Archive for November, 2019

• Morning News: November 29, 2019
  Eddy Elfenbein, November 29th, 2019 at 7:05 am

  Stocks Shy From Breaking New Highs as Trade Mood Darkens

  It’s Getting More Expensive to Eat, and Economists Are Worried

  The World Doesn’t Have Enough Pigs to Fill China’s Pork Deficit

  Venice’s Fraught Future Caught Between Tourist Crowds and Rising Tides

  Brazil, China, UAE Firms in Second Round of Bids for Petrobras Refineries

  China Financial Warning Signs Are Flashing Almost Everywhere

  China Condemns U.S. Over Hong Kong. That Won’t Stop Trade Talks.

  Warren Wealth Tax Has Wide Support, Except Among One Group

  Meet the Man Loosening Bank Regulation, One Detail at a Time

  Big Four Auditors Face Investor Calls for Tougher Climate Scrutiny

  Morgan Stanley Ousts FX Traders Over Hidden $100 Million Loss

  How Apple, Amazon, and Google Are Taking Financial Services by Storm

  The Science Of IBM’s Holiday Retail Forecast—And Why Companies Count On It

  Panasonic to Sell Semiconductor Unit to Taiwan’s Nuvoton Technology

  Tesla’s Cybertruck: The Good, the Bad, and the Ugly

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• Morning News: November 28, 2019
  Eddy Elfenbein, November 28th, 2019 at 7:21 am

  After $13 Billion Levy Ruling, Future of India’s Tattered Telecom Sector Hinges on Government Aid

  Facing U.S. Sanctions, Venezuela Offers Suppliers Payment in Chinese Yuan

  These Are Europe’s Best and Worst Countries for Financial Well-Being

  Bold Bets That Gold Could Triple to $4,000 Trade in New York

  With Big Tech in Their Path, Start-Ups Turn to Business Markets

  Top U.S. Retailers Absorb Tariff Pressure Ahead of Holiday Shopping Season

  Modern Black Friday Work Force: Postal Clerk, Influencer, Robot

  Why U.S. Power Forecasters Don’t Like Thanksgiving

  Amazon’s Cloud Unit Readies More Powerful Data Center Chip

  Panasonic to Sell Its Chip Unit to Taiwan’s Nuvoton for $250 Million

  ‘Parasite’ Has Shocked the Box Office, Helped by an Upstart Studio

  Joshua Brown: The Two Biggest Changes that Defined the Decade for Hedge Funds

  Michael Batnick: Wait, What?

  Ben Carlson: Animal Spirits: The Nastiest, Hardest Problem in Finance

  Jeff Carter: Happy Thanksgiving

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• Morning News: November 27, 2019
  Eddy Elfenbein, November 27th, 2019 at 7:29 am

  Global Risk-Taking Binge Is Worrying Central Banks

  David Solomon, Stephen Schwarzman Prepare for Biggest 2020 Risk

  Your Portfolio Is Probably Doing Great. That’s Bad News for the Future.

  Trump Says China Deal in ‘Final Throes’ as Top Officials Speak

  Meet the Leftish Economist With a New Story About Capitalism

  China’s ByteDance Moves to Ringfence Its TikTok App Amid U.S. Probe

  Feuding Korean Firms Risk Disrupting Electric Car Battery Supplies

  Pfizer, Novartis Lead Pharma Spending Spree on Gene Therapy Production

  Abu Dhabi, Kuwait Sovereign Funds Plan Investment in Aramco IPO

  FDA’s Warning On CBD: Cannabis Stocks Drop, Companies Object

  Joshua Brown: What TD + Schwab Means For The Wealth Management Business

  Cullen Roche: Let’s Talk About Banks and Magical Money Trees

  Nick Maggiulli: The Best Investment You Can Make

  Ben Carlson: We Don’t Need a Recession For a Reset in the Stock Market

  Michael Batnick: Animal Spirits Talk Your Book: Value and Momentum with Jack and Wes & A Distinction With a Difference

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• Morning News: November 26, 2019
  Eddy Elfenbein, November 26th, 2019 at 7:17 am

  China, U.S. Hold Phone Call in Sign of Progress on Phase 1 Deal

  U.S. Pork Industry Sees $25 Billion China Market Without Tariffs

  Fed’s Powell Says U.S. Economy’s Glass Is ‘More Than Half Full’

  Alibaba Shares Jump in Blockbuster Hong Kong Debut

  Activists Build a Grass-Roots Alliance Against Amazon

  Uber’s Carpool Pricing Strategy Revealed By Chicago Fare Data

  After WeWork, SoftBank’s Startup Bookkeeping Draws Scrutiny

  Google Fires 4 Workers Active in Labor Organizing

  Musk Accepts Ford Challenge to Apples-to-Apples Truck Tug of War

  Station Wagons on Endangered List as SUVs Crush All in Their Path

  Hyundai Motor to Invest $1.55 Billion in First Indonesia Car Plant

  They Can See You Typing When You’re Shopping Online

  Jeff Carter: TD/Schwab Merger

  Roger Nusbaum: Asymmetric RISK

  Joshua Brown: If They’re Selling You IPOs, They’re Not Your Fiduciary Advisor. & Michael Bloomberg’s Emergency Candidacy

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• Becton, Dickinson Raises Dividend
  Eddy Elfenbein, November 25th, 2019 at 4:52 pm

  For the 48th year a row, Becton, Dickinson (BDX) has raised its dividend. The quarterly payout increases from 77 cents to 79 cents per share. The dividend will be payable on December 31 to holders of record on December 10.

  “Our performance in fiscal year 2019 demonstrates our ability to overcome multiple headwinds and deliver on our financial and operational goals. There are significant opportunities ahead to leverage the capabilities we’ve built to better serve our customers and their patients around the world as BD enters its next phase of value creation,” said Vincent A. Forlenza, Chairman and CEO. “Once again, we have raised our dividend for the 48th consecutive year. This increase reflects our confidence in our long-term outlook, as well as our ongoing commitment to create value and return capital to our shareholders.”

  Going by Monday’s close, the new dividend gives BDX a yield of 1.24%.

• Bubbles Can Last for a LONG time
  Eddy Elfenbein, November 25th, 2019 at 10:53 am

• Morning News: November 25, 2019
  Eddy Elfenbein, November 25th, 2019 at 7:02 am

  Trade Optimism Lifts World Shares

  China Plans Record Sale of Dollar Bonds With Possible $6 Billion Offering

  Uber’s License to Operate in London Isn’t Extended

  Investment Advisers Fear Losing Out in a Schwab-TD Ameritrade Deal

  Bitcoin Matches Record Losing Run in Fall to Six-Month Low

  Internet Companies Prepare to Fight the ‘Deepfake’ Future

  LVMH Scoops Up Tiffany for $16.2 Billion

  Novartis to Buy Drug Maker The Medicines Co. for $9.7 Billion

  Amazon Teams Up With China Upstart for Black Friday Sale

  Elon Musk Says Cybertruck Orders Have Climbed to 200,000

  How Taylor Swift Dragged Private Equity Into Her Fight Over Music Rights

  Cullen Roche: Three Things I Think I Think – Tesla and the Broken Window Theory

  Jeff Miller: Weighing the Week Ahead: All Eyes on Black Friday

  Michael Batnick: The Greatest Investor of All Time?

  Ben Carlson: The 5 Types of Market Crash Predictions

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• Smucker Beats Earnings But Cuts Guidance
  Eddy Elfenbein, November 22nd, 2019 at 1:23 pm

  This morning, JM Smucker (SJM) reported fiscal Q2 earnings of $2.26 per share. That beat Wall Street’s forecast of $2.13 per share, but adjusted net sales fell 1%. Cash from operations was up by 10%.

  The bad news is that Smucker again lowered its full-year guidance. The previous guidance range was $8.35 to 8.55 per share. Now Smucker sees earnings of $8.10 to $8.30 per share. This is the second time they’ve cut guidance. The original guidance was $8.45 to $8.65 per share.

  “While our second quarter sales performance did not meet our expectations, we delivered EPS growth ahead of our projection, reflecting our commitment to maintain financial discipline and strengthen our bottom line,” said Mark Smucker, President and Chief Executive Officer.

  “Despite continuing softness for our premium dog food offerings, we were pleased with the performance for the balance of our portfolio, as the momentum for our cat food and pet snacks businesses continued with year over year sales increases, our high growth coffee brands improved household penetration and market share, and Smucker’s Uncrustables grew 19 percent, helping accelerate growth in snacking. Looking ahead, the actions we are taking across the Company, including the recently announced leadership changes, position us well for future long-term growth and shareholder value creation.”

  The problem has been their premium dog food business. Smucker has said that other parts of the business will help soften the blow from bad pet food sales.

  J.M. Smucker Co on Friday signaled that improving demand in its coffee and snack segments would counter weakness in its premium dog food business, helping investors look past the Jif peanut butter maker’s lowered full-year forecast.
  The company’s shares reversed course from premarket losses to trade up 5%, as company executives also said the decline in its dog food business in the second quarter was isolated.

  The rest of the business is doing well. Shares of Smucker initially looked to drop today, but the earnings call has helped spark a rally. SJM is currently up 4.6%.

• CWS Market Review – November 22, 2019
  Eddy Elfenbein, November 22nd, 2019 at 7:08 am

  “The whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people so full of doubts.” – Bertrand Russell

  So true, Berty. Consider this scenario: If someone told you that come November, there would be impeachment hearings in Congress, and violent street demonstrations in Chile, Iran and Hong Kong, what would the stock market be doing?

  Well, we know that answer. It’s as calm as ever. In fact, the S&P 500 has made several new all-time highs recently. The stock market has once again entered one of its somnolent rally phases.

  

  Here are some facts. In the 19 trading days ending on Monday, the S&P 500 closed higher 15 times. Many of those daily gains were tiny. In fact, the 20th day was broken by a decline of just 0.05%. The S&P 500 hasn’t had a daily drop of more than 0.4% in six weeks. In 10 of the last 13 days, the S&P 500 has closed, up or down, by less than 0.28%. Compare that to August when it happened just four times in 22 days.

  In this week’s issue of CWS Market Review, I’ll discuss Jay Powell’s apparent victory over the bond market. I’ll also cover the strong earnings report we just got from Ross Stores. Plus, we have upcoming earnings from Hormel and Smucker. But first, let’s take a closer look at how the Federal Reserve has prevailed against the doubters.

  Jay Powell Faced the Bond Market and Won

  On Wednesday, the Federal Reserve released the minutes of its most recent meeting. This was the meeting where the Fed decided to cut interest rates. That was its third rate cut in three months.

  First, I have to explain that reading the Fed’s minutes involves taking a deep dive into the artful use of indefinite pronouns. The minutes never say who said what. Rather, we’re told that “many” said this, or “several” countered that. “Some” and “a few” make frequent appearances as well.

  These last minutes were important because they suggested that the Fed may be done with cutting interest rates. If so, that’s very good news. It also is a big victory for the Fed, and particularly for Fed Chairman Jay Powell.

  Last year, the Fed had been consistently hiking rates, but gradually this year, the market started to call for rate cuts. As I’ve pointed out before, the two-year Treasury is a good proxy for Fed policy. As a very general rule, the central bank doesn’t like to get too far from the two-year yield. As that yield started to plunge, the Fed had to act.

  This meant that the Fed had to withstand a lot of criticism, especially from President Trump. Still, despite what the president said (and tweeted), he couldn’t do anything to stop them. There were also many doubters on Wall Street. I know a lot of folks were expecting several more rate cuts. We were told that the Fed would be out of bullets by the time of a real emergency. However, Powell consistently said that these were “mid-cycle adjustments.”

  The Fed was also able to do something that large organizations have a tough time doing: it admitted it made a mistake. Mind you, the Fed never came out and said so, but its actions certainly suggest that its last few hikes were wrong.

  Now here we are a few weeks later, and the bond market has chilled out. The yield curve is no longer inverted. The stock market has made several new highs, and volatility is quite low. The Fed meets again in December, and the market doesn’t foresee any change to interest rates. At least, not for another eight months, and even at that point, it’s barely in favor of a rate cut.

  To show you how much things have changed, here’s the bent-up yield curve from August 28 (blue) and the more normal one from November 21 (red).

  

  We’re also seeing better news from the housing market. At this time last year, new-home sales dropped sharply, but this week’s report was quite good. This is key for the Fed. Housing is important for the economy, but the Fed has an indirect hand over the industry when it moves interest rates. The difficulty is that there tends to be a lag time.

  This week, Freddie Mac said that the 30-year fixed-rate average fell to 3.66%. That’s a six-week low. A year ago, it was at 4.81%. That bodes well for housing and construction-related stocks. For example, Sherwin-Williams (SHW) made another new high last week. It’s a 44% winner for us this year.

  Now let’s look at the big earnings beat we got from Ross Stores.

  Ross Stores Beats and Guides Higher

  After the bell on Thursday, Ross Stores (ROST) reported fiscal Q3 earnings of $1.03 per share. That easily beat the company’s own forecast range of 92 to 96 cents per share. Ross always gives low guidance and most always beats it.

  Quarterly sales were up 8%, but the really impressive stat was comparable-store sales. For Q3, that was up 5%. That’s very good. The company had been expecting a gain of 1% to 2%.

  Barbara Rentler, Chief Executive Officer, commented, “We are pleased that our third-quarter results were ahead of expectations. Operating margin of 12.4% was also above-plan mainly due to better-than-expected sales and merchandise margin.

  Looking ahead, Ms. Rentler said, “As we enter this year’s holiday season, we are up against multiple years of strong comparable-store sales gains. In addition, we expect another fiercely competitive retail landscape, along with ongoing uncertainty surrounding the macroeconomic and political environment. As such, while we hope to do better, we continue to project fourth-quarter comparable-store sales gains of 1% to 2%, versus a 4% increase last year.”

  I like that operating-margin number. Again, Ross almost always says it sees comparable-store sales growth of 1% to 2%. I’m pretty confident that they can top that. Remember that Q4 is the biggie for Ross. That covers November, December and January.

  Ross now expects Q4 earnings of $1.20 to $1.25 per share which includes a tax benefit of two cents per share. So Ross is keeping its Q4 guidance the same, but it effectively is higher guidance because it incorporates the beat for Q3. Before, Ross expected earnings this year of $4.41 to $4.50 per share. Now they see earnings of $4.52 to $4.57 per share. That’s up from $4.26 per share last year.

  This was a very good quarter for Ross. I’m raising our Buy Below to $118 per share.

  

  Earnings Preview for Smucker and Hormel

  We have two more earnings reports this month. This is for companies with quarters that ended in October.

  JM Smucker (SJM) is due to report later today. The last earnings report was a dud. For the August quarter, comparable net sales fell 4%, and earnings fell 11% to $1.58 per share. That was 16 cents below expectations.

  What went wrong? The company was hurt by poor sales in its pet-foods business. Smucker owns Milk Bone and Meow Mix. In recent years, the company has been working to build up this business. That’s why they bought Ainsworth, but the competition has been stronger than they thought. Management has conceded the difficulties in this sector. Smucker’s coffee business was weak last quarter as well.

  Previously, the company was expecting sales to rise by 1% to 2%. Now they expect sales to be flat to -1%. Smucker had been expecting full-year earnings of $8.45 to $8.65 per share. Now they see earnings of $8.35 to $8.55 per share. Wall Street expects fiscal Q2 earnings of $2.13 per share.

  Hormel Foods (HRL) is due to report on Tuesday, November 26. This will be for their fiscal Q4. Like Smucker, this has been a tough year for Hormel. In May, the Spam people lowered their full-year guidance due to African swine fever and other issues. I think that rattled investors.

  The August earnings report was a relief, and Hormel stood by its full-year forecast for earnings of $1.71 to $1.85 per share. Since Hormel has already earned $1.33 through the first three quarters, the guidance implies a range for fiscal Q4 of 38 to 52 cents per share. Hormel also sees full-year sales of $9.5 billion to $10 billion. Wall Street expects 46 cents per share.

  After that, we only have one more earnings report this year. FactSet (FDS) is due to report on December 19. RPM International (RPM) has a November quarter, but it will report earnings in early January. Soon after that, Q4 earnings seasons will begin.

  That’s all for now. There will be no newsletter next week. I’m taking my traditional Thanksgiving break. The U.S. stock market will be closed on Thursday for Thanksgiving, and it will close at 1 p.m. on Friday, November 29. On Wednesday, the government will update its report on Q3 GDP. The initial report showed growth of 1.9%. 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: November 22, 2019
  Eddy Elfenbein, November 22nd, 2019 at 7:07 am

  Lagarde Calls for Government Help in First Major ECB Speech

  China’s Xi Stresses Need for ‘Mutual Respect and Equality’ in Trade Deal

  Henry Paulson Sounds Alarm: U.S.-China Relations May Only Get Worse

  Trump’s Fed Pick Judy Shelton Cast Doubt on Central Bank Independence

  Personal Loans Are ‘Growing Like A Weed,’ A Potential Warning Sign For The U.S. Economy

  The Market Loves the Idea of a Schwab-TD Ameritrade Merger. Regulators May Not.

  General Motors Declares Corporate War on Chrysler

  Tesla’s Electric Pickup Breaks the Mold With Angular Design and Armored Glass

  Target and TJMaxx Are Killing Department Stores

  It May Already Be Too Late for Macy’s

  Marie Kondo Wants To Sell You Nice Things. What’s Wrong With That?

  WeWork Will Lay Off 2,400 Workers

  Accused of a Crime, and Falling Into the ‘Technology Gap’

  Joshua Brown: The Five Greatest Investors of All Time

  Jeff Carter: Structured Note Investing

  Ben Carlson: Rituals and Routines

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