Archive for December, 2019

• Merry Everything!
  Eddy Elfenbein, December 25th, 2019 at 8:45 am

  

  I wanted to take this opportunity to wish everyone a Merry Christmas and a happy, healthy and profitable new year.

  This has been an incredible year for us. The blog continues to grow its readership. The newsletter has a record number of subscribers and our Twitter following is growing as well.

  Our ETF turned three years old. I want to thank all our shareholders for their trust and confidence in me.

  I also want to thank my tireless editor, Marcia Hippen. She also posts the invaluable morning news links. I also want to acknowledge some of my fellow financial bloggers Barry Ritholtz, Josh Brown, Morgan Housel, Michael Batnick, Howard Lindzon, Tadas Viskanta, Jeff Miller and many, many others for their continued support.

  I’d also like to thank the people who follow and interact with me each day on Twitter.

  Most of all, I want to thank all of my readers for your continued support.

  Let’s hope 2020 brings us more success!

• Morning News: December 25, 2019
  Eddy Elfenbein, December 25th, 2019 at 7:57 am

  Saudi Arabia Wants Your Next Vacation

  Aramco CEO Says Saudi-Kuwaiti Accord Paves Way For Resumption of Oil Production

  My Cookie’s Better Than Yours: Italy Is in a Hazelnut Cream-Filled Civil War

  Gold Will Rise by 6.9% in 2020

  Boeing Discloses ‘Very Disturbing’ Messages on Max to FAA

  Uber’s Travis Kalanick to Leave Board to Focus on New Business

  How a Decade of Drinking Changed the Future of Booze

  Five Pirate Attacks in Four Days in the Singapore Strait

  Businessweek at 90: Covering Business Through the Decades

  Crisis Looms in Antibiotics as Drug Makers Go Bankrupt

  Pentagon Warns Military Against At-Home DNA Tests

  Feds Investigating Whether BMW Claimed Dealers Sold Cars They Didn’t

  Ben Carlson: Looking Back at The Bear Market, a Year Later

  Howard Lindzon: Could 2020 Be As Good as 2019?

  Be sure to follow me on Twitter.

• One Year Later…
  Eddy Elfenbein, December 24th, 2019 at 8:57 am

  One year ago today, the S&P 500 bottomed out at 2,351.

  The index had lost nearly one-sixth of its value over the preceding 14 trading sessions.

  It was the worst December for stocks since the Great Depression.

  Since then, the S&P 500 has rallied 37%.

  

• Morning News: December 24, 2019
  Eddy Elfenbein, December 24th, 2019 at 7:45 am

  Fed May Be Quietly Masking Extent of Efforts to Calm Repo Market

  Forget Stock Market Forecasts. They’re Less Than Worthless.

  The Butcher, the Baker, the Candlestick Maker: Rub-a-Dub to 2019
  U.S. Activist Investors Post Strong Gains as Needling Companies Pays Off

  ‘Being Objective Is Incredibly Hard’ — Financial Advisers Reveal to MarketWatch their New Year’s Resolutions for 2020

  For Boeing’s New CEO, Saving the Max Is Just First Hurdle

  Tesla Stock Hits Elon Musk’s Magic Number: $420

  Rivian Gets $1.3 Billion Investment in Electric Truck Venture

  Nissan Top Exeutive Seki to Retire in Blow to Turnaround Plan

  ByteDance Weighs TikTok Stake Sale Over U.S. Concerns

  The Permian Gas Problem Is Just Getting Worse

  Howard Lindzon: Momentum Monday – Be Careful Calling Tops

  Jeff Miller: Are Investors Too Complacent?

  Joshua Brown: This Year We Will Interview Over 50 Financial Advisors. We Will Only Hire Three.

  Michael Batnick: Animal Spirits, A Random Watch Down Wall Street: Trading Places & Two Charts That Don’t Matter

  Be sure to follow me on Twitter.

• Morning News: December 23, 2019
  Eddy Elfenbein, December 23rd, 2019 at 7:58 am

  China to Cut Tariffs on Pork, Tech From List Worth $389 Billion

  Empty Hotels and Salmon Stuck in Traffic: Strike Bites French Economy

  The Yankees Are Coming! U.S. Firms Rush to Euro Debt Markets

  Repo is Wall Street’s Big Year-End Worry. Why?

  How The SECURE Act Just Severely Limited Stretch IRAs

  Tesla Secures More Than $1.4 Billion in Financing from China

  DraftKings Is Going Public in Deal Valuing Firm at $3.3 Billion

  Not Even ‘Star Wars’ Can Save This Year’s Box Office

  At Boeing, C.E.O.’s Stumbles Deepen a Crisis

  The Rise of the East European Billionaires

  Masayoshi Son, Tech Visionary or Robber Baron?

  The Unforeseen Dangers of a Device That Curbs Drunken Driving

  Cullen Roche: How the Democrats Can Embrace Capitalism and Crush Donald Trump

  Roger Nusbaum: Decade Transitions

  Ben Carlson: The Best Books I Read in 2019 & What Big Stock Market Returns in 2019 Mean For 2020

  Be sure to follow me on Twitter.

• CWS Market Review – December 20, 2019
  Eddy Elfenbein, December 20th, 2019 at 7:08 am

  “The secret to investing is to figure out the value of something and then pay a lot less.” – Joel Greenblatt

  Reminder: I’ll send you the new 2020 Buy List on Christmas Day. As usual, five new stocks come in, and five old ones go out. This will be our 14th annual Buy List.

  The 25 stocks are then equally weighted based on the closing prices on December 31. On January 1, I’ll send you another issue with all the tracking details.

  Then the new Buy List goes into effect at the start of trading on January 2. After that, I can’t make any changes for another 12 months. It’s the same rules we’ve followed for 14 years.

  President Trump Is Impeached and the Stock Market Shrugs

  Now to this week’s market. For the third time in history, a president was impeached by the House of Representatives. Looking at share prices, Wall Street didn’t seem to care one way or the other.

  The S&P 500 came within a hair’s breadth of closing higher for seven days in a row. A tiny 0.04% drop on Day #6 snapped the streak. On Thursday, the S&P 500 closed over 3,200 for the first time in history.

  

  One of the big mistakes investors make is confusing financial markets with voting booths. Markets have rallied under both parties, and markets have dropped under both parties. Sometimes stocks just have a mind of their own. In the long run, it’s all about earnings and valuation.

  It looks like the S&P 500 is about to wrap up another solid year. The index is currently up over 27.86% for the year. The S&P 500 has made 31 record highs this year.

  So how does the market do after +20% years? Not so bad, actually. Since 1950, it’s happened 18 times, and in 15 of those years, the stock market has made a profit the following year. The average gain is 11.2%.

  That’s not all. If the S&P 500 closes above 3,248.87 on December 31, then this would be the best year for stocks since 1997.

  I don’t know how many people would have predicted that the stock market would have a low volatility and multiple new highs during an impeachment, but that’s exactly what’s happened.

  The mood has shifted and investors seem much more confident than they did over the summer. Remember in August when the two-year Treasury yield jumped above the 10-year yield for about half an hour? The “inversion” scare was good for about a week, as market commentators talked about “being very concerned.”

  Well, here we are a few months later, and the yield curve is back to normal. In fact, the 2/10 spread is now the steepest it’s been in over a year.

  There’s been more good news about the economy. For example, Fannie Mae significantly boosted its housing forecast for next year. According to Fannie, “growth in single-family housing starts will accelerate to 10% during 2020 and top one million new homes in 2021.” Last month, mortgage applications to buy new homes were up 27% from last year.

  Housing demand is very high, especially at the lower end of the market, and that’s exactly where builders have been least active. The recent report from the National Association of Home Builders showed homebuilder confidence is at a 20-year high. It’s even higher than it was during the housing bubble.

  On Tuesday, we saw a nice rebound in the report in industrial production. This data hasn’t been very strong in recent years. Some of the recovery is due to the end of the GM strike, but that doesn’t explain all of it.

  I’ve also noticed that credit spreads are tightening. In plain English, that means that lenders are willing to take on more risk. That’s actually good news, at first, since it means more borrowers have access to capital. This can eventually become a problem when too many folks find themselves in too much debt. For now, it’s good news and suggests that a recession isn’t imminent.

  Now let’s look at our final Buy List earnings report for 2019.

  FactSet Soundly Beats Earnings

  On Thursday morning, FactSet (FDS) reported fiscal Q1 earnings of $2.58 per share. That was a 9.8% increase over last year, and it easily beat Wall Street’s estimate of $2.42 per share.

  This is good to see, because FDS alarmed some investors three months ago when it gave rather unimpressive guidance for this fiscal year. The stock took a hit.

  Let’s look at some numbers. For fiscal Q1, organic revenue grew 4.2% to $367.9 million. Annual Subscription Value (ASV) plus professional services, which is a key metric for FDS, came in at $1.48 billion. That’s the same as a year ago. I like that FactSet’s operating margin improved to 33.9%, compared with 31.5% last year.

  At the end of the quarter, FactSet’s client count stood at 5,601. The company now has 126,785 users and 9,865 employees.

  Even though FDS had a solid quarter, the company didn’t alter its conservative guidance. I suppose changing the numbers after one quarter might be too soon.

  For what it’s worth, FactSet still expects full-year earnings to range between $9.85 and $10.15 per share, and revenue between $1.49 and $1.50 billion.

  The stock dropped 4% at Thursday’s open, but gradually worked its way back, and FDS eventually closed Thursday in the green. This week, I’m raising my Buy Below on FactSet to $278 per share.

  

  Buy List Updates

  This week, Cerner (CERN) said its board approved the repurchase of an additional $1.5 billion in stock. The company had nearly exhausted its previous authorization of $1.5 billion.

  Danaher (DHR) announced the results of its exchange offer for Envista (NVST). The deal was quite popular as it was oversubscribed by 15-fold. Not many folks got shares, but those who got them got a pretty good deal. The company also won conditional approval from the EU for its acquisition of GE’s biopharma business. Danaher will have to sell off some assets to appease the regulators.

  I also want to make two more adjustments to our Buy Below prices. I’m lifting the Buy Below on Eagle Bank (EGBN) to $53 per share. The bank has made back two-thirds of what it lost during the big plunge in July. I’m also lifting Becton, Dickinson (BDX) to $275 per share.

  That’s all for now. There won’t be many economic reports next week. The report on new-home sales comes out on Monday. On Tuesday, Christmas Eve, the stock market will close at 1 p.m. ET. The following day, the exchanges will be closed all day for Christmas. Also on Christmas, I’ll send you the new 2020 Buy List. 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: December 20, 2019
  Eddy Elfenbein, December 20th, 2019 at 7:04 am

  Dow Jones, Nasdaq Thumb Nose At Trump Impeachment News; Will This Growth Stock Break Out?

  Repo Oracle Zoltan Pozsar Expects Even More Turmoil

  Andrew Bailey Succeeds Carney Atop Bank of England

  Two Deals in Pocket But No Holiday Cheer for U.S. Trade Chief Lighthizer

  China’s Xi to Skip Davos, Deflating Hopes for Trump Summit

  Apple Has Secret Team Working on Satellites to Beam Data to Devices

  Prime Power: How Amazon Squeezes the Businesses Behind Its Store

  Where Are the Tech Zillionaires? San Francisco Faces the I.P.O. Fizzle

  Huawei and Deutsche Telekom Held Advanced Talks Over 5G Network Deal

  U.S. Jobless Claims Slide But Miss Forecasts for Bigger Drop

  Joshua Brown: Sonya Dreizler’s ‘Do Better’ Series

  Howard Lindzon: Compound Capital Advisors – Hello World & More All-Time Highs for Nike

  Jeff Carter: A Good Move by the SEC

  Michael Batnick: Animal Spirits: Shopping Under the Influence & The Disappearing Edge

  Ben Carlson: My New Goal in Life: Avoid a Mid-Life Crisis

  Be sure to follow me on Twitter.

• Morning News: December 19, 2019
  Eddy Elfenbein, December 19th, 2019 at 4:03 am

  Trump Impeached on Two Counts by House, Setting Up Senate Trial

  SEC Proposes Giving More Investors Access to Private Markets

  Longtime China Watchers Predict What’s Next for Slowing Economy

  A Major Shipping Change Is Coming, and So Are Higher Fuel Prices

  Tariffs, Trade Tensions Worry Fortune 500 CEOs: U.S. Chamber of Commerce

  Uber Settles Federal Investigation Into Workplace Culture

  After Boeing Halts Max Production, Suppliers Wait for Fallout

  For Netflix, the World May Not Be Enough

  Twitter and Facebook Want to Shift Power to Users. Or Do They?

  Ex-WorldCom CEO Bernie Ebbers Granted Early Release From Prison

  Ben Carlson: Animal Spirits: Shopping Under the Influence & Charts of the Decade

  Michael Batnick: The Disappearing Edge

  Jeff Carter: Parallels: History Doesn’t Repeat But It Can Rhyme

  Cullen Roche: A Pragmatic View on the Existence of Billionaires & Government

  Be sure to follow me on Twitter.

• Impeachment
  Eddy Elfenbein, December 18th, 2019 at 10:23 pm

  President Trump has been impeached. As usual, I’ll skip the politics, but this is something that should be addressed.

  The stock market has been remarkably calm lately. In fact, we came very close to a six-day winning streak. Today’s close was only slightly in the red.

  Here are the last three closes for the S&P 500:
  3,191.45
  3,192.52
  3,191.14

  According to the experts, this won’t get far in the Senate. For now, there’s no need to worry about the stock market falling from today’s events.

• Fannie Mae boosts 2020 housing forecast ‘significantly’
  Eddy Elfenbein, December 18th, 2019 at 11:30 am

  I feel like passing on positive economic news will only anger some people, but here you go:

  Strong reads on the economy have researchers at mortgage giant Fannie Mae revising their 2020 housing forecast much higher.

  Fannie Mae’s Economic and Strategic Research Group predicts builders will expand production more than previously expected, due to a strong labor market and robust consumer spending. Low mortgage rates will also help.

  After increasing just over 1% annually this year, growth in single-family housing starts will accelerate to 10% during 2020 and top 1 million new homes in 2021, the group predicts. That would mark a post-recession high but is still far below the annual peak of about 1.7 million single-family starts in 2005 and the 1.2 million annual pace experienced in the late ’90s.

  Single-family housing starts have been improving steadily since May, and building permits, an indicator of future construction, are also trending higher.

  “It will likely take several years, even at a more robust pace, for new construction to address the existing pent-up demand for additional housing, as suggested by a still-increasing share of 25- to 34 year-olds living at home with their parents,” according to the report.

  The shortage of existing homes for sale has pushed more potential buyers to the new-build market. Mortgage applications to purchase a newly built home were up 27% annually in November, according to the Mortgage Bankers Association. Homebuilder sentiment jumped to the highest level in 20 years in December, according to the National Association of Home Builders.

  “We now expect single-family housing starts and sales of new homes to increase substantially, aided by a large uptick in new construction as builders work to replenish inventories drawn down by the recent surge in new home sales activity,” said Fannie Mae chief economist Doug Duncan.

  The increase in construction, however, is unlikely to ease the overall housing shortage. Researchers at Fannie Mae are predicting a modest decline in existing home sales through the third quarter of 2020, due to the shortage of listings.

  Overall housing demand is incredibly high, especially at the lower end of the market, where builders are least active. Prices are rising fastest on the low end, sidelining some first-time buyers.

  “This stronger price appreciation is also having the unfortunate effect of partially offsetting savings to potential homebuyers from lower mortgage rates,” Duncan said.

  The average rate on the 30-year fixed mortgage is hovering just below 4%, a full percentage point lower than where it was a year ago. Low rates are boosting already strong demographic demand drivers in the market. Millennials, who delayed buying homes because of the recession, are now flooding into new and existing homes.

  “Housing appears poised to take a leading role in real GDP growth over the forecast horizon for the first time in years, further bolstering our modest-but-solid growth forecasts through 2021,” said Duncan.