbein, June 4th, 2018 at 12:16 pm

  The subject of Peter Drucker recently came up. Here’s what I wrote about him upon his passing in 2005. This was one of my first blog posts to get attention.

  

  He was born in Vienna during the reign of Emperor Franz Joseph (his middle initial F. stood for Ferdinand). Keynes and Schumpeter were his economics professors. His first book was reviewed by Winston Churchill in the Times Literary Supplement in 1939. The 29-year-old proved to be more prescient than the Great Man.

  Mr. Drucker is one of those writers to whom almost anything can be forgiven because he not only has a mind of his own, but has the gift of starting other minds along a stimulating line of thought. There is not much that needs forgiveness in this book, but Mr. Drucker tends to be carried away by his own enthusiasm, so that the pieces of the puzzle fit together rather too neatly. It is indeed curious that a man so alive to the dangers of mechanical conceptions should himself be caught up in the subordinate machinery of his own argument. His proof, for example, that Russia and Germany must come together forgets the nationalism which has developed in Russia during the last twenty years and which would react very strongly against any new German domination of Russian life. But such excesses of logic are pardonable enough in a book that successfully links the dictatorships which are outstanding in contemporary life with that absence of a working philosophy which is equally outstanding in contemporary thought.

  Within three months, Poland’s fate was sealed. When looking at Drucker’s work, the most arresting fact isn’t how much he got right but rather how much he’s still misunderstood.

  Mr. Drucker thought of himself, first and foremost, as a writer and teacher, though he eventually settled on the term “social ecologist.” He became internationally renowned for urging corporate leaders to agree with subordinates on objectives and goals and then get out of the way of decisions about how to achieve them.

  He challenged both business and labor leaders to search for ways to give workers more control over their work environment. He also argued that governments should turn many functions over to private enterprise and urged organizing in teams to exploit the rise of a technology-astute class of “knowledge workers.”

  Mr. Drucker staunchly defended the need for businesses to be profitable but he preached that employees were a resource, not a cost. His constant focus on the human impact of management decisions did not always appeal to executives, but they could not help noticing how it helped him foresee many major trends in business and politics.

  He began talking about such practices in the 1940’s and 50’s, decades before they became so widespread that they were taken for common sense. Mr. Drucker also foresaw that the 1970’s would be a decade of inflation, that Japanese manufacturers would become major competitors for the United States and that union power would decline.

  For all his insights, he clearly owed much of his impact to his extraordinary energy and skills as a communicator. But while Mr. Drucker loved dazzling audiences with his wit and wisdom, his goal was not to be known as an oracle. Indeed, after writing a rosy-eyed article shortly before the stock market crash of 1929 in which he outlined why stocks prices would rise, he pledged to himself to stay away from gratuitous predictions. Instead, his views about where the world was headed generally arose out of advocacy for what he saw as moral action.

  As for me, I’m a bit weary of the Cult of Drucker, which is often quite different from the man. I often hear his disciples pontificate his “ideas,” which wind up being little more than Benjamin Franklin-style truisms—only covered in jargon and masquerading as ideology. “An apple a day keeps the doctor away” becomes “pro-active management encourages and facilitates preventative-based strategies in order to ensure long-run objectives without negative and unforeseen downside effects.” So much Latin, and so little English. Such are the dangers in thinking outside one’s box.

  But how far can the study of management go? For all of management’s influence, the most difficult question is: Why is this enterprise worth managing? My fear is that Drucker’s legacy is so liquid that his mantle can be claimed by most anyone. The race has been on for quite some time. Right now, the yellow-jersey belongs to Newt Gingrich. The former Speaker of the House, who’s an admirer of Alvin Toffler and other future babble, has clearly adopted Drucker as a political ally.

  Too many of our business schools, academic centers, media moguls, and government leaders still rely on the Keynesian command-and-control bureaucratic model. They rely on almost nothing of Drucker and even less of the Austrian school and, as a result, routinely apply the wrong principles to structuring education, training, health care, and our role in international trade. Again and again they reject the marketplace. They reject the principles of management. They reject the essence of entrepreneurship. They reject the heart of Drucker and apply instead patterns and behaviors that simply don’t work.

  That is the ultimate critique of big-city schools. It’s the ultimate critique of government-run health care. It is the ultimate critique of the way the federal government and state and local governments mismanage resources. It simply doesn’t work.

  To be sure, Gingrich’s ideas can stand or fall on their own—with or without the support of Drucker. But we ought to be clear that Drucker’s ideas have little to do with what Gingrich says. In fact, Drucker was never particularly interested in economics. Too much theory, not enough people.

  Drucker’s concern was studying institutions as institutions. That’s what he saw in 1939. The Nazis and Soviets had to come together. It was simply what they were. The institutions demanded it. For Drucker, it didn’t matter which institutions he looked at; governments, unions, corporations. He really didn’t find much use in analyzing the government. Drucker preferred the non-profit sector. He even looked at the Girl Scouts. To Drucker, an institution had an internal agenda simply because it is an institution.

  Drucker saw the driver of an institution as its management. His goal was to isolate management as a separate concept and study what made some managers good and others bad. While it sounds a bit platitudinal now, it was quite new then.

  Still, when reading Drucker I can’t help feeling undernourished. Consider this from Forbes a few years ago:

  In 1989 C. William Pollard, chairman of the ServiceMaster Co., took his board of directors from Chicago to meet Drucker. In a back room of Drucker’s utterly unpretentious home, the sage of Claremont opened the meeting by asking the group, “Can you tell me what your business is?”

  Each director gave a different answer. Housecleaning, said one. Insect extermination, said another. Lawn care, said a third.

  “You’re all wrong,” Drucker said. “Gentlemen, you do not understand your business. Your business is to train the least-skilled people and make them functional.”

  Groan. This is only the beginning of an exposure to Drucker. Soon, the “ideas” begin to flow freely. We’re now “knowledge workers.” And we’re moving to a “knowledge-based society.” But…what of it? Before we know it we’re “managing change,” yet I’m only interested in “making money.” Again, here’s Drucker:

  One of the most important jobs ahead for the top management of the big company of tomorrow, and especially of the multinational, will be to balance the conflicting demands on business being made by the need for both short-term and long-term results, and by the corporation’s various constituencies: customers, shareholders (especially institutional investors and pension funds), knowledge employees and communities.

  Call me unimpressed. I can’t say that I disagree with anything Drucker says, which is part of the problem. Truthfully, I think the study of management can only go so far. It’s important, but it’s easily overanalyzed. Just as the diplomat urges diplomacy and the general favors war, the management guru sees only the primacy of managers. To Drucker’s fans, it seems hard to conceive the fact that Grant crossed the James without the aid of a flow chart.

  Here’s a large section of Druckerama. Apparently, everything is transformational. Everyone is empowered. It all sounds so epic, yet at the same time so…bland. The themes have taken over the building and they’ve smothered the plot. What’s left is Drucker’s true legacy, his boundless enthusiasm. If only all managers had it. To Churchill, Russia may have been a riddle wrapped in a mystery inside an enigma, but he saw Drucker clearly.

• Morgan Housel’s “The Psychology of Money”
  Eddy Elfenbein, June 4th, 2018 at 11:08 am

  Morgan Housel is one of my favorite finance writers. He just went long-form with his “The Psychology of Money.” It’s long but worth it.

  Here’s the website and here it is in PDF.

• Morning News: June 4, 2018
  Eddy Elfenbein, June 4th, 2018 at 7:17 am

  Coming Soon: “OPEC’s Worst Meeting Ever, Part 2”

  China Launches Probe of Foreign Chip Makers

  Global Airlines Slash Profit Outlook as Fuel Costs Jump

  Americans Will Pay a High Price to Save Coal

  Apple: iPhone X, Record Profits And A Much Higher Stock Price

  The State of Tech in 3 Graphs: Artificial Intelligence, The Cloud and Your Money

  The Case for Xiaomi, the $70 Billion Company—and for Xiaomi, the $30 Billion Company

  Fintech Unicorn TransferWise Strikes First Deal With a Major Bank to Offer Cheap Currency Transfers

  Cruise Is Adding A Lot Of Value To General Motors

  Sears Holdings’ Death Spiral Accelerates

  A Machinist Break-in at Boeing

  Commonwealth Bank to Pay Record Fine to Settle Laundering Suit

  Ben Carlson: Does Private Equity Deserve More Scrutiny?

  Roger Nusbaum: Barron’s Says It’s Time To Rethink Retirement Rules

  Jeff Miller: Is it Time to Worry About a Trade War?

  Be sure to follow me on Twitter.