Archive for December, 2019

• RIP: Paul Volcker
  Eddy Elfenbein, December 9th, 2019 at 11:50 am

  

  Former Fed Chairman Paul Volcker has died at the age of 92. Volcker ran the Fed from 1979 to 1987. His tenure may have been one of the most important in the Fed’s history.

  Volcker raised rates to extraordinary levels in an attempt to kill inflation. The strategy worked but it sent the U.S. economy into a painful recession. At one point, Volcker was given Secret Service protection.

  The inflation rate was 1% under President Lyndon Johnson in 1965 but ballooned to a breakneck 14.8% in March 1980. To combat the price rises, Volcker’s Fed jacked up the federal funds rate and tightened the money supply. The rate, used by banks and credit unions for overnight loans to other depository institutions, reached a record 22.36% in July 1981. (By comparison, it was zero to 0.25% from December 2008 to December 2015, during the financial crisis and its aftermath.) Shortly after becoming Fed chairman, Volcker raised the discount rate by 0.5%, which would be considered a sizable jolt today.

  The imposing Volcker stood 6’7″. He was appointed by President Carter and reappointed by President Reagan.

• Morning News: December 9, 2019
  Eddy Elfenbein, December 9th, 2019 at 7:32 am

  Japanification the Scourge Threatening to Go Global in 2020

  I.M.F., Endorsing Zelensky, Approves Loan for Ukraine

  Repo Blowup Was Fueled By Big Banks and Hedge Funds

  Trump Cripples W.T.O. as Trade War Rages

  This Man May Be Big Tech’s Biggest Threat

  Swelling U.S. IPO Backlog Points to Crowded 2020 Field

  HSBC Investment Banking Chief to Step Down

  Trial Begins in U.S. States’ Effort to Block T-Mobile/Sprint Deal

  A $1 Billion Grudge Drove GM’s Shock Suit Against Fiat Chrysler

  Why Apple Scrapped the Release of Its Oscar Contender, ‘The Banker’

  Jeff Miller: Weighing the Week Ahead: Will This Rally Never End?

  Cullen Roche: My View on “Late Stage Capitalism”

  Roger Nusbaum: 401k Assets To Pay Student Loans?

  Howard Lindzon: Momemtum Monday…The Financials Have Joined The Party

  Michael Batnick: Things We Take for Granted, and Things We Don’t Miss

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• November NFP +266,00; Unemployment 3.5%
  Eddy Elfenbein, December 6th, 2019 at 8:38 am

  The November jobs report is out. The US economy created 266,000 net new jobs last month. The forecast was for 187,000. There were also positive revisions of 41,000 jobs (13,000 to September and 28,000 to October).

  The unemployment rate is now 3.5% which is a 50-year low. The U-6 Rate ticked down 0.1% to 6.9%. The labor force participation rate is 63.2%. That also fell by 0.1%.

  Average hourly earnings rose seven cents to $28.29. In the last year that’s up 3.1%.

  Manufacturing saw an increase of 54,000 jobs. Motor vehicles and parts rose by 41,000 due to the end of the GM strike. Healthcare, as well as leisure and hospitality, rose by 45,000.

  

• CWS Market Review – December 6, 2019
  Eddy Elfenbein, December 6th, 2019 at 7:08 am

  “Whatever happens in the stock market today has happened before and will happen again.” – Jesse Livermore

  I hope everyone had a great Thanksgiving. We have a lot to be thankful for this year, especially a very good stock market.

  Before I get to today’s issue, I have an announcement. I’m going to unveil the 2020 Buy List on December 25. It’s Buy List-mas!

  This year, Christmas falls on a Wednesday and the market will be closed, so that’s a good time to send you a special issue with our 2020 Buy List. As a reminder, we change the Buy List just once a year. Five new stocks will go in and five current stocks will come out. The Buy List will remain at 25 stocks. I like to announce the new stocks a few days early so no one can claim I’m somehow manipulating the market.

  For track-record purposes, the 25 stocks are assumed to be equally balanced based on the closing prices as of December 31. Then on January 2, the first day of trading for the new year, the new Buy List goes into effect. After that, it’s locked and sealed, and I can’t make any changes for the next 12 months.

  Following the Christmas issue, I’ll send you another issue on January 1 which will have a performance summary of the 2019 Buy List and the details for the 2020 Buy List. It’s looks like we’re headed toward another market-beating year! Patience and discipline eventually pay off.

  In this week’s CWS Market Review, I’ll discuss next week’s Fed meeting. (Spoiler alert: The Fed will leave rates alone.) I’ll also recap the two earnings reports we had before Thanksgiving. We also had some dividend increases recently (54 straight years for Hormel!). But first, let’s see what the Fed has in store for us next week.

  Don’t Expect Another Fed Rate Cut Next Week

  The Federal Reserve meets again next week on December 10-11. This is also a meeting where the Fed will update its economic projections for the next few years. (The Fed’s track record is terrible, even for economists.)

  It’s widely expected that the Fed won’t change rates. Let me be somewhat clearer—the Fed won’t change rates next week.

  In fact, it looks like the Fed won’t change rates for a few months. According to the futures market, the earliest cut would happen this summer, and that’s probably stretching it. If I had to guess, I’d say the Fed will probably raise rates before the end of next year.

  

  In any event, the Fed’s recent rate cuts were exactly what the market needed. They helped propel our late-year rally. The recent market has been one of small steps that are mostly upward. Here’s an interesting stat (via Callie Cox): so far this year, the S&P 500 has closed higher on 138 trading days. That’s a success rate of 58.7% which is the best rate since 1995.

  The S&P 500 has nearly done two months without a daily decline of more than 1%. In fact, we’ve only had two days in the last two months where the index fell by more than 0.5%.

  For one thing, the economic outlook is brighter. The Atlanta Fed’s GDPNow forecast sees Q4 GDP rising by 1.5%. That’s not much, but the forecast had been 0.3% just a few weeks ago.

  Also, the bond market has stopped rallying. The yield on the 10-year has somewhat stabilized between 1.7% and 1.8%. For Q4, the S&P 500 will probably show earnings growth of about 15%, give or take.

  Speaking of earnings, let’s look at two of our recent Buy List earnings reports.

  Smucker Beat Earnings But Cut Guidance

  On November 22, shortly after I sent you the last issue, JM Smucker (SJM) reported fiscal Q2 earnings of $2.26 per share. That beat Wall Street’s forecast of $2.13 per share, although 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 has been $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.

  This is what the company had to say:

  “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. I’m not pleased with these results. Fortunately, the stock has been fairly stable. Perhaps some traders had been expecting even worse news. Shares of SJM have rallied for the last four days in a row. SJM remains a buy up to $112 per share.

  Hormel Foods Beat Earnings

  On Tuesday, November 26, Hormel Foods (HRL) reported fiscal Q4 earnings of 47 cents per share. That was one penny better than estimates. For the entire fiscal year, Hormel made $1.80 per share.

  For next year, Hormel sees sales ranging between $9.5 billion and $10 billion and EPS between $1.69 and $1.83. Wall Street had been expecting $1.76 per share.

  Hormel also raised its annual dividend from 84 cents to 93 cents per share. This is the 54th year in a row that Hormel has increased its dividend.

  “Refrigerated Foods has been a strong earnings contributor all year, and this quarter was no different. I am proud of how our value-added businesses helped offset another steep decline in commodity profits,” Snee said. “Grocery Products and Jennie-O Turkey Store posted modest earnings growth while the International results were below our expectations as the team continues to manage through challenges due to African swine fever and global trade uncertainty.”

  “We grew organic volume and sales in three of our four segments this quarter,” Snee said. “Our SPAM® family of products and Herdez® authentic salsas and sauces were notable contributors within Grocery Products. Refrigerated Foods delivered strong value-added sales growth with excellent results posted by brands such as Hormel® Bacon 1TM, Hormel® Fire BraisedTM, Hormel® Black Label® and Columbus®. Jennie-O Turkey Store delivered top-line growth led by a double-digit increase in whole-bird sales. We made nice gains in lean-ground-turkey distribution, but we have much more work to do.”

  The shares got a nice bump on Tuesday and have been holding on to those gains since then. Since October 28, HRL is up 13%. This week, I’m lifting my Buy Below on Hormel Foods to $48 per share.

  

  Buy List Updates

  Shares of AFLAC (AFL) took a tumble on Monday and Tuesday. The company held an investor presentation yesterday. You can see the PDF here.

  The duck stock underwhelmed investors with its outlook for 2020. AFLAC said it sees earnings of $4.39 to $4.59 assuming the yen averages ¥105 for the year. But if the yen averages ¥110, then AFLAC sees earnings of $4.30 to $4.50. If the yen trades at ¥115, then AFLAC sees earnings of $4.23 to $4.43 per share.

  In simple terms, AFLAC basically sees flat earnings for next year. That’s really not about their poor performance but a tougher environment. There’s nothing wrong with AFLAC.

  We also had two more dividend increases. Stryker (SYK) said it’s raising its payout by 11%. The quarterly dividend will increase from 52 cents to 57.5 cents per share. The new dividend is payable on January 31 to shareholders of record on December 31.

  Going by Thursday’s close, Stryker now yields 1.1%. This is their 27th annual dividend increase in a row.

  Becton, Dickinson (BDX) has an even longer streak. The company just bumped up its dividend for the 48th year in a row. 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.

  Last month, Becton beat earnings by one penny per share. The company sees revenue growth for next year of 4% to 4.5% which is 5% to 5.5% on a currency-neutral basis. Becton sees 2020 EPS ranging between $12.50 and $12.65. Going by Thursday’s close, BDX now yields 1.2%.

  

  Fiserv (FISV) said it’s selling its investment-services division to a private-equity firm. Fiserv will still own 40% of the division. The deal is expected to close in the first quarter of 2020. It should bring in $510 million in after-tax profits for the company. I’m raising our Buy Below on Fiserv to $117 per share.

  Before I go, I want to make two other adjustments to our Buy Below prices. I’m raising our Buy Below on RPM International (RPM) to $77 per share. I’m also raising Globe Life (GL) to $104 per share.

  That’s all for now. The big November jobs report will be out later this morning. The consensus is for 180,000 net new jobs. The Federal Reserve meets again on Tuesday and Wednesday. The policy statement will come out on Wednesday at 2 p.m. ET followed by a press conference by Fed Chairman Jerome Powell. The CPI report is also due out on Wednesday, and the retail-sales report comes out on Friday. 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 6, 2019
  Eddy Elfenbein, December 6th, 2019 at 7:06 am

  The Prince Got His World-Beating IPO. Now the Hard Work Begins

  OPEC and Russia Agree to Cuts in Oil Production

  U.S. Objects to World Bank’s Lending Plans for China

  China to Waive Trade War Tariffs for Some U.S. Soy, Pork Purchases

  What to Expect From the November Jobs Report

  Returning General Motors Workers Seen Boosting U.S. November Payrolls

  Is Blockchain the New Ethical Gold Rush? Maybe.

  One of Wall Street’s Most Lucrative Businesses Is at Risk

  SoftBank to Have ‘Last Laugh’ on WeWork Deal, Bernstein Says

  United C.E.O. Munoz to Step Down, 5 Years After Leading Turnaround

  GM And LG Chem Plan $2.3 Billion Electric Battery Venture In Ohio

  BlackRock Just Fired a Potential Successor to CEO Larry Fink. Here’s Why.

  Joshua Brown: Fortune’s 2020 Roundtable

  Michael Batnick: Animal Spirits: It Is What It Is

  Ben Carlson: Bull Markets Last Much Longer Than You Think & There’s Always a Bear Market Somewhere

  Be sure to follow me on Twitter.

• Morning News: December 5, 2019
  Eddy Elfenbein, December 5th, 2019 at 7:29 am

  Japan Plans to Spend $120 Billion to Stimulate Slowing Economy

  China in Close Contact With U.S. on Trade, Urges Tariffs Cut

  China’s Genetic Research on Ethnic Minorities Sets Off Science Backlash

  Could Tax Increases Speed Up the Economy? Democrats Say Yes

  U.S. Labor Market Is Helping Trump and Fed Be More Patient

  Wall Street’s High-Stake Bets on Calm Less Risky Than They Seem

  Gazing Into the Recession Crystal Ball

  How Google’s Founders Slowly Stepped Away From Their Company

  Huawei Sues the F.C.C., Ramping Up Fight With Critics and Foes

  How a Preacher’s Grandson From Rural Georgia Grew Up to Lead Cisco

  Delivery Only: The Rise Of Restaurants With No Diners As Apps Take Orders

  Cullen Roche: Do Rich People Debunk MMT?

  Jeff Carter: The Pitch

  Michael Batnick: The Portfolio Gap

  Howard Lindzon: My Poop Prayers Have Been Answered…Now Pray For Google’s Sundar Pichai

  Be sure to follow me on Twitter.

• Stryker Raises Dividend 11%
  Eddy Elfenbein, December 4th, 2019 at 3:19 pm

  Here’s the press release:

  Stryker (SYK) announced that its Board of Directors has declared a quarterly dividend of $0.575 per share payable on January 31, 2020 to shareholders of record at the close of business on December 31, 2019, representing an increase of approximately 11% versus the prior year and the previous quarter.

  “We continue to deliver strong financial results, and consistent with our stated capital allocation philosophy, are raising our dividend 11%,” said Kevin Lobo, Chairman and Chief Executive Officer.

  The old dividend was 52 cents per share. Based on the new dividend, SYK now yields 1.1%.

• Morning News: December 4, 2019
  Eddy Elfenbein, December 4th, 2019 at 7:19 am

  U.S., China Move Closer to Trade Deal Despite Harsh Rhetoric

  Trump Volatility in Markets Is Back

  Fighting Climate Change Comes With $2.5 Trillion Price Tag

  Google Co-Founders Step Aside as Pichai Takes Helm of Parent Alphabet

  Amazon Air Provider Hit With ‘No Confidence’ Vote as Holiday Shipping Ramps Up

  Trump Loses Appeal on Deutsche Bank Subpoenas

  Ray Dalio Is More Famous Than Ever and Delivering Subpar Returns

  Why Cleveland-Cliffs Buying AK Steel Will Hurt the Steel Industry

  JP Morgan Expects Bigger OPEC Production Cuts and No More ‘Free Passes’ for U.S. Shale Drillers

  How Huawei Lost the Heart of the Chinese Public

  An Unusually Cold and Wet Potato Harvest Season May Lead to a French Fry Shortage in the US

  Nick Maggiulli: How to Spend Money

  Roger Nusbaum: Quantifying Optionality?

  Michael Batnick: There’s Always a Bear Market Somewhere

  Joshua Brown: The 60/40 Portfolio Wins Again

  Be sure to follow me on Twitter.

• AFLAC Drops After Investors Presentation
  Eddy Elfenbein, December 3rd, 2019 at 12:25 pm

  The market is down again today thanks to trade tensions with China. Yesterday, the S&P 500 had its worst day in nearly two months. In fact, the loss was twice as much as the second-worst day. Today’s drop could be even larger.

  Yesterday’s ISM Manufacturing report was not terribly good. The number came in at 48.1 which was below expectations. Any reading below 50 signals a contraction, so that means that the factory sector of the economy is no longer growing.

  Shares of AFLAC (AFL) fell yesterday and today. The company held an investor presentation yesterday. The duck gave its outlook for 2020. AFLAC said it sees earnings of $4.39 to $4.59 if the yen averages 105 for the year. But if the yen averages 110, then AFLAC sees earnings of $4.30 to $4.50. If the yen trades at 115, then AFLAC sees earnings of $4.23 to $4.43 per share.

  In simple terms, AFLAC basically sees flat earnings for next year. That’s really about their poor performance but a tougher environment.

• Morning News: December 3, 2019
  Eddy Elfenbein, December 3rd, 2019 at 7:23 am

  China’s Schoolchildren Are Now the Smartest in the World

  As Climate Warnings Grow Dire, Energy Companies Face A ‘New Frontier Of Threats’

  Trump Sees No Deadline for China Deal, Prefers to Wait For 2020 Election

  Here’s What Happens to Markets If U.S. Tariffs on China Kick in Dec. 15

  French Wine Could Face 100% Tariffs as Trump Confronts France Over Tech Taxes

  Trump Says U.S. Will Impose Metal Tariffs on Brazil and Argentina

  White House Considered Kicking Huawei Out of U.S. Banking System

  Watch 4 Decades of Inequality Drive American Cities Apart

  Reduce Stock Market Holdings With The Dow, S&P And Nasdaq In ‘Inflating Parabolic Bubble’

  ‘Flight Shaming’ Revives the Sleeper Train

  PG&E Had Systemic Problems With Power Line Maintenance, California Probe Finds

  If You Bought a Smart TV on Black Friday, the FBI has a Warning for You

  Joshua Brown: The Big Thing Investors Have Trouble Accepting

  Michael Batnick: My Decade

  Ben Carlson: Talk Your Book: Elimination Alpha – How to XOUT Your Portfolio Losers

  Be sure to follow me on Twitter.