Archive for May, 2021

• Morning News: May 17, 2021
  Eddy Elfenbein, May 17th, 2021 at 7:02 am

  The World Economy Is Suddenly Running Low on Everything

  Ignore The Pessimists, The ‘Baby Bust’ Is A Bullish Market Signal

  Elon Musk Just Reopened an Old Wound in the Bitcoin World

  Charging 589% Interest in the Pandemic Is a Booming Business

  The Mogul in Search of a Kinder, Gentler Capitalism

  Japan’s Top Bank MUFG Forecasts Lower Credit Costs, Beats Profit View

  BP’s Lobbying for Gas Shows Rifts Over Path to Net-Zero Emissions

  JD Logistics Launches Hong Kong IPO to Raise Up to $3.4 Billion

  AT&T Is Preparing to Merge Media Assets With Discovery

  AT&T-Discovery Deal Would Create a Media Juggernaut

  A $100 Million Bet on Cross-Country Restaurant Delivery

  As Lumber Prices Climb, DIY-ers Cut Out The Middle Man And Mill Their Own

  Ben Carlson: 12 of My Biggest Post-Pandemic Questions & Life is Too Short to Save Everything

  Michael Batnick: Bitcoin is Crashing. This is What it Does, When The Music’s Over & Animal Spirits: Growth At a Reasonable Price

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• Morning News: May 14, 2021
  Eddy Elfenbein, May 14th, 2021 at 7:02 am

  U.S. Investors Looking for Protection As Inflation Pressures Bubble, Stocks Volatile

  CDC’s Mask U-Turn Puts Business in a Bind

  A ‘Friend of Tom’ or ‘Can’t Be Bothered’: One Man’s Rules at Bank of America

  Colonial Pipeline Ramps Up as U.S. Seeks to Emerge From Fuel Crunch

  Colonial Pipeline Paid 75 Bitcoin, or Roughly $5 Million, to Hackers

  EV Startups Lose Over $40 Billion After Taking SPAC Route Public

  Juul Finds Hell Hath No Fury Like an Army of Really Rich Parents

  He’s A Dogecoin Millionaire. And He’s Not Selling.

  Ant Leapfrogs Banks to Top China Fund Sale Rankings

  Disney Adds Fewer Streaming Subscribers Than Hoped; Revenue Falls Short

  Amazon, McDonald’s, Others Woo Scarce Hourly Workers With Higher Pay

  Airbnb Has Mo Money, Mo Problems

  Ben Carlson: The Future of Bear Markets & Recessions

  Michael Batnick: 10 Questions People Only Ask in a Bull Market

  Michael Batnick & Ben Carlson: Houses That Sell the Fastest

  Howard Lindzon: Nithin Kamath, Founder and CEO of Zerodha, Joins Me on Panic with Friends to Discuss India’s Growing Market Opportunities

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• Jobless Claims Fall to 473,000
  Eddy Elfenbein, May 13th, 2021 at 12:13 pm

  The stock market is getting a nice snap-back rally today after yesterday’s drop. I usually don’t pay much attention to the wholesale inflation report, but that came out today and it was also on the hot side. The PPI was up 0.6% last month which doubled expectations. In the last year, the PPI is up 6.2%. That’s the highest since they started tracking the data in 2010.

  Core PPI was also high:

  The core PPI, which excludes volatile items like foods, energy and trade services, rose 0.7% in April from the previous month and jumped 4.6% year over year. The increase from a year ago was the biggest jump since 2014 when the department first calculated the data.

  This morning’s jobless claims report came in at 473,000. That was another pandemic low and it was below Wall Street’s forecast of 490,000.

  Generous unemployment benefits, fears of catching Covid-19, parents staying home to care for children and raw material shortages as well as pandemic-related retirements and career changes have been blamed for the disconnect. The economy created 266,000 jobs in April after adding 770,000 in March, the government reported last week.

  Some economists believe the enhanced unemployment benefits programs, including a weekly $300 government subsidy, could be encouraging some people to attempt to file a claim for assistance, keeping claims well above the 200,000 to 250,000 range that is viewed as consistent with a healthy labor market.

  It’s a strong market today but I’m suspicious. Everything that had been doing well is doing poorly and the ones that had been poor are now leading the charge. Energy, in particular, is down today.

• Morning News: May 13, 2021
  Eddy Elfenbein, May 13th, 2021 at 7:06 am

  Biden’s Trillions Test Economists Weighing Bang for the Buck

  Inflation Is Here. What Now?

  Musk Sends Bitcoin Tumbling With Shock U-Turn on Payments

  Elon Musk Just Helped Ease the Semiconductor Shortage

  The SPAC King Is Doing Just Fine Even as the Bubble Starts to Burst

  Boeing Says F.A.A. Has Approved New Fix for 737 Max

  How ‘Put That on Top Shot!’ Became a New N.B.A. Mantra

  New Generation of Digital Banks Bets on Minority Markets

  Samsung Boosts Non-Memory Chip Investment to $151 Billion as South Korea Offers Bigger Tax Breaks

  SoftBank’s Masayoshi Son Says He Expects Even More Massive Returns From His Vision Fund Portfolio

  America’s Gas Panic Has a Long History

  Wealthy Nations Once Lauded As Successes Lag in Vaccinations

  Cullen Roche: Let’s Talk About Inflation

  Joshua Brown: The Thing You Need to Hear About Inflation

  Michael Batnick: Inflation is Here. But is it Here to Stay?

  Jeff Carter: When To Lock In A Mortgage?

  Be sure to follow me on Twitter.

• Q1 2021 Earnings Calendar
  Eddy Elfenbein, May 13th, 2021 at 4:16 am

  Twenty-two of our 25 Buy List stocks are reporting their earnings in this current quarterly earnings reporting season. Here’s a list of reporting dates, Wall Street’s consensus estimates and actual reported results.

  Stock	Ticker	Date	Estimate	Result
  Abbott Labs	ABT	20-Apr	$1.27	$1.32
  Danaher	DHR	22-Apr	$1.75	$2.52
  Check Point Software	CHKP	26-Apr	$1.50	$1.54
  Fiserv	FISV	27-Apr	$1.13	$1.17
  Sherwin-Williams	SHW	27-Apr	$1.64	$2.06
  Stepan	SCL	27-Apr	$1.43	$1.82
  Stryker	SYK	27-Apr	$1.99	$1.93
  AFLAC	AFL	28-Apr	$1.21	$1.53
  Moody’s	MCO	28-Apr	$2.82	$4.06
  Silgan	SLGN	28-Apr	$0.70	$0.75
  Church & Dwight	CHD	29-Apr	$0.81	$0.83
  Hershey	HSY	29-Apr	$1.80	$1.92
  Intercontinental Exchange	ICE	29-Apr	$1.30	$1.34
  Thermo Fisher	TMO	29-Apr	$6.65	$7.21
  Broadridge Financial Solutions	BR	4-May	$1.68	$1.76
  Ansys	ANSS	5-May	$0.84	$1.12
  Cerner	CERN	5-May	$0.74	$0.76
  Miller Industries	MLR	5-May	n/a	$0.28
  Middleby	MIDD	6-May	$1.62	$1.79
  Zoetis	ZTS	6-May	$1.03	$1.26
  Trex	TREX	10-May	$0.38	$0.42
  Disney	DIS	13-May	$0.27	$0.79

• Highest Core Inflation in 40 Years
  Eddy Elfenbein, May 12th, 2021 at 12:19 pm

  This morning’s CPI report showed that consumer prices rose 0.77% last month. That’s the highest since 2009. In the last 12 months, consumer prices are up 4.15%.

  The core inflation rate was up 0.92%. That’s the highest rate since September 1981. In the last year, core inflation is up 2.96%.

  Energy prices overall jumped 25% from a year earlier, including a 49.6% increase for gasoline and 37.3% for fuel oil. That came even though most energy categories saw a decline in April.

  Prices at the pump, which fell 1.4% in April, have resumed their climb in May, with the national average eclipsing $3 a gallon for the first time since November 2014, according to AAA. Further rises are likely from Friday’s cyberattack that shut down Colonial Pipeline’s main transmission line from Houston to New Jersey.

  Used car and truck prices, which are seen as a key inflation indicator, surged 21%, including a 10% increase in April alone. Shelter, another key CPI component, was up 2.1% year over year and 0.4% for the month.

  Here’s a chart of headline CPI:

  

  Here’s core inflation:

  

• Morning News: May 12, 2021
  Eddy Elfenbein, May 12th, 2021 at 7:08 am

  Hungary Plans 50% Tax Cut on Crypto Earnings to Encourage Disclosure

  Ark Financial’s Crypto Expert Sees Dogecoin Washout, Bitcoin Rivaling Gold

  Inflation Signs Upset Markets From Bonds to VIX

  Gas Pipeline Hack Leads to Panic Buying in the Southeast

  Top U.S. Fuel Pipeline Edges Toward Reopening As Gasoline Shortages Worsen

  For Clean Energy, Buy American or Buy It Quick and Cheap?

  Tesla Seeks Entry Into U.S. Renewable Fuel Credit Market

  Amazon Wins Court Appeal As It Battles the EU Over A $300 Million Tax Bill

  I.P.A. Signing Bonuses and Free Subs: Luring Labor as a Beach Economy Booms

  China’s ‘Long-Term Time Bomb’: Falling Births Stunt Population Growth

  Joshua Brown: Why Everyone is Selling Their Tech Stocks

  Howard Lindzon: $QQQ VS $SPY

  Cullen Roche: Three Things I Think I Think – Losing Reserve Currency Status

  Ben Carlson: Sometimes You Just Have to Eat Your Losses in the Markets

  Nick Maggiulli: 4 Investing Lessons from David Swensen

  Michael Batnick: Animal Spirits: Bubbles Are Forever & Living Through A Wreckage

  Be sure to follow me on Twitter.

• CWS Market Review – May 11, 2021
  Eddy Elfenbein, May 11th, 2021 at 5:42 pm

  “When I was young, I was a terrible investor. But after decades of hard work, I am no longer young.” – Douglas A. Boneparth

  (This is the free version of CWS Market Review. Don’t forget to sign up for the premium newsletter for $20 per month or $200 for the whole year. Thanks for your support.)

  The Nasdaq Hits the Skids

  Suddenly, the Nasdaq is getting a lot of attention from traders, and it’s not the good kind. The index trailed the S&P 500 for nine out of ten days. It would have happened again on Tuesday, but a big intra-day reversal held back the trend for at least one more day. At one point, the Nasdaq was down over 2% on Tuesday. Things may not get better soon. The Nasdaq also dipped below its 50-day moving average which is often a sign of more bad times to come.

  What’s happening is that the Nasdaq is heavily weighted towards popular tech stocks such as the FAANG stocks (Facebook, Amazon, Apple, Netflix and Google), and those stocks have been feeling the heat.

  It’s not just the FAANG names. In January, Tesla broke $900 per share. This morning, it dipped below $600. Alibaba is off over 30% from its 52-week high.

  These stocks had been doing so well for so long, but now it appears that valuation concerns are finally coming to the surface. No doubt, Amazon is a great company, but should it really be going for 45 times next year’s earnings? Of course, that’s the problem with momentum investing. What happens when it becomes momentum in the other direction?

  This is really a continuation of a trend that we saw in February and March when tech stocks badly lagged. That trend quickly petered out, until now. In fact, you can even trace a larger trend of tech names falling out of favor back to Labor Day. Instead of one continuous trend, we’ve seen sharp waves of a few weeks each where tech stocks get dinged.

  Here’s a chart of the Nasdaq divided by the S&P 500:

  

  Yesterday, the S&P 500 fell over 1% for the first time in two months. But it was an odd day because the down stocks were down a lot. Callie Cox has some revealing stats; 40% of stocks in the S&P 500 made a new high on Monday. On a big down day! Traders are running from growth as fast as they can.

  It’s interesting that this rotation has occurred as the overall market has rallied. Friday was another all-time high close for the S&P 500. Normally, the popular names lead during the entire bull market. It appears that crypto and meme stocks have supplanted these areas as the place where the real risky business happens. Bloomberg quotes one energy trader, “All the fun that used to be had 30 years ago in the commodity markets and is no longer fun—that fun is now in crypto.” I think that’s right.

  What I think is happening is that the rise in bond yields is putting the squeeze on valuations. Normally, earnings multiples are aligned with bond yields. The lower yields go, the higher P/E Ratios rise. Last summer, the 10-year yield was going for about 0.5%. Now it’s up to 1.6%. That’s certainly not high in an absolute sense, but it’s higher than where it was.

  I’m a fan of Cathie Wood and her ARK Innovation ETF (ARKK), although the fund goes into areas of the market we generally avoid. She’s done a remarkable job, but her ETF has been clocked hard lately. ARKK has lost about 30% of its value in the last three months, and it’s been in a tailspin lately.

  There’s also a liquidity concern with ARKK. Wood has so much money to manage that she owns more than 10% of the outstanding shares in a number of stocks. I often say that with ETFs, the liquidity issue isn’t the trading of the actual ETF. Instead, it’s the trading of the underlying securities. That’s why CWS has never had a liquidity problem. We’re mostly in mid- and large-cap stocks. If ARKK is hit with redemptions, that could spark a selloff in some of Wood’s smaller positions.

  This underscores an important lesson about portfolio management. Several of her stocks are correlated with each other. An investor can have many stocks in his or her portfolio and still be very undiversified.

  Even though we have a focused portfolio at our ETF (CWS), our portfolio has its hands in many different sectors. For example, shares of Hershey (HSY) quietly made a new high on Tuesday, even though many high-profit stocks looked nervous. You can see more info on the ETF here.

  The Most Disappointing Jobs Report of All Time!

  Wall Street is still in shock over Friday’s jobs report. Economists had been expecting an increase of one million jobs. Instead, the U.S. economy added just 266,000. The unemployment rate ticked up to 6.1%. One analyst said, “This might be one of the most disappointing jobs reports of all time.”

  There’s already a lot of finger-pointing going on. This is an unusual time for the jobs market because more employers are simply having a hard time finding workers. This morning we learned that jobs openings hit a record high of 8.12 million.

  Bloomberg reports that “many employers say they are unable to fill positions because of ongoing fears of catching the coronavirus, child-care responsibilities and generous unemployment benefits.” There are 2 million more jobs vacancies than new hires. That’s the highest on record.

  The New York Times mentioned a beach restaurant that’s offering a case of 120 Minute India Pale Ale as a signing bonus. Not bad. The jobs report is especially frustrating as more state and local economies are getting back to normal.

  

  Tomorrow, the government will release its CPI figures for April. There’s growing talk that inflation is on the rise. Last week, Treasury Secretary Janet Yellen told The Atlantic that the Fed could easily handle inflation with modest rate increases. The market reacted harshly. Later that day, Yellen clarified that she wasn’t expecting inflation. She just meant that it could be handled if it arrived.

  Instead of government officials, I prefer to see what the market thinks. A good gauge is the 5-year breakeven rate. That’s the difference between the 5-year Treasury and the 5-year TIPs. In other words, it’s the market’s guess as to the rates of inflation over the coming five years. The 5-year breakeven recently jumped above 2.7% which is a 13-year-year high. That fact is being mirrored in the foreign exchange market as the U.S. dollar is near a two-and-a-half year low.

  

  Clearly, higher prices are on the way. One area where we seeing higher prices is at the pump. As a result of the recent pipeline attack, we’re seeing gas lines across parts of the southeastern U.S. According to GasBuddy, 7.6% of gas stations in Virginia didn’t have gasoline. In North Carolina, it was 5.8%. On Monday, gasoline demand jumped 20%. In five states; Georgia, Florida, South Carolina, North Carolina and Virginia, demand was up more than 40%.

  All sorts of commodity prices are up. Corn is up more than 50% this year. Lumber prices are through the roof. The WSJ reports that farmers are planting like crazy. The newspaper notes that bullish bets on corn outnumber bearish ones by 17 to 1.

  Stock Focus: The Trade Desk

  On Monday, shares of the The Trade Desk (TTD), got absolutely pummeled. The stock plunged 26% in one day. This is noteworthy because The Trade Desk had been a big winner. From its low in March 2020 to its high in November 2020, TTD gained more than 560%.

  Thanks to yesterday’s train wreck, this sounds like a good opportunity to take a closer look at this stock that’s still not very well-known.

  

  The Trade Desk markets a software platform that’s used by digital ad buyers to build data-driven advertising campaigns. In other words, they help companies get the most bang for their buck on the web.

  Ten years ago, Jeff Green left a job at Microsoft to start The Trade Desk. Microsoft had purchased Green’s online auction advertising company. While at Microsoft, he met Dave Pickles who would later become his partner at The Trade Desk. Today, Green is the CEO and Pickles is the CTO.

  Green and Pickles’ idea was simple. They felt that the large tech companies had been stifling environment for online advertising by creating a “walled garden” approach to content and data. As a result, advertisers weren’t getting the kind of transparency they wanted. In stepped The Trade Desk.

  The Trade Desk’s solution is that it offers a real-time bidding technology platform. This way, media buyers can target specific audiences with customized ads. Users can manage their digital ad campaigns in real time. They can even use third-party data to optimize their strategies. This saves a lot of time and money for companies’ media strategies.

  The “open Internet” idea is a big deal. The large tech companies have dominated the advertising space for so long, and it’s ripe for being upended. What’s happened is that the major tech companies have fiercely guarded their territory and refused to give up any control of the advertising process. This hasn’t won them many friends among government regulators.

  The Trade Desk is based in Ventura, CA. They currently have about 1,000 employees and a market cap around $24 billion. The Trade Desk had its IPO in September 2016 at $18 per share. After Monday’s plunge, it’s around $511 per share.

  There’s been a lot of misunderstanding about The Trade Desk’s business and that’s because some investors seem to believe that it can easily be blown out by giants like Google or Facebook.

  That’s not true and this highlights the key difference that The Trade Desk offers. If a company wants to advertise with, say, Google, then they go to Google. If a company wants to advertise with Facebook, then they go to Facebook.

  But if a company wants to use The Trade Desk, then the Trade Desk can tell them that the best and most cost-effective place for them is The New York Times or The Wall Street Journal or Hulu or any number of places.

  The Trade Desk is not a direct competitor to Google or Facebook. Jeff Green said that The Trade Desk is hardly a concern to those companies. The Trade Desk can and has partnered with just about anybody.

  The company is enormously profitable and so many trends are working in The Trade Desk’s favor. Digital ad spending will continue to grow at a double-digit rate. The Trade Desk’s gross margins are close to 80%. I haven’t seen anyone else provide digital marketing managers the scope that the Trade Desk offers.

  So what happened on Monday? Did they miss earnings? Not exactly. The Trade Desk reported earnings of $1.41 per share. That was 83% higher than expectations. Revenues were also above expectations.

  If the results caused the stock to plunge, then I’m curious what the real expectations were for. The Trade Desk also said that Q2 revenue will be higher than expected. If that’s not enough, The Trade Desk also announced a 10-for-1 stock split. This is a very confident company. On Monday’s earnings call, Jeff Green said, “when we compete, we usually win.”

  I like this company a lot and I’m keeping a close eye on it. The stock isn’t cheap (73 times next year’s earnings), but it’s certainly cheaper than where it was.

  That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

  – Eddy

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• Morning News: May 11, 2021
  Eddy Elfenbein, May 11th, 2021 at 6:07 am

  FANGS and BATS Sell-Off Spooks World Stocks

  U.S. Fuel Supplies Tighten As Energy Pipeline Outage Enters Fifth Day

  What We Know About the Colonial Pipeline Cyberattack

  Biden Defends Unemployment Benefits, Provided Workers Accept Job Offers

  New York Wins From Brexit’s $3.3 Trillion Hit to One Key Market

  It’s Time For A Supply-Side Resurgence

  Ginkgo Said to Agree to $17.5 Billion Merger With Sloan’s SPAC

  Australian Company Loses Ugg Trademark Battle

  Inside the Secretive Swiss Bank for the World’s Richest People

  Elon Musk Sending Dogecoin Into Space After His ‘SNL’ Jokes Smacked It On The Nose

  ‘There’s No Going Back’: Ireland’s Tourism Trade Prepares to Re-Open for Good

  Semiconductor Makers and Users Form A Group to Push for Chip Funding

  Howard Lindzon: Momentum Monday – Technology Shmecknology

  Michael Batnick: Best to Worst

  Ben Carlson: We Need to Build More Houses

  Be sure to follow me on Twitter.

• Trex Earns 42 Cents per Share
  Eddy Elfenbein, May 10th, 2021 at 4:15 pm

  After the closing bell, Trex (TREX) reported fiscal Q1 earnings of 42 cents per share. That’s up 17% over last year. Sales rose 23% to $246 million. Wall Street had been expecting 38 cents per share.

  “Sustained demand for Trex Residential products and accelerated market share gains from wood drove first quarter sales growth, laying the foundation for another year of strong double-digit revenue growth in 2021. At the same time, capacity expansion at our new state-of-the-art manufacturing facility in Virginia is coming on faster than originally anticipated. We now expect all lines in our new plant to be fully operational by the end of May, thirty days ahead of schedule. When completed, our capacity expansion investment will provide approximately 70% more capacity when compared to 2019 volume levels and will give us an important competitive advantage in today’s dynamic composite decking marketplace. The additional capacity further reinforces our position as the industry leader and most efficient manufacturer of high-performance, wood-alternative decking and railing,” said Bryan Fairbanks, President and CEO.

  Trex expects Q2 revenue growth of 36%. During the quarter, the company bought back 504,275 shares for $46 million under its stock repurchase program.

  For Q2, Trex expects sales of $295 million to $305 million. The midpoint is growth of 36% over last year’s Q2. Wall Street had been expecting $278.06 million.