Archive for September, 2019

• Good Industrial Production Report
  Eddy Elfenbein, September 17th, 2019 at 10:03 am

  We finally got a good industrial production report. This data series has struggled lately but the numbers for August were good. Last month, industrial production rose by 0.6% versus expectations for an increase of 0.2%. The figures for July were revised higher as well.

  

  The Fed begins its two-day meeting today. The policy statement will come out tomorrow at 2 pm.

• Morning News: September 17, 2019
  Eddy Elfenbein, September 17th, 2019 at 7:39 am

  Saudis Face Lengthy Oil Halt With Few Options to Fill Gap

  Saudi Aramco Pursues IPO Planning Despite Attack Damage Doubts

  WeWork Postpones Long-Awaited Listing as Valuations Plummet

  Apple Says $14 Billion EU Tax Order ‘Defies Reality and Common Sense’

  G.M. Workers Say They Sacrificed, and Now They Want Their Due

  Ex-Tesla Executive Decamps to Brazil and Bets Big on Batteries

  Why Bill Gates Thinks It’s Time to End Subsidies for Wind and Solar Power

  Would a Purdue Bankruptcy Protect the Sacklers? Good Question

  Aurora Cannabis: Nothing Makes This Market Happy

  3 From JPMorgan Accused in Scheme to Game Precious Metals Market

  FCC Approves Nexstar’s $6.4 Billion Acquisition of Tribune Media

  Joshua Brown: What Advisors Bring to the Table

  Howard Lindzon: Momentum Monday – Rotation…Rotation!

  Jeff Miller: Is Falling Confidence a Threat to Markets?

  Michael Batnick: Explainable Beta

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• “The Fed has lost control of funding”
  Eddy Elfenbein, September 16th, 2019 at 2:41 pm

  The New York Fed should be taking care of this, but they’re not. Something is seriously not right.

  One of the key U.S. borrowing markets saw a massive surge Monday, a sign the Federal Reserve is having trouble controlling short-term interest rates.

  Amid the settlement of Treasury coupon auctions and the influx of quarterly corporate tax payments, the rate on overnight repurchase agreements soared by 153 basis points to 3.80%, the largest daily increase since December, based on ICAP pricing.

  The Fed meets tomorrow and on Wednesday. A rate cut is still almost a certainty.

  As the Federal Open Market Committee meets this week, this surge could force yet another tweak to the central bank’s interest on excess reserves rate to help ensure its main tool for guiding the economy — the fed funds rate — stays within policy makers’ preferred band.

  “The Fed has lost control of funding,” said Mark Cabana, head of U.S. interest rates at Bank of America Corp.

• Oil Surges After Attack on Saudi Arabia’s Oil Production
  Eddy Elfenbein, September 16th, 2019 at 10:11 am

  Over the weekend, Iran attacked Saudi Arabia’s oil production infrastructure. The result is that 6% of the world’s production has been knocked offline. Oil prices are surging today although the gains aren’t as dramatic as the initial pop we saw in other markets. Right now, I see that crude futures are up about 10%.

  Most of the market is down today although energy stocks are up sharply. This is something you don’t see every day.

  XLE +3.37%
  XLB -1.08%
  XLY -0.70%
  XLP -0.48%

  I doubt any production shortfall will last long. There’s certainly a lot of incentive to fill the void. The big question is, what comes next?

  There are a lot of reserves held globally so no one is going to run out of oil. Right now, some experts are saying that it will take months for Saudi Arabia to get back to normal production. I’d take the under on that bet.

• Morning News: September 16, 2019
  Eddy Elfenbein, September 16th, 2019 at 7:22 am

  Oil Prices Jump Most on Record After Saudi Arabia Strike

  U.S. Shale Seen Unlikely to Quickly Replace Barrels Lost in Attack on Saudi Facilities

  China’s Economy Aches All Over as Beijing Seeks Trade Fix With the U.S.

  Fed Trades ‘Remarkably Positive’ For ‘No Precedents’ After Volatile Year

  The Fed Faces a Tough End to 2019 as Worries Cloud the Horizon

  Auto Union Digs In for GM Strike Over Pay and Benefits

  OxyContin Maker Purdue Pharma Files for Bankruptcy to Wipe Out 2,000 Lawsuits

  Senators Urge F.C.C. to Review Licenses of 2 Chinese Telecom Companies

  Dream Global REIT to Be Bought by Blackstone Funds in $4.7 Billion Deal

  NPR Shopping Cart Economics: How Prices Changed At A Walmart In 1 Year

  Maybe We’re Not All Going to Be Gig Economy Workers After All

  Better Bees May Be Able to Remake a $435 Million Crop Business

  Lawrence Hamtil: The Low Vol – Momentum Barbell Using Sectors

  Ben Carlson: The Powder Keg of Comparison & A Market of Stocks

  Cullen Roche: Is This The Hardest Investing Environment Ever?

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• Bloomberg’s “The Close”
  Eddy Elfenbein, September 13th, 2019 at 10:46 pm

  Here’s my appearance on Bloomberg’s market-wrap show “The Close” from this afternoon.

  The link has the entire show but I’m on between 1:28:22 and 1:36:40.

• CWS Market Review – September 13, 2019
  Eddy Elfenbein, September 13th, 2019 at 7:08 am

  “The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt.” – President Trump

  So tweeted the President of the United States. He might get his wish. Circle your calendars for next Wednesday, September 18. That’s when the Federal Reserve meets again, and it seems very likely that the central bank will once again cut interest rates. Of course, it’s not guaranteed, but the futures market thinks there’s an 89% chance that the Fed will cut. Personally, I think it will happen.

  

  The rate cutting may not end there. The futures market thinks there’s a decent chance of another rate cut in October or December. Investors actually appear somewhat undecided as to the future of the market and the economy. That’s for a good reason. We’ve had a few economic reports pointing in different directions. This week, we also saw the market deliver one of its most abrupt sector rotations in decades. It’s confusing, but have no fear. In this week’s issue, I’ll explain what it all means.

  The S&P 500 Nears Another New All-Time High

  The stock market peaked on July 25. After that, it had a fairly minor downturn, but it spooked a lot of investors. I believe this was the 25th drop of 5% or more since the bull market began more than 10 years ago. The 24 others were all false drops. The market turned back every single one.

  It looks like the S&P 500 is about to do it again. On Thursday, the index closed at 3,009.57. During the day, the index got over 3,020 and came within striking distance of its all-time high close of 3.025.86.

  Investing consists of trends and reversals. I know that sounds obvious, but it really does lie at the heart of investing. Once the market is decided on a trend, it can last a long time. That’s perfectly well and good for investors. That is, until the reversal.

  For the last several months, and years really, growth stocks have been crushing value stocks. It’s been one of the longest growth cycles on record. Then came the reaction. Since September 3, the S&P 500 Value Index is up 5.19% while the S&P 500 Growth Index is up 2.16%. That’s a huge divergence for such a short period of time.

  What does it mean? Investors are rushing back to areas of the market like Financials and Cyclicals.

  Areas with bond substitutes like Utilities and REITs have lagged. Not surprisingly, bonds have turned back as well. Nearly the entire yield curve beyond two years has added 0.25% in yield in the past few days. Again, that may not sound that dramatic, but it’s a major outlier from what the market has done for the last several months. At some point, the trend becomes the counter-trend.

  The one ETF I like to watch here is is the Momentum ETF (MTUM). The thing about momentum investing is that it can be any industry. It’s simply what’s been working lately.

  Last Friday, shortly after I sent you last week’s issue, the government reported that the U.S. economy created 130,000 net new jobs last month and that the unemployment rate remained at 3.7%. I wouldn’t call that an outstanding report, but it’s largely in line with the current trend.

  Some good news is that average hourly earnings rose 11 cents to $28.11 per hour. That’s an increase of 0.4%, and it’s up 3.2% in the last year. Remember that wage hikes mean more revenues for our businesses. That will filter its way to our stocks.

  There were some revisions to the nonfarm payroll data. June was revised lower by 15,000, and July was down 5,000. Within the job gains, the Census Bureau added 25,000 jobs, while manufacturing added 3,000 jobs. The Labor Force Participation Rate rose to 63.2% from 63%.

  By the way, the Labor Force Participation Rate is a very misunderstood statistic, and it gets pulled out by partisans on both sides. While there is some truth that the LFPR has fallen in recent years, if you look at it from the perspective of prime working-age folks, it’s not that much of a change. For the most part, the LFPR is driven by broader demographic trends, not short-term policy proposals.

  I think the big shocker this week was the inflation report. The CPI showed a modest increase in core prices. We like to look at the core rate, which excludes food and energy prices, because those can be impacted by supply issues. The core rate tends to be a lot more stable, and it gives us a good idea of the true trend of consumer prices.

  Buy List Updates

  I want to cautiously raise the buy below prices for two of our stocks. The first is Eagle Bancorp (EGBN). The stock got murdered a few weeks ago, but I think it’s worth holding onto. I’ll caution you that Eagle is a speculative position, but it’s always good to have a small number of these. The legal issues are serious, and I don’t want to dismiss them. Still, the shares are going for a bargain price. This week, I’m raising my Buy Below on Eagle to $47 per share.

  I’m also going to raise my Buy Below on Continental Building Products (CBPX). Their last earnings report wasn’t so hot, but that probably reflected issues in the housing market. Mortgage rates have come down a lot, and that should help CBPX. I’m raising my Buy Below on CBPX to $30 per share.

  The next two earnings reports we have coming up are FactSet (FDS) on September 26 and RPM International (RPM) on October 2.

  That’s all for now. The big event next week will be the Federal Reserve meeting on Tuesday and Wednesday. The policy statement will come out at 2 p.m. ET on Wednesday. This will be followed by a press conference by Jerome Powell. The Fed members will also update their economic projections. Also next week, the industrial production report comes out on Tuesday. The last few haven’t been that good. On Thursday we’ll get a look at the latest report on sales of existing homes. 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. Later today, I’ll be on Bloomberg TV’s market wrap segment at 4 p.m. Tune in!

• Morning News: September 13, 2019
  Eddy Elfenbein, September 13th, 2019 at 7:05 am

  E.C.B. Acts to Head Off Recession Threat in Europe, With a Caveat

  Charles Li Linked Hong Kong and China but LSE Deal Could Be a Bridge Too Far

  China Backs U.S. Farm Purchases as Trade Talks Atmosphere Warms

  Trump Trade-War Aid Sows Frustration in Farm Country

  Gig Economy in Crosshairs After Decade of Freewheeling Growth

  Trump Hits the Panic Button

  Vaping Was Called Safer Than Smoking. What Happened?

  Top SoftBank Investments Slammed From Wall Street to California

  WeWork to List Shares on Nasdaq, Make Governance Changes

  Ford, GM Rev Up Electric Pickup Trucks to Head Off Tesla

  Forever 21, Losing Young Shoppers, Is Said to Be Near Bankruptcy Filing

  Grand Jury Indicts GE’s Baker Hughes for Exposing Workers to Toxic Chemicals

  Ben Carlson: Passive Bubble Feedback

  Roger Nusbaum: The Low Volatility Dilemma

  Michael Batnick: A Behavioral Prescription

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• Morning News: September 12, 2019
  Eddy Elfenbein, September 12th, 2019 at 7:42 am

  Draghi Gears Up for ECB Showdown on Stimulus: Decision Day Guide

  Political Risks of Hong Kong Exchange’s $39 Billion LSE Approach Takes Toll on Shares

  China, U.S. Are Showing a Little Goodwill as Trade Talks Near

  As Trade Talks Loom, Chinese Firms Look Into Buying U.S. Farm Goods

  U.S. Recession Indicators Flash Mixed Signals as Talk Heats Up

  Trump Wants Negative Rates. Here’s How That Would Work.

  Low-Cost Fracking Offers Boon to Oil Producers, Headaches for Suppliers

  California Approves Statewide Rent Control to Ease Housing Crisis

  Apple’s New iPhones Shift Smartphone Camera Battleground to AI

  Purdue Pharma Tentatively Settles Thousands of Opioid Cases

  Walmart is Expanding Its ‘Unlimited’ Grocery Delivery Service Nationwide

  GameStop Shares Fall as Company Turns to Store Closures

  Nick Maggiulli: The Financial Turing Test

  Michael Batnick: Animal Spirits: Economically Unattractive

  Joshua Brown: You Are Going to be Part of the Future – Josh Addresses the Advisor Community Live from Wealth/Stack

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• Morning News: September 11, 2019
  Eddy Elfenbein, September 11th, 2019 at 7:38 am

  Trump Says Fed ‘Boneheads’ Should Cut Interest Rates to Zero ‘Or Less,’ US Should Refinance Debt

  Bolton Exit Shifts Outlook in Oil Market Roiled by Sanctions

  China Exempts Certain Products From Tariffs

  Hong Kong Stock Exchange Makes $36.6 Billion Bid for London Stock Exchange

  California Passes Landmark Bill to Remake Gig Economy

  Apple Reveals Triple-Camera iPhone; $5 Monthly Streaming TV Undercuts Disney

  Apple’s New, Lower Priced iPhone Draws Tepid Response in Asia

  WeWork Mulls Governance Changes To Save IPO

  GE Rips Off the Band-Aid at Baker Hughes

  Activist Wants AT&T to Be More Like Verizon

  A $100 Billion Tech Company You’ve Never Heard of Just Listed in Europe

  The Frankfurt Auto Show’s Heaviest-Hitting Debuts

  Ben Carlson: What to Make of a Stock Market That Has Gone Nowhere for a Year-and-a-Half

  Jeff Carter: Dual Momentum Investing

  Jeff Miller: Stock Exchange: Still Letting Your Winners Run? (Zoetis Edition)

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