Archive for September, 2020

• Jobless Claims Unchanged
  Eddy Elfenbein, September 10th, 2020 at 10:21 am

  This morning’s initial claims report came in at 884,000. That was above Wall Street’s estimate of 850,000. Remarkably, that’s the exact same number as last week’s report, after it was revised. The good news is that these are the lowest reports since the crisis started six months ago.

  We’re actually not far from the worst jobless-claims reports of the Great Recession. In early 2009, the reports peaked at 665,000. In 1982, jobless claims got to 695,000.

  The four-week moving average for claims through the week of Sept. 5, a number which helps smooth out volatility in weekly numbers, declined 21,750 to 970,750. The moving average for continuing claims fell 523,750 to 13.982 million.

  Claims under the Pandemic Unemployment Assistance program continued to climb, rising more than 90,000 last week to 838,916. The total of those claiming benefits through all programs, though Aug. 22, also rose to just over 29.6 million.

  At the state level, California showed the biggest increase at 17,953 while Florida reported a decline in claims of 9,049, according to unadjusted numbers.

  Continuing claims are now at 13.385 million. That’s after peaking at close to 25 million in May. This week’s continuing claims report is slightly higher than last week’s. The Labor Department said that it changed the way it does seasonal adjustments, so the numbers aren’t precisely comparable.

  

• Morning News: September 10, 2020
  Eddy Elfenbein, September 10th, 2020 at 7:08 am

  Surging Euro Presents E.C.B. With a Dilemma

  WTO Leadership Race Seen as Hostage to U.S. Election

  London Offices Aren’t Refilling Fast Enough for Shops Relying on Them

  Manhattan Apartment Listings Soar, Pushing Vacancies to a Record

  More Americans Are Quitting Their Jobs. That’s a Good Sign

  Wall Street Sees A Bright Side In ‘Healthy’ Tech Selloff

  Do Jobless Benefits Deter Workers? Some Employers Say Yes. Studies Don’t.

  The Other 99.47% Need to Get Back to Work, School and Life

  When ‘Buy American’ and Common Sense Collide

  India Billionaire to Offer $20 Billion Stake in Retail Arm to Amazon

  Amazon Is Hiring 33,000 New Employees With An Average Compensation Package Worth $150,000

  TikTok’s Owner Reportedly In Talks With US to Avoid A Sale of the App

  J.C. Penney’s Landlords Strike Deal to Rescue It From Bankruptcy

  Ben Carlson: Can the 60/40 Portfolio Still Work?

  Michael Batnick: Animal Spirits: Democracy Has Failed

  Howard Lindzon: DraftKings Co-Founder And CEO Jason Robins Joins Me on ‘Panic With Friends’ – We Go Deep on The Struggle and The Future

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• Growth Inches Back
  Eddy Elfenbein, September 9th, 2020 at 4:31 pm

  

  The market had a nice rebound today. This was a reaction to what we had seen over the previous three days. In other words, Tech was up strongly while Value lagged. By no means does this suggest the rotation to Value is dead. The S&P 500 gained back 29% of what it lost over the three-day skid.

  Today wasn’t the extreme growth tilt that I expected. To be sure, Tech was up the most but areas like Healthcare and Staples put in respectable gains today.

  Our Buy List gained 1.88% today compared with 2.01% for the S&P 500. That’s not bad for a Tech-led day. Compare that with late August when we had several days where we trailed by 50 or 70 basis points.

  Shares of Tiffany lost 6.4% today.

• The Tiffany Deal Is Off
  Eddy Elfenbein, September 9th, 2020 at 11:16 am

  Growth is having a nice rebound this morning which is to be expected following yesterday’s rout. The question is whether this is the start of a long-term rotation or whether it is yet another head fake. We just don’t know yet.

  Growth is beating Value today, but Low Vol is well ahead of High Beta. You don’t see that every day. As I write this, the S&P 500 is up by 1.8%.

  One interesting story this morning. LVMH has decided to scrap its $16.2 billion deal to buy out Tiffany. So what went wrong?

  Tiffany asked to push the deadline back a few weeks. The French government also asked for a delay because of the threat of American tariffs on French-made goods.

  There’s also the angle that the deal was agreed to before the coronavirus hit but it was to be closed during the pandemic. Actually, I’m surprised more deals like this haven’t fallen apart.

  It’s an odd take but the deal wound up in the center of a trade dispute between France and the U.S. The Trump administration had actually rolled back its original plans to tax a wide range of French goods including wine and cheese.

  The Trump administration threatened these tariffs because, they claimed, that France’s new digital tax unfairly targeted U.S. firms.

  They have a point, but the solution may not be the best idea. The French law slaps a 3% tax on revenue that tech companies get from France. The U.S. position is that the law conveniently dings U.S. firms but doesn’t hit areas where French companies are dominant.

  That’s clearly true. The French authorities even referred to the tax as the GAFA Tax for Google, Amazon, Facebook and Apple.

  The French have said they’re willing to repeal the tax if there’s a broader strategy to tax tech companies across economically-developed countries (OECD, Organization for Economic Cooperation and Development). In fact, Macron even said that if American firms wind up paying more taxes now under the French law than they would under a later agreement, then France would chip in to make up the difference.

  For the most part, tech companies and members of Congress support the administration’s policy. The French position is that an American tariff on France is unfair because the U.S. is the one holding up an agreement on taxing tech companies.

  The problem is that the U.S. is so dominant in tech that any tax will disproportionally hurt us. Hopefully, the OECD will come up with a plan to tax these companies. I don’t see how anyone is helped by countries going it alone and risking a trade war.

• Morning News: September 9, 2020
  Eddy Elfenbein, September 9th, 2020 at 7:00 am

  U.S. Businesses in China Not Heeding Trump’s Call to Return Home

  Jerome Powell Channels Alan Greenspan in Putting Stamp on Fed

  The Fed Enabled a Record Expansion. Trump Is Taking Credit.

  The Largest Mortgage Origination Volume on Record

  U.S. Regulator Calls Climate Change A Systemic Risk

  Saudi Arabia Just Crushed U.S. Crude Oil Prices Again

  Natural Gas Is the Rich World’s New Coal

  Pandemic E-Commerce Surge Spurs Race For ‘Tesla-Like’ Electric Delivery Vans

  $16 Billion Tiffany Deal Collapses Over Tariffs

  Trapped by Pandemic, Ships’ Crews Fight Exhaustion and Despair

  ‘Mulan,’ Once a Sure Thing, Becomes a Problem for Disney

  Nick Maggiulli: What Your Psychology Says About Your Relationship with Money

  Michael Batnick: Will Money Printing Cause Inflation?

  Joshua Brown: Tesla Snubbed (!) and the Nasdaq Whale Story

  Howard Lindzon: Panic With Friends – Sean O’Brien Joins Me To Discuss Why Atlanta Is Absolutely Positioned To Be A Top-Tier Venture City

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• Whither the P/E?
  Eddy Elfenbein, September 8th, 2020 at 11:54 am

  Why is the P/E Ratio so darned high? That’s a question that’s bedeviled analysts for many years, not just now.

  As a stock-picker, I generally avoid such arguments. The stock market doesn’t need to “make sense.” The market gods have their reasons for doing whatever it is they do, even if it’s not entirely clear to us mortals. The judgments of the markets are true and righteous altogether.

  The market’s sanity has especially been called into question lately because the market has done well even though the economy has not. The disconnect between Wall Street and Main Street has become a popular talking point.

  As I’ve noted before, this disconnect should not alarm anyone. The stock market and economy have little reason to be strongly linked in the near term. We’ve experienced many such disconnects. One popular idea is that President Trump and, of course, “his cronies” are propping up the market for the election. I’m curious where this cabal was during February and March.

  In any event, Alan Reynolds, a senior fellow at the Cato Institute, is the latest to take on this question. I should add that since Dow 36,000, conservative pundits have not had a particularly stellar track record in discussing market valuations. (By the way, here’s a brilliant critique of Dow 36,000 written by, as it turns out, me.)

  Reynolds writes:

  The argument for stocks being greatly “overvalued” rests on the fact that the trailing P/E ratio rose significantly from May 1 to September 1. On January 1, the P/E ratio was 24.21 –about the same as two years before (24.87). Even after Covid-19 and lockdowns crushed the economy, the P/E ratio was still 23.74 on April 1. Stock prices and earnings had both collapsed in sync. The P/E ratio was 25.10 on May 1 after the Fed funds rate fell to nil and the $1,200 checks and PPP loans peaked. It then rose to 26.69 on June 1, 27.57 on July 1, 28.31 on August 1 and 30.32 on September 1.

  First, Reynolds points out that the inverse of the P/E Ratio, earnings over price, should generally follow bond yields. As bond yields have plunged, valuation should rise. Since the days of Alan Greenspan, this has often been called the Fed Model, though Reynolds believes he may have originally influenced the Maestro. They worked together on Reagan’s transition team.

  Here’s a chart from Reynolds’s post:

  

  Yes, they certainly do seem to match up. Reynolds also notes that the P/E Ratio falls when inflation rises. Therefore, he claims that Jerome Powell’s Jackson Hole speech, which outlined the Fed’s greater tolerance for inflation, could have been a negative for share prices.

  While Reynolds says the lower bond yields justify the higher equity valuations, he says the Federal Reserve deserves zero credit since they were a laggard on lowering short-term rates.

  The Federal Reserve can certainly crash the market (e.g., the double-dip recessions of 1980-82), but milder forms of Fed activism rarely explain bond yields or stock prices. The 10-year bond yield has at times risen 3.5 to 4 percentage points above the Fed funds rate, as in 1992, 2001-04 and 2010. Also, the S&P 500 stock index hovered at or below 2000 the last time the Fed kept the funds rate near zero in 2014-15, then rose 46% by July 2019 even as the Fed raised the funds target ten times to 2.5%.

  Reynolds then gets to the key point that trailing P/E Ratios are higher but forward ratios may not be. We still don’t know.

  I believe Reynolds errs on two key points. One oversight is noting which stocks are rising. There’s a tendency to treat the S&P 500 as if it’s one giant stock. It’s not. The Big Outside of a small group of tech stocks, the stock rally hasn’t been particularly impressive.

  Here’s the S&P 500 Tech Index (red) along with the S&P 500 except tech (in blue).

  

  The other point is dividends which are a key component of stock returns. On this point, short-term rates from the Fed have an impact though it’s a limited effect.

• The Worst Time of the Year
  Eddy Elfenbein, September 8th, 2020 at 9:54 am

  Over the last 100 years, September has been the worst month for stocks. It’s also been the worst for the last 50 and last 100 years.

  I’ve crunched the entire 124-year history of the Dow and here’s what the average year looks like:

  

  You can see there’s a peak at the end of summer. From September 6 to September 30, the Dow has lost an average of 2.01%. That may not sound like a lot but it’s the average of 124 years of data. More than one-quarter of the Dow’s total gain has been wiped in a little over three weeks.

• Tech Slumps Again
  Eddy Elfenbein, September 8th, 2020 at 9:36 am

  Tech stocks are down this morning. The fantastic rally in tech seems to be unwinding. There often seems to be a change in market sentiment after Labor Day.

  Shares of Tesla were again snubbed by the S&P 500. Despite Tesla’s large size (market cap near $400 billion), the index keepers at S&P haven’t added it to their prestigious index. Also weighing on Tesla, GM took a $2 billion stake in Nikola. They’re going to partner together to make a pickup truck. Nikola is up 25% and GM is up 6%. Tesla is down 15%.

  Ahead of Halloween, Hershey (HSY) is partnering with Google to use a person’s search history so they can tailor ads based on whether the person is likely to go out outside or not.

  Hershey will tailor digital ads to households using search data provided by Google to overcome fresh challenges that threaten to derail this year’s Halloween.

  The Pennsylvania-based candymaker struck a deal with Google last month for access to data showing whether people are more or less likely to go outside based on what they search for. For instance, a person who sought out business hours for nearby stores or vacation ideas suggests the likelihood to go outside.

  Honestly, that sounds a little creepy.

• Morning News: September 8, 2020
  Eddy Elfenbein, September 8th, 2020 at 7:01 am

  The Year That Hammered Global Trade Still Poses Five Big Risks

  U.S. May Ban Cotton From Xinjiang Region of China Over Rights Concerns

  Why Calls to Boycott ‘Mulan’ Over Concerns About China Are Growing

  Exxon Downsizes Global Empire As Wall Street Worries About Dividend

  U.S. Shale Producers Race For Federal Permits Ahead Of Presidential Election

  Dear Wall Street, Your Boss Wants You to Come Back to the Office

  The Two Men Buying Your Favorite Retailers

  Move Aside Robots, Tesla Bets On Aluminium Casting

  Tesla Shares Slump as S&P 500 Inclusion Remains Elusive

  GM Venture’s Mini Car Becomes China’s Most Sold EV, Surpassing Tesla’s Model 3

  Amazon Bans Sale of Foreign Seeds in the U.S.

  Southwest Airlines Loses Another Competitive Advantage

  The Next Pandemic Is Already Here

  Ben Carlson: Why Even the Best Stocks Have to Crash

  Howard Lindzon: Panic With Friends – Nicole Glaros Is The Chief Investment Strategy Officer at Techstars

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• Morning News: September 7, 2020
  Eddy Elfenbein, September 7th, 2020 at 7:12 am

  Goldman Says Allure of Brexit Deal Hard to Resist for Johnson

  Fed’s Strategy Shift to Bind Big Central Banks From Frankfurt to Tokyo

  How A New Type of Money Helped Cause the Great Financial Crisis

  The Service Economy Meltdown

  The Options-Enhanced Stock Market Money Machine Is Going Global

  The Fund Managers, The Sleuths And The Mystery Of The Missing ESG

  Samsung Wins $6.6 Billion 5G Verizon Deal While Huawei Struggles

  VW Says It May Soon Be Overtaking Tesla

  Parents Got More Time Off. Then the Backlash Started.

  Howard Lindzon: MTV 2.0

  Joshua Brown: The Biggest Threat to Your Favorite Tech Stock

  Michael Batnick: The Stock Split Bonanza

  Roger Nusbaum: Dissecting Barron’s Retirement Cover Story

  Jeff Miller: Weighing the Week Ahead: The Start of Something Big?

  Ben Carlson: The Economics of Parenting & The New Fed Mandate: Full Employment & Asset Bubbles?

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