Archive for December, 2018

  • Upcoming Events
    , December 10th, 2018 at 2:00 pm

    On Tuesday, December 11, I’ll be addressing the Washington Association of Money Managers at the National Press Club. Drinks and hors d’oeuvres are at 6 p.m., and the talk starts at 6:30 p.m. The fee is $55. More details here.

    Then on Wednesday, December 12, Michael Batnick of Ritholtz Wealth Management will be joining me for an Alpha Call at 4 p.m. ET. Michael is one of my favorite market mavens. You can register for the call here.

  • 28 Years of the Yield Curve in Two Minutes
    , December 10th, 2018 at 12:48 pm

    This is cool. 

  • S&P 500 Drops to Eight-Month Low
    , December 10th, 2018 at 12:41 pm

    The bearish action isn’t letting up today. This morning, the S&P 500 got as low as 2,583.23. On an intra-day level, that’s the market’s lowest point since April 4. There’s a good chance we can close below the previous “correction” low of 2,632.56 from November 23.

    Cyclical stocks are especially unhappy today. Financials, Industrials and Energy all hit new 52-week lows this morning. S&P 500 Growth is losing to S&P 500 Value by more than 100 basis points. I suspect that’s because so many financials have been reclassified as value.

    New lows are leading new highs 93-0.

  • Morning News: December 10, 2018
    , December 10th, 2018 at 7:36 am

    This Soon-to-Be-Former OPEC Member Sees a Brighter Future in Natural Gas

    U.K.Economy Loses Steam as Battle Over Brexit Rages

    JPMorgan, BofA Detect Hints of a U.S. Recession Looming in 2019

    Wall St. Faces Stomach-Churning Swings as Economic Uncertainty Grows

    Hedge Funds Have Stocks to Dump, in Bad Sign for Sell-off

    This Obama-Era Agency Is Trying to Speed Immigration Under Trump’s Nose

    What the Rise in Whisky Insurance Tells Us About the Super Rich

    Soft Bank’s Record IPO Reaches $23.5 Billion After Extra Share Sale

    Gilead Sciences Snares Roche Veteran O’Day as CEO

    Elon Musk: ‘I want to be clear, I do not respect the SEC.’

    Carlos Ghosn, Ex-Nissan Chief, and Nissan Are Charged With Misstating His Pay

    How Much Could the 1MDB Scandal Cost Goldman Sachs?

    Cullen Roche: The Worst Narrative In Cryptocurrencies</a>

    Ben Carlson: Good News & Bad News About Saving For College

    Jeff Miller: Ready for Your Holiday Shopping?

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  • Another Painful Day
    , December 7th, 2018 at 4:30 pm

    Today, the Dow’s low was just 40 points above yesterday’s low. The difference is that yesterday we rallied 700 points off the low. No such luck today.

    The S&P 500 closed at 2,633, just a fraction above the closing low from November 23. Before that, we have to go back six months to find a lower close. 

    The S&P 500 High Beta Index lost 3.38% while the Low Vol lost 1.10%. The yield on the 10-year is now down to 2.85%. Tech was the worst sector today, down 3.53%, followed by consumer discretionary at 3.08%. 

  • November Jobs Report
    , December 7th, 2018 at 9:38 am

    The U.S. economy created 155,000 net new jobs last month. The unemployment rate stayed at 3.7%. Looking at the decimals, the unemployment rate was 3.671%. That’s the lowest since December 1969.

    Average hourly earnings, a closely watched sign of whether inflation pressures are building, again rose at a 3.1 percent pace from a year ago. The monthly earnings gain of 0.2 percent fell short of estimates for a 0.3 percent increase. The average work week edged lower by 0.1 hours to 34.4 hours.

    Stock futures turned positive following the weak report as traders bet it may mean the Federal Reserve is less aggressive next year on rate hikes.

    A separate gauge that includes discouraged workers and those holding part-time jobs for economic reasons, sometimes called the real unemployment rate, rose from 7.4 percent to 7.6 percent.

    The unemployment rate for African-Americans fell 0.3 percent to 5.9 percent, tied for its lowest on record.

  • CWS Market Review – December 7, 2018
    , December 7th, 2018 at 7:08 am

    “If being the biggest company was a guarantee of success, we’d all be using IBM computers and driving GM cars.” – James Surowiecki

    Apparently no one told Wall Street that it’s Christmastime. Of course, there certainly are a lot of grinches in well-tailored suits wandering the canyons of lower Manhattan, but this week, they were running the show and in charge. On Tuesday, the Dow shed 800 points. Then on Thursday, the Dow plunged another 785 points.

    At 11:30, the market hit bottom and then commenced a furious rally. By the closing bell, the Dow had only lost 79 points, and the Nasdaq actually finished in the green. Get used to this kind of volatility. This is what happens when Wall Street is caught between two narratives and is trying to make up its mind.

    In this issue of CWS Market Review, I’ll break it all down for you. The good news is that this latest hiccup paradoxically reflects some underlying strength in the economy. Also this week, we got a nice 11% dividend boost from Stryker. This is one of those tried-and-true stocks that has served us well. Before we get to that, let’s look at Wall Street’s latest temper tantrum.

    The Bond Market Is Vetoing the Fed

    All things considered, the investing climate still looks quite good right now. Inflation and interest rates are still low. Inflation isn’t much of a problem. The jobs market looks pretty good, and wages are finally improving. For next year, Wall Street expects earnings growth of 10%, give or take. That sounds about right.

    What about the Fed? I think their rate-hike plays are too ambitious, and I strongly suspect that they’ll have to pare back their plans for three increases next year. In fact, I think it’s very likely that we’ll only get one rate hike in 2019 from the Fed. (Two, maybe.)

    This comes after the rate hike I’m expecting when the Fed meets again on December 18-19. At that meeting, the FOMC members will update their economic forecasts for the coming few years. These forecasts are usually pretty bad, but at least it gives us a window into the Fed’s thinking.

    On Monday, the stock market rallied on news that the Trade War appears to be headed towards some sort of détente. What that could be is still an open question, but all the good vibes melted away on Tuesday. The market started out in a bad mood, and things got worse from there.

    The best way I can describe Tuesday is that it was almost like the month of October shoved into one day. If you recall, October was a tough month for the market, and it hit cyclical stocks particularly hard.

    We saw investors rush towards safe assets like bonds. The yield on the 30-year Treasury has fallen for five straight days, and the yield is down to 3.14%. In early November, it was at 3.46%. The 10-year yield is now down to 2.87%. Bear in mind that yields in much of the developed world are microscopic, or even negative.

    Check out this chart of the two-year (in blue) and ten-year yields (in red). Notice how much the red line has dropped recently. The gap is getting tight.

    We even had a brief glimpse of the yield curve inverting this week. Specifically, the yield on the five-year Treasury actually dropped below that of the two- and three-year. In this case, it’s not that short rates are rising to the longer rates; it’s that the longer rates are falling. This usually reflects concerns about the economy as well as a desire to find a place to hide.

    It’s interesting to note that riskier parts of the market are suffering the most. For example, the Russell 2000, a benchmark for small-cap stocks, is now down more than 15% from its high close. So is the S&P 500 High Beta Index. Both may soon hit 20% which is the traditional definition of a bear market.

    As conservative investors, we don’t have much to fear from Wall Street taking a more skeptical view of the economy and the Fed. We just have to be aware that the shift will involve some volatility, and in the short-run, that may not be pleasant. What’s basically happening is that the bond market simply isn’t buying the Fed’s outlook. This skepticism seems to have grown slowly over the last few months and then surged in a wave over the last week.

    I’m writing this to you ahead of the November jobs report. Wall Street expects that 190,000 net new jobs were created last month. There’s a chance that the unemployment rate could dip down to a 50-year low which would make it the lowest peacetime rate in 70 years.

    Don’t be unnerved by this latest round of selling. In fact, there are some good bargains on our Buy List. Ross Stores (ROST), for example, looks quite good here. Later on, I’ll mention that we just saw new lows in two of our stocks. I think Torchmark (TMK) looks particularly good.

    Buy List Updates

    We got good news this week from Stryker (SYK). The orthopedic company just boosted its dividend by 11%. The quarterly payment will rise from 47 to 52 cents per share. The new dividend is payable on January 31 to shareholders of record on December 31. Based on Thursday’s close, the new dividend yields investors 1.18%.

    The Wall Street Journal had some nice things to say about stock-exchange companies including our own International Exchange (ICE). These are wonderful businesses to run. Here’s a brief excerpt:

    “Exchanges are sitting in a very pretty place in a lot of ways,” said Brad Bailey, research director for capital markets at Celent in New York.

    Analysts and investors attribute this performance to large swings in stock, bond and currency markets. After historically calm trading conditions last year, a pickup in volumes on higher volatility in 2018 has been a boon to exchanges and market makers—intermediaries who stand ready to buy or sell shares at any time.

    “When volatility hits, volumes will be there,” Scott Hill, chief financial officer at ICE, said on an earnings call in October.

    On Thursday, two of our Buy List stocks, Alliance Data Systems (ADS) and Torchmark (TMK), both hit new 52-week lows. I know it’s not pleasant watching this happen, but these are two of the stocks I’m least concerned about. Last week, I mentioned that ADS is looking at selling off its Epsilon marketing business. That could fetch a nice payday. Torchmark is going for a little over 12 times next year’s earnings estimate.

    Before I go, I wanted to mention some upcoming events. On Tuesday, December 11, I’ve been invited to address the Washington Association of Money Managers at the National Press Club. Drinks and hors d´oeuvres are at 6 p.m., and the talk starts at 6:30 p.m. The fee is $55. More details here.

    Then on Wednesday, December 12, Michael Batnick of Ritholtz Wealth Management will be joining me for an Alpha Call at 4 p.m. ET. Michael is one of my favorite market mavens. You can register for the call here.

    That’s all for now. Next week will be fairly quiet as far as economic reports go, although I’ll be curious to see what Wednesday’s CPI report has to say. So far, inflation has been cool. Let’s see if that continues. We’ll get another jobless-claims report on Thursday. Weekly jobless claims have been below 300,000 for 196 straight weeks. Then on Friday, we’ll get industrial production and retail sales. I’ll be curious to see how strong consumer spending was last month. 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

    Syndication Partners

    I’ve teamed up with Investors Alley to feature some of their content. I think they have really good stuff. Check it out!

    Buy These 3 Growth Stocks and Pay NO Commission

    Robinhood is still growing rapidly. It added about 3 million accounts over the past year, bringing its total number of customers to 5 million, which is more than twice the big three incumbent discount brokerage firms combined. And it remains the only venue that offers trading on stocks, options and cryptocurrencies all in one place.

    I first told you about it adding ADRs back in September. At that time, Robinhood announced it was adding about 250 ADRs from Japan, China, Germany, the U.K. and elsewhere. ADRs of companies from France will be added in the coming months. A quick definition of ADRs is that they are stocks of foreign companies that trade and settle in the U.S. market in dollars, allowing investors to avoid having to transact in a foreign currency.

    Robinhood co-founder and CEO Vlad Teney told CNBC at the time, “We looked at what customers were searching for and not getting. It [adding ADRs] allows customers to get some exposure outside of the U.S.”

    The company found its users wanted access to global stocks by looking at its own search data. Robinhood’s staff has access to what people are typing into the app’s search and looking to trade. Names such as Nintendo, Adidas, BMW and Heineken continued to pop up. The company used similar reasoning in February when it decided to add cryptocurrency trading after users repeatedly searched for bitcoin.

    As someone that owns a good number of foreign stocks personally, this was fantastic news. This move made investing in overseas blue chip stocks easy, safe, and cost-efficient. While there are hundreds of quality foreign companies to choose from on Robinhood’s platform, let me briefly highlight for you three of them.

    Make This Trade For a 20% Drop in General Electric

    Several monumentally bearish trades hit the wire last week that suggest GE could be in for even more punishment. The headliner of these trades came in the form of a put purchase… not just any put purchase though. A strategist purchased 300,000(!!) January 18th puts at the 6 strike – this with the stock at $7.50.

    The trader paid $0.19 for each put, but that amounts to $5.7 million in premium when executed 300,000 times. Breakeven is all the way down at $5.81, with max loss occurring anywhere above $6 at expiration (with the full premium at risk). On the other hand, every dollar below the breakeven point can generate $30 million in profits.

    It’s possible this trade is a hedge. However, given the execution of several other very large bearish trades in GE around the same time, this could very well be speculation on another plunge in the share price.

    Let’s put it this way – not only is the trader betting on another 20%+ drop in the share price, but it could happen by January expiration. That’s less than two months away! By the way, even if this is a hedge, it’s a lot of money to spend with the stock at such a low price – which means someone is really worried about downside.

    The bottom line is if you own GE shares and want to hold on to them, I highly recommending hedging.

  • Morning News: December 7, 2018
    , December 7th, 2018 at 7:04 am

    Powell Says U.S. Labor Market ‘Very Strong’ by Many Measures

    Trump Is Losing the Trade War by One of His Own Metrics

    Putin’s ‘American’ Oligarch Privately Boasted of Trump Ties. Then He Lost Billions.

    With the Economy Uncertain, Tech ‘Unicorns’ Rush Toward I.P.O.

    Bitcoin Leads Cryptos to Lowest Since 2017 as Sell-Off Resumes

    A.I. as Talent Scout: Unorthodox Hires, and Maybe Lower Pay

    Huawei CFO to Appear in Canada Court as Chinese Media Slam Arrest

    Fiat Chrysler Plans to Make New Jeep in Detroit, Adding Jobs

    GE’s Push to Fix Power Turbine Problem Goes Global

    Facebook Never Really Cared About Connecting the World

    Lean In’s Sheryl Sandberg Problem

    Drug Maker Pays $360 Million to Settle Investigation Into Charity Kickbacks

    Blue Harbinger: More Unnerving Face-Rippers Ahead?

    Roger Nusbaum: Market Panic

    Howard Lindzon: The Next Consumer Wave

    Be sure to follow me on Twitter.

  • Dramatic Day So Far
    , December 6th, 2018 at 1:18 pm

    The stock market is down again today after a severe loss on Tuesday. From Monday’s high to today’s low, the Dow lost 1,737.99 points. However, the market has bounced impressively off today’s low. I don’t know how much more that can last.

    Some indexes, like the Russell 2000, are very close to being more than 20% off their high. Although there are already some prominent stocks that are up for the day.

    This morning’s ADP report showed that private employers added 179,000 net new jobs last month. That was inline with forecasts. The November jobs report comes out tomorrow morning. ISM Non-Manufacturing Index rose to 60.7% for November.

  • Morning News: December 6, 2018
    , December 6th, 2018 at 7:12 am

    Risk of No OPEC deal? ‘It’s Real,’ Saudi Energy Minister Says

    The Relentless Flattening in Treasury Yield Curve Has Stalled

    Global Stocks Plunge, Suggesting a Grim Day on Wall Street

    Powell’s Dovish Rate Tilt Reflects Fear of Fool-in-Shower Trap

    U.S. Appeals Court to Hear Arguments to Stop AT&T Purchase of Time-Warner

    ‘Shocking’ Huawei Arrest Threatens to Upend Trump-Xi Trade Truce

    Facebook Emails Show Its Real Mission: Making Money and Crushing Competition

    Wells Fargo Reform Plans Fail to Satisfy Fed After Scandals

    Volkswagen to Cut Another $3.4 Billion in Costs to Boost Margins

    MoviePass, Rattled by a Rough Year, Tries to Change Its Ways

    Soros Family Office Fined by Hong Kong Watchdog for Naked Short Selling

    The Bloomberg 50: The People Who Defined Global Business in 2018

    Ben Carlson: The 80-Hour Workweek

    Michael Batnick: The Law of Large Numbers

    Joshua Brown: Google’s “Other Bets”

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