Archive for April, 2019

• Morning News: April 8, 2019
  Eddy Elfenbein, April 8th, 2019 at 7:05 am

  Norway Is Walking Away From Billions of Barrels of Oil

  What the Rest of the World Can Learn From the Australian Economic Miracle

  Carlos Ghosn Casts a Dark Shadow Over Corporate Japan

  Aramco Debt Demand Reaches $30 Billion in Deal Pitched by JPMorgan CEO

  Blamed for Climate Change, Oil Companies Invest in Carbon Removal

  Dalio Says Capitalism’s Income Inequality Is National Emergency

  Pinterest Set to Price I.P.O. Below Last Private Valuation

  Boeing’s 737 Production Cut Hits Its Shares and Those of Suppliers

  SoftBank-Backed Grab Seeks Another $2 Billion Funding in Expansion Drive

  Sweet Seats and Candy Canes: Inside Fiat Chrysler’s Toledo Turnaround

  Tesla Shares Gain After Multi-Million Dollar Emissions Deal with Fiat Chrysler

  Amazon Wants You to Use Alexa to Track Health Care

  Nick Maggiulli: Just One More

  Michael Batnick: The Well Being of U.S. Households & These Are The Goods

  Jeff Miller: Weighing the Week Ahead: Are We Near the End of the Economic Cycle?

  Be sure to follow me on Twitter.

• Understanding Trading Rules
  Eddy Elfenbein, April 6th, 2019 at 12:45 pm

  From Boris Schlossberg:

  Now lest you think that these principles matter only to us lowly system traders and don’t apply to stock pickers, allow me to tell you about an exchange I had with the great Eddy Elfenbein this year. Eddy runs a great newsletter called Crossing Wall Street and you probably have seen him many times on CNBC’s Trading Nation. He is truly a great stock picker and his newsletter has beaten the S&P many years running. One time Eddy tweeted out about LUV (Southwest Airlines)

  Here's a long-term chart of Southwest. Note the log y-axis to see how amazing the stock has been. Up 26,600% since 1980. RIP Herb Kelleher. pic.twitter.com/eCPL8L6Iyz

  — Eddy Elfenbein (@EddyElfenbein) January 4, 2019

  I took look at that chart more closely and realized something and responded back to him,

  And yet Eddie it lost 75% of value between 01-10 – that required real belief to hold on

  — Boris Schlossberg (@Fxflow) January 4, 2019

  To his credit, Eddy fully acknowledged that point.

  So the point is — if you trade you always have to Pay the Pip Piper — even if you don’t trade FX.

  Check out the whole thing.

• “…according to Eddy Elfenbein”
  Eddy Elfenbein, April 5th, 2019 at 4:01 pm

  From Bloomberg:

  Despite the S&P 500 Index having soared 13.1 percent in the first three months of 2018, its best quarterly performance since 2009, those who are paid large sums to figure out where stocks go next are hesitant to get all bulled up. The median estimate of 24 strategists surveyed by Bloomberg is for the S&P 500 to gain only an additional 4 percent by the end of the year, rising to 2,950 from about 2,834 on Friday. That price target isn’t much different from the 2,913 median estimate back in early January. Count BlackRock as one firm that feels the easy money has been made in risk assets such as equities. “We see a repeat as unlikely and a narrower path for a grind higher,” Richard Turnhill, the firm’s global chief investment strategist, wrote in a research report. “The global economy must remain strong enough to quell recession fears but weak enough to keep policy makers on hold” to keep the rally in risk assets going. That’s a tough needle to thread. In reality, it’s been a relatively tough market for stocks the last 15 months. Consider that even with the big gains last quarter, at 2,867.24 on Tuesday the S&P 500 is still below its closing high of 2,872.87 in January 2018, let alone the record of 2,930.75 in September. And the only reason stocks are as high as they are is because of the tech sector, according to Eddy Elfenbein, a money manager who writes the Crossing Wall Street blog. “Many sectors and individual stocks never made new highs, and they’re still well below their January 2018 peak,” Elfenbein wrote. “For example, the S&P 500 Value Index never made a new high. It’s currently 6 percent below its peak from 14 months ago. The S&P 500 High Beta Index also never made a new high. The Consumer Staples sector is way down from its peak. The S&P 500 Industrials also never made a new high.”

• March NFP = +196K Jobs
  Eddy Elfenbein, April 5th, 2019 at 8:45 am

  The March jobs report is out. The U.S. economy created 196,000 net new jobs last month. The unemployment rate held steady at 3.8%. In the last year, average hourly earnings are up 3.2%.

  From the WSJ:

  Economists surveyed by The Wall Street Journal had expected 175,000 new jobs in March and a 3.8% unemployment rate.

  Revised figures show employers added 312,000 jobs in January and 33,000 jobs in February, a net upward revision of 14,000.

  January’s hiring was well above expectations and February’s payroll growth was surprisingly weak. The March data relieves fears about hiring significantly downshifting to start the year.

  (…)

  U.S. employers have added jobs for 102 straight months, by far the longest stretch on record. Heading into the year, economists expected the hiring streak to continue, but for the pace to slow. A tighter labor market makes it more difficult for employers to find available workers. Meanwhile, the stimulative effects of tax cuts approved in late 2017 appear to be fading.

  Through the first three months of the year, employers added an average of 180,000 jobs to payrolls each month. That’s a slowdown from the robust 223,000 jobs added each month, on average, last year, and roughly in line with the 179,000 averaged in 2017.

  That’s a pretty good number and the market is reacting well.

• CWS Market Review – April 5, 2019
  Eddy Elfenbein, April 5th, 2019 at 7:08 am

  “Investing isn’t about beating others at their game. It’s about controlling yourself at your own game.” – Benjamin Graham

  T.S. Eliot famously wrote that “April is the cruelest month.” Actually, as far as stocks go, it’s been pretty good. The market has risen 12 times over the last 13 Aprils. Plus, April 2019 has gotten off to a solid start. This builds upon a very good start to the year. We just wrapped up the best first quarter for stocks in 21 years.

  That could be a good omen. Consider that of the last 19 times that each of the first three months of the year were higher, 18 times the rest of the year was green as well. The only exception came in 1987.

  

  During the day on Wednesday, the S&P 500 got as high as 2,885. That’s a six-month high. In fact, we’re not that far from an all-time high. The dividend-adjusted S&P 500 came within 0.5% of making a new all-time high. (Dividends are small, but they do add up!)

  The market has now rallied for six days in a row. Despite the rebound in share prices, I have to confess that there’s not a lot going on in the stock market right now. Each week, I strive to bring the latest and greatest on Wall Street, but it’s been quite dead lately.

  We’re in that odd lull before earnings season. In just a few days, we’ll have all the news we can bear. But for right now, it’s crickets out there. Don’t fret. In this week’s CWS Market Review, we’ll take a look at some recent economic data. I’ll also run through the new earnings report from RPM International. Plus, I’ll cover some news impacting our Buy List stocks. But first, let’s review some mildly weak economic news.

  The U.S. Economy May Be Stagnating

  In recent weeks, there’s been more talk about the possibility of an interest-rate cut by the Federal Reserve. Larry Kudlow, the president’s top economic advisor, said the Fed should cut rates immediately by 0.5%.

  Until now, I’ve been a doubter, and I still think it’s a long shot. But I’ve become somewhat less doubtful. What’s the reason? Well, some recent economic news has been noticeably tepid. The standout example is the February jobs report. According to the government number crunchers, the U.S. economy created just 20,000 net new jobs in February. That was way below expectations.

  I’m writing this to you on Friday morning, so the March jobs report may already be out by the time you’re reading this. That report includes a revision to the numbers from February, and it’s likely the revision is higher.

  But that’s not the only data. For example, the weekly jobless-claims report got weaker at the start of this year. The weakness seemed to coincide with the government shutdown, so it caused a major uproar. Sure enough, on Thursday, we learned that initial jobless claims fell to 202,000. That’s the lowest since the 1960s.

  On Wednesday, the ADP payroll report said that just 129,000 private sector jobs were created last month. That’s the lowest figure in 18 months. For the first time since December 2016, goods-producing jobs shrank. It’s possible that the labor market is beginning to stagnate as global growth is softening.

  That’s probably what’s driving the talk of a rate cut. What’s interesting is that the yield curve isn’t exactly flat. Rather, it has a notch. At the moment, yield on the six-month Treasury exceeds the yield on the three-year by 16 basis points. That’s very unusual, and it only makes sense if bond traders expect a short-lived rate cut in a larger tightening cycle.

  Here’s a chart of nonfarm payrolls (red) with the Russell 3000 adjusted for inflation (blue).

  

  Last week, the government lowered its estimate on Q4 GDP growth. The initial report said the U.S. economy grew by 2.6% in the last three months of 2018. The updated report lowered that figure to 2.2%. That basically puts Q4 right in line with the trend of the current expansion. The economic recovery is notable for its length and its meandering speed. Compared with previous recoveries, the current one hasn’t been particularly strong.

  On Monday, the ISM Manufacturing Index was reported to be 55.3 for March. That’s up from 54.2 in February, but that report was the lowest in six months. A recession usually aligns with an ISM reading somewhere in the mid-40s. On Wednesday, the Non-Manufacturing Index fell to 56.1 for March. That’s down from 59.7 for February. That was below expectations, and the lowest point since August 2017.

  As I mentioned before, there hasn’t been much happening on Wall Street this week, but that will soon change. Next Friday, earnings season will kick off when JPMorgan and Wells Fargo report earnings. As we stand at the beginning of earnings season, the wave of lower guidance seems to have passed. Since September, Wall Street analysts had chopped this year’s earnings estimate for the S&P 500 by 5% to $167.80. Apple and the Energy sector were key drivers in the lower estimates. Analysts now expect to see top-line growth of 4.4% and an earnings decline of 9.8%.

  The week after next, the first of our Buy List stocks will report. Between mid-April and early May, 20 of our 25 Buy List stocks will report earnings. I don’t have the complete list yet, but Eagle Bancorp (EGBN) will report on April 17; then Danaher (DHR) and Check Point (CHKP) will report on the 18th. There will probably be others. Overall, I expect more good results from our stocks. On Thursday, we got the latest off-cycle earnings report from a Buy List stock, and it was quite good.

  RPM International Is a Buy up to $65 per Share

  In last week’s issue, I confessed that RPM International (RPM) has been a disappointment this year. The January earnings report was a dud, and the company had some (to my ears) tired excuses. Still, I’m not ready to pull the plug. The company owns a broad selection of well-known brands like Rust-Oleum.

  The good news is that Thursday’s earnings report alleviated some of my concerns. For the third quarter of RPM’s fiscal year, the company earned 14 cents per share. That exceeds the company’s own range of 10 to 12 cents per share. I’ll note that Q3 is typically RPM’s slowest of the year. Quarterly sales rose 3.4% to $1.14 billion. For the year, sales are up 5.3%.

  Frank Sullivan, RPM’s president and CEO, said, “Organic growth was 4.3% and acquisitions contributed 2.1%, while foreign exchange was a significant headwind that reduced sales by 3.0%. Price increases helped to offset higher raw-material costs, which have risen for seven straight quarters, as well as higher costs for freight, labor and energy. International markets remained challenged and resulted in reduced operating earnings from most geographies around the world.” The currency issue is a big problem for RPM.

  The good news is that RPM provided a pretty optimistic forecast. The company sees Q4 earnings ranging between $1.12 and $1.16 per share. At one point on Thursday, shares of RPM gapped up nearly 8%. RPM eventually finished the day at $60.63 per share for a gain of 2%.

  This is an encouraging report. The major concern is still the currency issue, but RPM doesn’t have much control over that. Remember that this is a solid outfit. RPM has increased its dividend every year for the last 45 years. This week, I’m raising my Buy Below on RPM International to $65 per share.

  Buy List Updates

  Earlier this week, shares of Raytheon (RTN) were downgraded by UBS. I usually ignore these news items, and I’m not going to bother refuting them. Still, the downgrade was enough to ping the shares for a 4% loss on Wednesday. The analyst lowered Raytheon from buy to neutral. (I’m not neutral on any stock!) He also lowered his price target from $220 to $200 per share, which is still a pretty juicy target. Anyway, I’m not concerned by the downgrade and am expecting good earnings later this month. Raytheon is a buy up to $190 per share.

  This Thursday, April 11, is a big one for Disney (DIS). At 5 p.m. ET, Disney will have its Investor Day webcast. With the big Fox deal done, this is the day when Bob Iger is expected to map out Disney’s plans to take on Netflix. Goldman Sachs recently said, “it is the dawn of a new era at Disney.” That’s true.

  Going into the meeting, there seems to be a lot of negative sentiment. Some folks think it will be bad news, and that may be what’s weighing on the share price. Personally, I have a more faith in Disney. Plus, with expectations so low, it may be easy to impress investors. Disney remains a buy up to $118 per share.

  I’ve neglected discussing Broadridge Financial Solutions (BR), and that should change. In February, the shares got smacked down after a lousy earnings report. BR made 56 cents per share, 15 cents below expectations. Despite the big drop, Broadridge has gradually recovered, and the stock just hit a new YTD high.

  

  The rally shouldn’t be too surprising. Broadridge has maintained a favorable outlook. The company said it sees earnings growth of 9% to 13% for this fiscal year, which is already half over. Since they made $4.19 per share last year, the guidance works out to $4.57 to $4.73 per share this year. For the current quarter, Broadridge sees revenue between $1.195 billion and $1.245 billion and earnings of $1.40 to $1.56 per share. Look for some improved results in May. This week, I’m raising my Buy Below on Broadridge Financial Solutions to $113 per share.

  That’s all for now. There are a few key economic reports next week. On Monday, the factory-orders report comes out. On Wednesday, we’ll get the CPI report for March. Also on Wednesday, the Fed will release the minutes from its last meeting. The jobless-claims report comes out on Thursday. On Friday, the Q1 earnings season begins as JPMorgan and Wells Fargo are due to report earnings. 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

  P.S. I’ll be on Bloomberg TV’s market-wrap segment this Monday, April 8 at 3:50 pm ET.

• Morning News: April 5, 2019
  Eddy Elfenbein, April 5th, 2019 at 7:02 am

  India’s Central Bank Cuts Key Lending Rate to 6.0%

  ‘Epic’ China Trade Deal Near Completion, Trump Says, but Haggling Continues

  China Hails ‘New Consensus’ on Trade as Trump Talks Up Unfinished Deal

  Manufacturing Surge, a Boon for Trump, May Be Fading

  U.S. Job Growth Seen Accelerating From 17-Month Trough

  What Will Cause the Next Debt Crisis?

  Trump Plans to Nominate Herman Cain to Fed Board, Aiming to Add Supporter to Independent Central Bank

  An Investor’s Guide to Gen Z

  Why Soft Power Is in Style in Qatar

  Gun Control Group’s Report Card on U.S. Banks’ Firearms Ties Has Several Fs

  Jeff Bezos Keeps Amazon Voting Power in Divorce Settlement

  Ghosn’s Fate May Hang on Complex Financial Web in Middle East

  Jeff Carter: Dual Sides of Student Debt

  Ben Carlson: 7 Benefits of Writing

  Joshua Brown: Josh and Michael on Taxes, a16z, Netflix for Financial Planning, New S&P 500 Highs

  Be sure to follow me on Twitter.

• Morning News: April 4, 2019
  Eddy Elfenbein, April 4th, 2019 at 7:05 am

  From Molecules to Electrons; Can Big Oil Become Big Power?

  Trump to Meet China’s Liu in a Sign Trade Talks Are Reaching Final Stages

  A.I. and Privacy Concerns Get White House to Embrace Global Cooperation

  America’s Biggest Economic Challenge May Be Demographic Decline

  Stung by Big Fines, Big Banks Beef Up Money-Laundering Controls

  Elite U.S. School MIT Cuts Ties With Chinese Tech Firms Huawei, ZTE

  PG&E Reveals New C.E.O. & Revamped Board of Directors

  Constellation to Sell Several Wine Brands to Gallo in $1.7 Billion Deal

  Tesla’s Elon Musk to Square Off With SEC in Court at Contempt Hearing

  This Startup Wanted to Change the Way Drugs Are Sold. Then Things Got Messy

  Lyft Is Luring Investors, Just Not the Kind It Wants

  Ex-Nissan Chief Ghosn Calls Latest Arrest ‘Outrageous’, Asks French Government to Help

  Jeff Miller: You Risk How Much Per Trade?

  Joshua Brown: A Man and His Signals

  Howard Lindzon: Doing The Impossible

  Be sure to follow me on Twitter.

• Morning News: April 3, 2019
  Eddy Elfenbein, April 3rd, 2019 at 7:09 am

  World Stocks Rally to Six-Month Highs on U.S.-China Trade Optimism

  Japan Stumbles as China’s Growth Engine Slows

  The Decade of Deleveraging Didn’t Quite Turn Out That Way

  Amid Bitcoin Uncertainty, ‘the Smart Money Knows That Crypto Is Not Ready’

  Fed Risks Stoking Financial Bubble in Drive to Lift Inflation

  Drug Sites Upend Doctor-Patient Relations: ‘It’s Restaurant-Menu Medicine’

  Japan Display to Supply OLED Screens for Apple Watch

  Roche Says $4.3 Billion Spark Offer Still On Track for June Completion

  Wells Fargo CEO Stumble Puts Bank in Familiar State of Disarray

  Deutsche Bank’s U.S. Unit Kept Danske’s Shady Billions Flowing

  Novartis’s Alcon spinoff ousts Baer from Swiss benchmark SMI

  Walgreens CEO Loses $1.2 Billion in One Day

  Nick Maggiulli: Just One More

  Ben Carlson: So I Tried Cutting the Cord…

  Michael Batnick: Animal Spirits: Netflix for Financial Planning

  Be sure to follow me on Twitter.

• Morning News: April 2, 2019
  Eddy Elfenbein, April 2nd, 2019 at 7:11 am

  All the Reasons to Fret About the Global Economy, in Charts

  Trade Slowed in Fourth-Quarter, WTO Says; Auto Tariffs, Brexit Are 2019 Risks

  Bitcoin’s Sudden Surge Propels It Above $5,000

  Amid Bitcoin Uncertainty, ‘the Smart Money Knows That Crypto Is Not Ready’

  For Many British Businesses, Brexit Has Already Happened

  A Key to the Arctic’s Oil Riches Lies Hidden in Ohio

  Exxon Weighs Sale of Nigerian Oil and Gas Fields for Up to $3 Billion

  Shell to Quit U.S. Refining Lobby Over Climate Disagreement

  YouTube Executives Ignored Warnings, Letting Toxic Videos Run Rampant

  U.S. Moves to Limit Wage Claims Against Chains Like McDonald’s

  Lyft Crashes Back to Reality

  General Electric Earnings Still Won’t Matter, but Cash Flow Will

  Cullen Roche: Odd Lots Podcast – Talking MMT

  Joshua Brown: What if You Only Invested in Your 20 Best Ideas?

  Howard Lindzon: Momentum Monday – America is Hungry

  Be sure to follow me on Twitter.

• Econ Update
  Eddy Elfenbein, April 1st, 2019 at 1:44 pm

  We got a few economic reports this morning. The ISM report rose to 55.3 from 54.2 in February. That’s a pretty good number.

  The retail sales report showed a drop of 0.2% in February. The number for January was revised higher to 0.7% from 0.2%. Wall Street had been expecting an increase of 0.3%.

  The best news was that construction spending rose 1% in February. This data series is now at a nine-month high.