Archive for July, 2018

• Morning News: July 19, 2018
  Eddy Elfenbein, July 19th, 2018 at 7:30 am

  Auto Industry Pushes White House to Back Off Tariffs

  Fed Chairman Powell Says Cryptocurrencies Present Big Risks to Investors

  Justice Department Wants to Speed Up Appeal of AT&T-Time Warner Deal

  Trump’s Trade War Lands at Air Show as Airbus Masks China Buyers

  Boeing Boosts Its Wide-Body Backlog With Freighter Sales

  How IBM Cloud Is Superior To Amazon AWS & IBM: Not Enough Credit

  AmEx Declines as Forecast Fails to Match Rosiest Predictions

  Sinclair Tries to Appease F.C.C. But Its Tribune Bid Is Challenged

  Bowing to Trump, Novartis Joins Pfizer in Freezing Drug Prices

  Marriott Follows Starbucks In Dropping Plastic Straws

  That Anti-Straw Movement? It’s All Based On One 9-year-old’s Suspect Statistic

  MGM Resorts Suffers Backlash After Suing Shooting Victims

  Michael Batnick: Pareto

  Jeff Carter: Turning Down A Seed Deal

  Joshua Brown: Young Investors: Here Are Your First Steps

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• Five Earnings Reports Tomorrow
  Eddy Elfenbein, July 18th, 2018 at 4:40 pm

  Tomorrow will be a busy day for the Buy List. Five stocks will be reporting earnings. All of them will report before the opening bell.

  Alliance Data Systems will have their conference call at 8:30 am ET.

  Danaher’s call starts at 8:00 am ET.

  Snap-on, Signature Bank and RPM International will have their calls at 10:00 am ET.

• Buybacks for Berkshire?
  Eddy Elfenbein, July 18th, 2018 at 1:24 pm

  Shares of Berkshire Hathaway (BRKA) have been up as much as $15,500 today. Even for a $300K stock, that’s a big move. This could be Berkshire’s best day in years.

  So what’s the news? It looks like Buffett may finally go through with a share buyback. From Myles Udland at Yahoo Finance:

  Warren Buffett’s Berkshire Hathaway (BRK-A, BRK-B) has just set the table for a new stock buyback.

  In a press release late Tuesday, the company said that it has amended its policy regarding share repurchases, now allowing for repurchases of Berkshire stock to be made at the discretion of Buffett and vice chairman Charlie Munger so long as both men “believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined.”

  Following this news, shares of Berkshire were up as much as 4%, indicating investors sees the company’s decision to rework its share buyback plan as a sign that repurchases are likely to occur in the months ahead.

  Previously the company had said it would not repurchase shares unless they traded at less than or equal to a 20% premium to the stock’s book value. As of Tuesday’s close the stock was trading at a roughly 40% premium to its book value.

  Additionally, the company will not repurchase stock in excess of an amount that would reduce its cash and equivalent holdings to less than $20 billion. In its release Tuesday, Berkshire said no repurchases will be made under this new program until after its second quarter earnings are released after the market close on August 3

• Morning News: July 18, 2018
  Eddy Elfenbein, July 18th, 2018 at 6:00 am

  China Says U.S.-Led Trade War Has Become Biggest ‘Confidence Killer’ for World Economy

  Fed’s Powell Says A Long Trade War Could Hurt U.S. Economy

  Bernanke, Geithner, Paulson Voice Some Concern About Next Crisis

  Crude-Oil Caution: Volatility Ahead

  How Does Netflix’s Sub Miss Impact Roku?

  Alibaba Faces A Much Bigger Threat Than Trade War

  Bank of America: Responsible Growth

  Johnson & Johnson’s Pharma Business Fuels Sales Growth

  The Next Company on Jeff Bezos’ Hit List May Shock You

  Google to Be Fined Record $5 Billion by EU Over Android

  Texas Instruments Chief Resigns; Conduct Violations Cited

  Papa John’s Founder Will Not ‘Go Quietly’ as Company Tries to Push Him Away

  Nick Maggiulli: The Most Important Asset

  Roger Nusbaum: Common Sense In Investing & Life; It Can Be That Simple

  Ben Carlson: Are SUVs Ruining Retirement Savings?

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• Three Key Trends
  Eddy Elfenbein, July 17th, 2018 at 1:39 pm

  There are three key trends impacting the markets right now, and they’re all related.

  1. The long-end of the yield curve is flattening.
  2. The dollar is rising.
  3. Gold is falling.

  Now for some charts.

  Here’s the spread between the seven- and 30-year Treasuries. The spread is now down to 14 basis points.

  

  Gold is near its lowest point in the last year.

  

  The dollar took a beating last year, but it’s been gaining ground this year.

  

• Industrial Production Rebounds in June
  Eddy Elfenbein, July 17th, 2018 at 1:26 pm

  While Chairman Powell’s words seem to be soothing the market, we got a pretty good report on industrial production.

  U.S. industrial production increased in June, boosted by a sharp rebound in manufacturing and further gains in mining output, the latest sign of robust economic growth in the second quarter.

  The Federal Reserve said on Tuesday industrial production rose 0.6 percent last month after a downwardly revised 0.5 percent decline in May. Economists polled by Reuters had forecast industrial production rising 0.6 percent last month after a previously reported 0.1 percent dip in May.

  Industrial production increased at a 6.0 percent annualized rate in the second quarter, faster than the 2.4 percent pace logged in the January-March period.

  Manufacturing output surged 0.8 percent in June after decreasing 1.0 percent in May. A 7.8 percent jump in motor vehicle production buoyed manufacturing output last month. Motor vehicle production declined 8.6 percent in May after a fire at a parts supplier caused a sharp drop in the assembly of trucks.

  

• Powell’s Testimony
  Eddy Elfenbein, July 17th, 2018 at 10:06 am

  Fed Chairman’s Jay Powell testified today before Congress. Here are some highlights:

  Since I last testified here in February, the job market has continued to strengthen and inflation has moved up. In the most recent data, inflation was a little above 2 percent, the level that the Federal Open Market Committee, or FOMC, thinks will best achieve our price stability and employment objectives over the longer run. The latest figure was boosted by a significant increase in gasoline and other energy prices.

  An average of 215,000 net new jobs were created each month in the first half of this year. That number is somewhat higher than the monthly average for 2017. It is also a good deal higher than the average number of people who enter the work force each month on net. The unemployment rate edged down 0.1 percentage point over the first half of the year to 4.0 percent in June, near the lowest level of the past two decades. In addition, the share of the population that either has a job or has looked for one in the past month–the labor force participation rate–has not changed much since late 2013. This development is another sign of labor market strength. Part of what has kept the participation rate stable is that more working-age people have started looking for a job, which has helped make up for the large number of baby boomers who are retiring and leaving the labor force.

  Another piece of good news is that the robust conditions in the labor market are being felt by many different groups. For example, the unemployment rates for African Americans and Hispanics have fallen sharply over the past few years and are now near their lowest levels since the Bureau of Labor Statistics began reporting data for these groups in 1972. Groups with higher unemployment rates have tended to benefit the most as the job market has strengthened. But jobless rates for these groups are still higher than those for whites. And while three-fourths of whites responded in a recent Federal Reserve survey that they were doing at least okay financially in 2017, only two-thirds of African Americans and Hispanics responded that way.

  Incoming data show that, alongside the strong job market, the U.S. economy has grown at a solid pace so far this year. The value of goods and services produced in the economy–or gross domestic product–rose at a moderate annual rate of 2 percent in the first quarter after adjusting for inflation. However, the latest data suggest that economic growth in the second quarter was considerably stronger than in the first. The solid pace of growth so far this year is based on several factors. Robust job gains, rising after-tax incomes, and optimism among households have lifted consumer spending in recent months. Investment by businesses has continued to grow at a healthy rate. Good economic performance in other countries has supported U.S. exports and manufacturing. And while housing construction has not increased this year, it is up noticeably from where it stood a few years ago.

  I will turn now to inflation. After several years in which inflation ran below our 2 percent objective, the recent data are encouraging. The price index for personal consumption expenditures, which is an overall measure of prices paid by consumers, increased 2.3 percent over the 12 months ending in May. That number is up from 1.5 percent a year ago. Overall inflation increased partly because of higher oil prices, which caused a sharp rise in gasoline and other energy prices paid by consumers. Because energy prices move up and down a great deal, we also look at core inflation. Core inflation excludes energy and food prices and generally is a better indicator of future overall inflation. Core inflation was 2.0 percent for the 12 months ending in May, compared with 1.5 percent a year ago. We will continue to keep a close eye on inflation with the goal of keeping it near 2 percent.

  Looking ahead, my colleagues on the FOMC and I expect that, with appropriate monetary policy, the job market will remain strong and inflation will stay near 2 percent over the next several years. This judgment reflects several factors. First, interest rates, and financial conditions more broadly, remain favorable to growth. Second, our financial system is much stronger than before the crisis and is in a good position to meet the credit needs of households and businesses. Third, federal tax and spending policies likely will continue to support the expansion. And, fourth, the outlook for economic growth abroad remains solid despite greater uncertainties in several parts of the world. What I have just described is what we see as the most likely path for the economy. Of course, the economic outcomes we experience often turn out to be a good deal stronger or weaker than our best forecast. For example, it is difficult to predict the ultimate outcome of current discussions over trade policy as well as the size and timing of the economic effects of the recent changes in fiscal policy. Overall, we see the risk of the economy unexpectedly weakening as roughly balanced with the possibility of the economy growing faster than we currently anticipate.

• Morning News: July 17, 2018
  Eddy Elfenbein, July 17th, 2018 at 8:35 am

  The Oil Market Is Getting More Dangerous

  IBM Is Experimenting With a Cryptocurrency That’s Pegged to the US Dollar

  Netflix’s Q2 Earnings in 3-Must See Metrics

  Goldman Sachs Makes it Official: David Solomon to Become Next CEO, Replacing Lloyd Blankfein

  Didi Seeks $1.5 Billion Car Services Spinoff Ahead of Likely IPO

  Jeff Bezos Named Richest Man in History as Amazon Workers Strike Over Pay And Conditions

  Amazon Foes Walmart and Microsoft Deepen Tech Partnership

  Salesforce Acquires Datorma for a Reported $800 Million

  How Tesla Stacks Up Against America’s Most Productive Car Factories

  CRISPR Therapeutics Stock History: The Rise of the World’s Biggest Gene-Editing Biotech

  Ford Agrees to Pay $299.1 Million to Resolve Air-Bag Lawsuit

  Papa John’s Founder Says Resignation Was a Mistake

  Lawrence Hamtil: Exploring Why P/E 10 Works Better In Some Markets Than Others

  Joshua Brown: It’s Always a Remix

  Jeff Miller: Anything Goes!

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• Alliance Data Drops Sharply
  Eddy Elfenbein, July 16th, 2018 at 10:17 am

  Shares of Alliance Data Systems (ADS) are down sharply this morning. This morning, the company reported its metrics for June.

  I don’t think the numbers were that bad. However, we’ll know a lot more when ADS reports their earnings this Thursday.

• The Long End Is Nearly Flat
  Eddy Elfenbein, July 16th, 2018 at 10:04 am

  The long end of the yield curve is nearly flat. Just four basis points separates the 10- and 20-year Treasuries. You can see similar effects on other points. This is the tightest the long end has been since the 2000 market peak.