Archive for September, 2019

• 2019 March for the Fallen
  Eddy Elfenbein, September 30th, 2019 at 12:09 pm

  

  On Saturday, I had a chance to be part of a great event, the 2019 March for the Fallen which honors Americans who have fallen in combat. It’s a long march at Fort Indiantown Gap, PA.

  The event is sponsored by the Pennsylvania National Guard. Many gold star families are part of the event. Also, many folks from finance Twitter joined as well.

  The full march is 28 miles with a 35-pound pack but I choose the less rigorous 14-mile option sans ruck.

  Here’s an odd side note. When we started, it was a pretty big crowd. Yet when I finished, there were huge gaps between marchers.

  I was almost the exact median finisher for our group yet there was a full minute between me and the next marcher behind me.

  It’s nothing fancy; it’s just dispersion which something we see in finance all the time. But it’s weird to be a part of it and see its dramatic effect in real life.

• Morning News: September 30, 2019
  Eddy Elfenbein, September 30th, 2019 at 7:24 am

  The New York Fed Chief Is Facing His Biggest Test. Here’s His Response.

  JPMorgan Says It’s Time to Switch From U.S. to Euro-Area Stocks

  On U.S. Delisting Threat, China Says ‘Decoupling’ Would Harm Both Sides

  Mexico’s Pemex Seeks Control of U.S. Oil Firm’s Billion-Barrel Find

  The White-Collar Job Apocalypse That Didn’t Happen

  Forever 21 Bankruptcy Signals a Shift in Consumer Tastes

  Boeing’s $2.8 Billion Awacs Plane Upgrade Slowed by Lab Closings

  Dubai Aerospace Drops Plans for Big Aircraft Order, Targets M&A Deal

  Record U.S. Tariff Award Over Airbus Aid Could Fuel Trade Tensions

  Virtually No One Will Lease to WeWork. That’s a Drag on NYC’s Office Market.

  California Fire Insurance Squeeze Hinders a Key Goal: Preventing Fires

  Credit Suisse Board Backs CEO Thiam Despite Spy Scandal

  Cullen Roche: Three Things I Think I Think – Impeachable Ideas

  Ben Carlson: The 2019 S&P 500 Sector Quilt

  Howard Lindzon: Momentum Monday…Yuck!

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• CWS Market Review – September 27, 2019
  Eddy Elfenbein, September 27th, 2019 at 7:08 am

  “Reality is merely an illusion, albeit a very persistent one.” – Albert Einstein

  This week, House Speaker Nancy Pelosi announced a formal impeachment inquiry into President Trump. According to The New York Times, the inquiry will look at “charging him with betraying his oath of office and the nation’s security by seeking to enlist a foreign power to tarnish a rival for his own political gain.” As usual, I’ll skip the politics and focus on what it means for the stock market and our portfolio.

  The simple answer is, “not much.” One of the mistakes investors make is to confuse what happens in the headlines with what concerns the stock market. The market has a mind of its own, and what it’s principally concerned with is earnings and interest rates. In the long run, it’s just earnings.

  

  In this week’s issue, I’ll examine this important issue in more depth. I’ll also cover some recent economic news. We had a very good earnings report from FactSet. However, their guidance wasn’t so hot, and traders nailed the shares. I’ll tell you what it all means. I’ll also preview next week’s earnings report from RPM International. But first, let’s dig into Washington’s latest political brawl.

  Don’t Be Scared of Impeachment Killing the Market

  At least once a week, I get an email asking me if the stock market is about to crash because of something President Trump has done. I get similar emails asking the same question but about the Democrats.

  I routinely remind investors to not let their political views upend their investing strategy. It’s not just amateurs who need this advice. In 2009, The Wall Street Journal famously ran an op-ed warning us that “Obama’s Radicalism Is Killing the Dow.” That article came at almost the exact low.

  Folks on the left haven’t done much better. On election night in 2016, S&P 500 futures started plunging, leading Paul Krugman to write, “If the question is when markets will recover, a first-pass answer is never.” Not exactly. The futures were wrong, and the market started to rally.

  I don’t mean to make fun of either side. It’s natural to think that what’s in the political news must impact the stock market, but that’s just not the way it works. I don’t mean to say that policy doesn’t impact the market. It certainly does, but it usually does so in unintended ways.

  This week, I was invited on The Compound with my friends Josh Brown and Michael Batnick. I’ve been of a fan of theirs for a long time, and I never miss The Compound, so it was a thrill to go on. You can see the video here.

  During our discussion, we talked about the potential impact of impeachment on the stock market. First, there’s the mathematical fact that even if President Trump is impeached by the House, he would probably be acquitted by the Senate because you need 67 votes to convict and the Senate is currently controlled by the Republicans.

  On the issue of impeachment, we don’t have a lot of data points to work with. President Clinton was formally impeached by the House on December 19, 1998. The trial began in January, and President Clinton was acquitted on all counts on February 12, 1999.

  The story is complicated because Russia defaulted in August 1998, and that led to the collapse of the hedge fund Long-Term Capital Management in September. That shook the market, and the S&P 500 closed below 1,000 on October 9.

  After that, the stock market rallied right through the impeachment proceedings. The NASDAQ rallied especially hard, and within a few months, it became the famous tech bubble. Through it all, the impeachment proceedings had little impact on the markets. If people were worried, it didn’t show up in the averages.

  The case of Richard Nixon was more serious, even though he resigned before he was formally impeached. There were very serious events in 1973-74 like the OPEC oil embargo, the 1973 Yom Kippur War and the resurgence of inflation. On top of that, the U.S. officially entered a recession in December 1973.

  

  The recession and inflation were probably good enough reasons for the market to flop, but there may also have been a concern that the President didn’t have the latitude to respond to any crisis. The bear market of 1973-74 was one of the worst on record. Investors hadn’t seen anything like it since the Depression. At that time, there were many market participants who had lived through the Great Depression.

  If anything, Nixon’s resignation in August was closer to a buy signal, even though the Dow didn’t reach its low until December 6, 1974. On that day, the Dow closed at 577.60 which was its lowest point in the last 55 years (1964 to present). For context, the Dow lost more than that in one day three times last month.

  In 1973-74, the threat of a nuclear war was real. There was talk of Soviet troops occupying the Golan Heights. At one point, U.S. forces went to Defcon 3. This was a scary time. That’s why Watergate’s impact on the market needs to be seen as part of many bad things happening at the same time.

  In 2019, things are much calmer. This week, we got the final revision to Q2 GDP, and it showed real growth of 2%. That’s not great, but it’s moving in the right direction. The stock market has actually been rather calm lately. That may change once earnings season starts, but I doubt any news from Washington will take down the stock market.

  Don’t let the noise from Washington rattle you. Our strategy is working just fine. Now let’s look at our one Buy List earnings report from this week.

  FactSet Drops on Weak Guidance

  On Thursday, FactSet (FDS) released a very good earnings report for its fiscal Q4. The problem was that their guidance for next year was pretty low.

  Let’s start with the good news. For its fiscal Q4, FactSet said that revenues rose 5.3% to $364.3 million. Annual Subscription Value, or ASV, rose to $1.48 billion. Quarterly earnings rose 18.6% to $2.61 per share. Wall Street had been expecting $2.47 per share.

  I was particularly glad to see FactSet’s operating margin come in at 33.9%. For the quarter, client count rose by 119 to 5,574. User count rose by 3,871 to 126,833. FactSet’s annual retention rate is running at 89%. The company now has 9,681 employees.

  This was FactSet’s 39th year in a row of revenue growth and 23rd year in a row of EPS growth.

  “FactSet performed well in full-year 2019, delivering solid revenue and strong EPS growth, despite market headwinds,” said Phil Snow, FactSet CEO. “To further our winning proposition in the marketplace, we will be accelerating critical investments over the next three years from a position of strength, capitalizing on industry trends and enhancing our core offerings. We are making investments today so that FactSet can continue to deliver long-term value for all our stakeholders.”

  For the whole year, EPS rose to $10.00. Their guidance had been for $9.80 to $9.90 per share. Before that, it was $9.50 to $9.65 per share, so business has been humming along.

  On its current guidance, FactSet is being very conservative. The company sees earnings next year (ending in August 2020) ranging between $9.85 and $10.15 per share. That’s basically no growth at all. The range is -1.5% to +1.5%. Wall Street had expected $10.52 per share.

  FactSet sees revenues ranging between $1.49 billion and $1.50 billion. That’s up from $1.44 billion for the year that just ended.

  Traders punished the stock, and by the closing bell, FDS was off by 9.3%. While this is frustrating, there’s no need for concern. The stock is back where it was six months ago (almost exactly). Despite the drop, FDS is up 22.78% for us this year.

  This week, I’m lowering our Buy Below on FactSet to $265 per share.

  Earnings Preview for RPM International

  RPM International (RPM) is due to report on October 2. This will be for their fiscal Q1, which ended in August. The company owns a broad selection of well-known brands like Rust-Oleum.

  The business outlook seems to be improving for RPM. For Q4, the company earned $1.24 per share which was 10 cents more than estimates. Net sales rose by 2.8% to $1.6 billion. Unfortunately, they were dinged a bit by forex, but you really can’t avoid that. The company sees 2020 earnings of $3.30 to $3.42 per share. For Q1, Wall Street expects earnings of 92 cents per share.

  Even though RPM is a boring stock, it’s doing well for us. The shares hit a new all-time high two weeks ago. The stock came close to breaking through $70 per share. Ten years ago, it was going for $18 per share.

  

  RPM has increased its dividend every year for the last 45 years. I’m expecting number 46 in October. My current Buy Below is $71 per share. I may raise it soon, but I want to see the earnings results first.

  That’s all for now. The fourth quarter starts next week. With the turn of the month, we’ll get several important economic reports. The ISM Manufacturing report is due out on Tuesday. The last one wasn’t so hot. On Wednesday, ADP will release its payroll rate. Then on Friday, we’ll get the big September jobs report. The unemployment rate has been stuck at 3.7% for three months in a row. 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

• Morning News: September 27, 2019
  Eddy Elfenbein, September 27th, 2019 at 7:04 am

  No-Deal Brexit in 2020 Seen Dragging U.K. Economy Into Recession

  The U.S. Can’t Treat China the ‘Same Way’ It Treated the Soviet Union, Warns Asian Leader

  Trade War Hasn’t Stopped Wall Street’s $9 Billion China Rush

  Slowing Economy and Deflation Cause China’s Company Profits to Drop

  China’s Top Diplomat Says Beijing Willing to Buy More U.S. Products

  Hedge Funds Struggle to Replicate Warren Buffett’s Reinsurance Success

  The Great Index Apocalypse Comes for Bond Managers

  U.S. Income Inequality Worsens, Widening To A New Gap

  Start-Ups Like WeWork and Peloton Feel a Chill on Wall St.

  SoftBank Bet Big on Disruptive Companies. Many Have Not Paid Off.

  Delta Buys $1.9 Billion LATAM Stake, Snatching Partner Away from American Airlines

  GM Reverses, Will Pay for Striking Union Workers’ Health Insurance; Major Issues Remain

  Joshua Brown: How Will Impeachment Affect The Stock Market?

  Ben Carlson: Contradictory Figures: Lessons From Uber’s Rise

  Jeff Carter: A Framework For Evaluating Startups

  Be sure to follow me on Twitter.

• Inside the Compound
  Eddy Elfenbein, September 26th, 2019 at 2:49 pm

  I love watching The Compound with my friends Michael Batnick and Josh Brown so I was thrilled when they invited me on. Check it out:

• FactSet Drops on Lower Guidance
  Eddy Elfenbein, September 26th, 2019 at 12:08 pm

  Shares of FactSet (FDS) are down today despite a good earnings report. The problem is lower guidance.

  For their fiscal Q4, FactSet said that revenues rose 5.3% to $364.3 million. Annual Subscription Value, or ASV, rose to $1.48 billion. Earnings rose 18.6% to $2.61 per share. Wall Street had been expecting $2.47 per share.

  This was FactSet’s 39th year in a row of revenue growth and 23rd year in a row of EPS growth.

  “FactSet performed well in full year 2019 delivering solid revenue and strong EPS growth, despite market headwinds,” said Phil Snow, FactSet CEO. “To further our winning proposition in the marketplace, we will be accelerating critical investments over the next three years from a position of strength, capitalizing on industry trends and enhancing our core offerings. We are making investments today so that FactSet can continue to deliver long-term value for all our stakeholders.”

  For the whole year, EPS rose to $10.00. Their guidance had been for $9.80 to $9.90 per share. Before that, it was $9.50 to $9.65 per share, so business has been humming along.

  Now for guidance, and FactSet is being very conservative. The company sees earnings next year (ending in August 2020) ranging between $9.85 and $10.15 per share. That’s basically no growth. Wall Street had expected $10.52 per share.

  Traders punished the stock. Shares of FDS are currently down about 10%.

• GDP and Initial Claims
  Eddy Elfenbein, September 26th, 2019 at 11:41 am

  There were two economic reports this morning. The first is that initial jobless claims rose slightly to 213,000. I find it remarkable that this figure is still so low, and it’s been this way for a long time.

  In April, initial claims dipped down to 193,000 which was the lowest since the 1960s.

  

  This figure tends to bounce around so economists like to look at the four-week moving average. This also tends to track the unemployment rate so I don’t see a major uptick in the jobless rate. At least, not yet. The unemployment rate has been stuck at 3.7% for the last three months.

  The other report was the final revision to Q2 GDP. This is an odd report because Q2 started six months ago and ended three months ago. Right now, the focus is on Q3 and Q2.

  The initial report showed real annualized growth of 2.1% in the second quarter. Last month, that was revised down to 2.0%. This month, it was again 2.0%. Those are the smallest revisions I can remember. The takeaway is that the economy continues to grow, but modestly.

  

• Morning News: September 26, 2019
  Eddy Elfenbein, September 26th, 2019 at 7:40 am

  ABN Amro Dirty Money Probe Piles Pain on Europe’s Troubled Banks

  Oil Traders Rattled by U.S. Sanctions on China Tanker Firms

  ‘It’s a Crisis’; Lumber Mills Slash Jobs as Trade War Cuts Deep

  In Michigan Steel Towns, Tariffs Meant to Revive Industry Cost Jobs

  A.I. Researchers See Danger of Haves and Have-Nots

  Vaping Fallout Widens as Imperial Plunges on Profit Warning

  Juul Replaces Its C.E.O. With a Tobacco Executive

  What the Fate of Silicon Valley’s Donald Trump Can Teach Us

  EBay’s Next CEO Inherits a Confounding Puzzle

  Huawei Already Producing 5G Base Stations Without U.S. Parts: CEO

  Norway Will Not Ban Huawei from 5G Mobile Network

  The Elusive $1 Billion Fund That’s Rattled Venture Capital

  Ben Carlson: The Cost of Selling Your Home & Animal Spirits: Stockpiling Cash

  Michael Batnick: QE-Distorted Markets & Re-examining Wordly Wisdom

  Howard Lindzon: Catching Up On Bitcoin…and Sleep & Impeach This! and My Latest Podcast With Ben Hunt

  Be sure to follow me on Twitter.

• Morning News: September 25, 2019
  Eddy Elfenbein, September 25th, 2019 at 7:33 am

  Sanctions-Hit Iran Props Up Economy with Bartering, Secret Deals

  Bitcoin, Ethereum, Ripple’s XRP, And Litecoin In Shock Meltdown

  Trump’s Global Trade War Comes to Alabama

  Trump Impeachment? History Suggests Wall Street Ought Not Worry

  Overtime Pay Eligibility Is Widened in New Federal Rule

  Unprofitable Companies Are Raising the Most IPO Cash Since the Dot-Com Era

  Behind WeWork Leader’s Rise and Fall: A Wall St. Bank Playing Many Angles

  Thyssenkrupp Plunged Into Turmoil as CEO Kerkhoff Set to Leave

  Major Cruise Line to Abandon Plastic Water Bottles

  Vox Media Acquires New York Magazine, Chronicler of the Highbrow and Lowbrow

  Britain to Operate 70 Flights to Bring Back People After Thomas Cook Collapse

  Collapse of Thomas Cook Is a Reality Check for China’s Fosun

  Nick Maggiulli: There Are No Secrets

  Jeff Carter: Must Watch if You Pay Taxes

  Jeff Miller: How Big Will The Next Market Pullback Be?

  Be sure to follow me on Twitter.

• Morning News: September 24, 2019
  Eddy Elfenbein, September 24th, 2019 at 7:18 am

  Europe’s Top Court Limits ‘Right to Be Forgotten’ Privacy Rule

  U.S.-Japan Trade Deal May Be Delayed Over Car Tariffs

  China Gives New Waivers for Tariff-Free U.S. Soy Purchases

  Federal Prosecutors Conducting Criminal Probe of Juul

  Budweiser Brewer Raises $5 Billion in Asian Listing

  Facebook to Buy Startup for Controlling Computers With Your Mind

  Kraft Heinz: Two Food Giants That Haven’t Gone So Well Together

  Nintendo’s Mario Takes Driving Seat in Race for Mobile Hit

  HKEX ‘Thinking Big’ With $39 Billion Bid as LSE Sticks to Refinitiv Plan

  Bitcoin Market Falls Sharply As Litecoin Suddenly Crashes

  VW Chairman, CEO Charged With Market Manipulation in Germany

  After Thomas Cook Collapse, UK PM Asks Why Bosses Got Paid Millions

  Michael Batnick: The Next Recession

  Joshua Brown: Green New Deal Is Inevitable

  Ben Carlson: Talk Your Book: Investing in Private Companies with EquityZen

  Be sure to follow me on Twitter.