Archive for June, 2021

• Another All-Time High for Stocks
  Eddy Elfenbein, June 24th, 2021 at 10:45 am

  The stock market is again up to a new all-time high. The S&P 500 has been as high as 4,271.16 this morning. The Dow is still about 800 points from its all-time high from May 10.

  

  This morning’s weekly unemployment claims report fell to 411,000. That’s still above the pandemic low of 374,000 from two weeks ago.

  Also this morning, the Q1 GDP was revised to 6.4%. That’s the same number as the first and second reports. I don’t ever recall that happening. In fact, there’s a tiny change in these numbers but not enough to alter the decimal.

  

• Morning News: June 24, 2021
  Eddy Elfenbein, June 24th, 2021 at 7:03 am

  China ‘Banks’ Time for Its Elderly While U.S. Seniors Drown in Debt

  U.S. Bans Imports of Solar Panel Material from Chinese Company

  The Little Hedge Fund Taking Down Big Oil

  JPMorgan Sees New Headwind for Bitcoin

  No End to Whiplash in Meme Stocks, Crypto and More

  The Inside Story of the Sideways Ship That Broke Global Trade

  Antitrust Overhaul Passes Its First Tests. Now, the Hard Parts.

  Yellen Steers the Economy With Brooklyn on Her Mind

  Fed’s Mixed Messages on Inflation Unsettle Investors

  The Canny Business Model Behind Our Obsession With White Paint

  Buffett Weighs In on Tax-Free Philanthropy

  Visa to Buy Swedish Fintech Tink for $2.2 Billion

  BuzzFeed Nears Deal to Go Public Via SPAC, Eyeing Digital-Media Rollup

  Credit Suisse’s New Chairman Sends Chill Through Investment Bank

  Bezos’ 2021 Space Odyssey A Risk Too Far for Insurers

  Silicon Valley Gave Asia’s Richest Man Billions, But Things Aren’t All Going to Plan

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• New-Homes Sales Miss Estimates. By a Lot.
  Eddy Elfenbein, June 23rd, 2021 at 11:45 am

  By my count, 13 Fed officials are giving speeches or testimonies this week. That’s a lot of jargon headed our way. The good news is that inflation fears continue to abate. The 10-year Treasury yield is below 1.5%.

  This morning’s new-home sales report came in at 769,000. That’s the annualized number. That’s a big miss. Wall Street had been expecting 865,000. Of course, home prices have been shooting up so that should put some pressure on buying.

  Not only that but the previous three months were revised downward. By a lot.

  Shipping bottlenecks and higher input prices have held back homebuilding, contributing to skyrocketing prices for the limited supply of homes available. A silver lining of the report was data showing new-housing inventory continued to increase, though about a third of those homes have yet to be built.

  (…)

  There were 330,000 new homes for sale in May, the most since July 2019. At the current sales pace, it would take 5.1 months to exhaust the supply of new homes, compared with 4.6 months in the prior month.

  The median sales price rose to a record $374,400. Mortgage applications have fallen sharply since January, suggesting that demand for homes is slowing.

• Morning News: June 23, 2021
  Eddy Elfenbein, June 23rd, 2021 at 7:06 am

  How China Rivals Elon Musk in Rattling Crypto Markets

  Reckoning With Brexit, Five Years Later

  A Higher Minimum Wage Can Lead Employers to Lower Compensation

  Analysis Says Biden’s Tax Plan Will Effectively Cut Lower- and Middle-Class Wages

  Everyone Is Quitting Their Job. Great!

  Nine Months After Lockdowns, U.S. Births Plummeted by 8%

  The SPAC Man Method: Inside the Billionaire Rush for Riches

  Manufacturers Have an Answer to Higher Costs: Pass Them On

  Tech Giants, Fearful of Proposals to Curb Them, Blitz Washington With Lobbying

  Amazon and Other Tech Giants Race to Buy Up Renewable Energy

  Electric Vehicles Seen Reaching Sales Supremacy by 2033, Faster Than Expected

  Amazon’s Planned Purchase of MGM Faces FTC Scrutiny

  Meat Grown in Israeli Bioreactors Is Coming to American Diners

  ‘It’s Like Coming Home to Family’: Disneyland Paris Reopens

  Agreement in Principle Reached Over Suez Canal Ship, Says Stann Marine

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• $20 Gold Coin Sells for $19 Million
  Eddy Elfenbein, June 22nd, 2021 at 9:41 pm

  Gary Alexander is one of my favorite financial writers. We used to work together years ago.

  Here’s Gary’s take on some U.S. currency history:

  The Grand Experiment began on July 22, 1776, when the Continental Congress issued $2 million in new bills, known as Continentals, which bore the inscription, “The United Colonies.” Unbacked by gold or any other hard asset, the bills led to almost immediate inflation. By 1778, it took $6 in paper to buy what $1 bought in 1776. By November 1779, it took $40 to buy what $1 bought in 1776. As General George Washington said at the time, “A wagonload of currency will hardly purchase a wagonload of provisions.”

  The Continental failed and left the young nation with a hefty war debt. Chastened by the experience of that Continental currency, the U.S. Constitution prescribed: “No State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts,” and America drafted a series of gold and silver coins in the 1790s, resisting the urge to issue new paper notes until the Civil War, with Lincoln’s “Greenbacks.”

  The U.S. didn’t abandon gold in one step. In June 1933, America officially went off the gold standard for domestic convertibility, but nations still traded in gold. The newly minted 1933 $20 gold Double Eagles were almost all confiscated, melted, and destroyed but one remains. On June 7, it sold for a record $18.9 million. Once owned by Egypt’s King Farouk, it was later seized in a Secret Service sting. With a face value of $20, this one-of-a-kind collectible drew nearly $19 million at auction. Beat that price, Bitcoin!

  Here’s the whole thing.

• Bitcoin Sinks Below $30,000
  Eddy Elfenbein, June 22nd, 2021 at 12:52 pm

  Suddenly, cryptos have become unpopular. I don’t know why anyone’s waited this long, but here we are.

  Bitcoin just dropped below $30,000. At one point, it was negative for the year. At its low today, Bitcoin got down to $28,993.67. That’s less than half of the all-time high of $64,863.10 reached on April 13.

  Dogecoin, which I find completely baffling, dropped below 17 cents. It peaked last month at 73 cents.

  Cryptos tend to move so quickly that they all may be rallying by the time you read this.

  This morning’s existing-homes sales report fell 0.9% to an annualized rate of 5.8 million. That’s for April.

  At the end of May, total housing inventory was 1.23 million units. That’s down 20% from a year ago.

  On our Buy List, Danaher (DHR) and Moody’s (MCO) are both at new highs. Hershey (HSY) and Zoetis (ZTS) are close to new highs.

  The troublesome stock lately has been Miller Industries (MLR). It just dropped below $40 per share. The stock pays a quarterly dividend of 18 cents per share. That now yields about 1.7%.

• Morning News: June 22, 2021
  Eddy Elfenbein, June 22nd, 2021 at 7:09 am

  China Crypto Clampdown Sends Bitcoin Closer to Key $30,000 Level

  Key Oil Spread Jumps to Seven-Year High in Sign of Supply Crunch

  Even After Biden Tax Hike, US Firms Would Pay Less Than Foreign Rivals

  U.S. Lawmakers Likely to Press Powell on Fed’s ‘Hawkish’ Turn

  ‘Roller-Coaster Ride’ in Bonds Puts Onus on Powell to Bring Calm

  The Pandemic Stimulus Was Front-Loaded. That Could Mean a Bumpy Year.

  The World’s Financial Centers Struggle Back to the Office

  Banks Slowly Offer Alternatives to Overdraft Fees, a Bane of Struggling Spenders

  Google Executives See Cracks in Their Company’s Success

  Google Faces EU Antitrust Probe of Alleged Ad-Tech Abuses

  Nvidia Hedges Against Crypto Hangover With Chips Just for Miners

  The Problem With the Genius Billionaire Philanthropist Superhero

  The Hedge Fund that Bet Against GameStop is Closing Down, Report Says

  U.S. Supreme Court Tosses Class Action Ruling Against Goldman Sachs

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• CWS Market Review – June 21, 2021
  Eddy Elfenbein, June 21st, 2021 at 6:20 pm

  (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. The premium version contains more detailed analysis and I cover our Buy List stocks in greater depth. Join us today!)

  Raven Industries Soars 50% on Buyout Offer

  In our newsletter from two weeks ago, I featured the company Raven Industries (RAVN). I’ve been a fan of Raven for many years. The company has been a remarkable performer for decades, yet it’s virtually ignored by Wall Street.

  Well, that was very fortuitous timing. Today, CNH Industrials (CNHI) offered to buy out Raven for $58 per share. That’s a 50% premium from Friday’s closing price. Raven’s stock has shot up 49% in today’s trading.

  

  CNH Industrial is the world’s second largest agricultural equipment maker. The deal values Raven at $2.1 billion. The company already has plans to spin off its truck, bus and engine business sometime next year.

  The deal is going to be funded with cash on hand. They hope to finish the merger by the end of this year. From the press release: “The transaction is expected to generate approximately US$400 million of run-rate revenue synergies by calendar year 2025, resulting in US$150 million of incremental EBITDA.”

  I tend to cringe whenever I hear about these “expected synergies” from companies. I’m sure they mean well, and they’re trying to justify a big-ticket purchase, but reality has a habit of prevailing over forecasts.

  I’m very happy for Raven. Here’s some of what I said about Raven two weeks ago:

  If I told you about a stock that’s up 750-fold over the last 40 years, you’d probably assume that it’s very well-known on Wall Street. Instead, Raven Industries (RAVN) is barely a speck on the canyons of Wall Street. The stock has been an amazing winner, yet it’s virtually ignored. Only a handful of Wall Street analysts bother covering it.

  What do they do? Raven has picked up where the Montgolfier brothers left off. Raven specializes in balloons. Or to be more specific, as Dun & Bradstreet describes them, “a diversified technology company that caters to the industrial, agricultural, energy, construction, military, and aerospace sectors.”

  The company has a few divisions, but what most gets my attention is Raven’s Aerostar division. This group sells high-altitude research balloons as well as parachutes and protective wear used by U.S. agencies. (See this video.)

  Raven’s Engineered Films Division makes reinforced plastic sheeting for various applications. Their Applied Technology Division manufactures high-tech agricultural aids, from GPS-based steering devices and chemical spray equipment to field computers.

  I said that if Raven were to fall to a decent valuation, then it would make an attractive addition to our Buy List. Apparently, CNH agreed! (Maybe they’re subscribers!)

  This is a reminder that there are lots of great little companies out there that few people know about.

  Why Value Isn’t Exactly Value

  On Friday, the stock market fell for the fourth day in a row. The S&P 500 closed below its 50-day moving average for the first time since March.

  

  The selling didn’t continue into today. In fact, today was a pretty strong day for the stock market. But what struck me was the strength in value stocks. The value stock index more than doubled the growth stock index. Typically, value underperforms on strong up days. Of course, anything typical on Wall Street has plenty of exceptions.

  I think today’s action highlights a problem with these categories like growth and value. The problem is that the sectors are based on very mechanistic rules. The value portfolio is based on stocks with low price-to-book ratios. As a result, the value indexes are crowded with many bank and energy stocks.

  Due to the particulars of those industries, it’s very likely that any stock operating in those fields will have an unusually low price-to-book ratio. That’s just part of the business.

  Classically, when I think of a value stock, I think of a Ben Graham-type company that’s going for a decent price. Now, when I see there’s been a big move in value, I assume it’s been a good day for cyclicals. That’s what today was.

  I’ll give you some eye-opening stats. The S&P 500 Value Index is 21.4% Financials and 5.6% Energy. Compare that with the S&P 500 Growth Index which is 2.8% Financials and 0.1% Energy. I think they need to rework these indices to get a better idea of how growth and value are behaving.

  The twitter handle SentimenTrader had a fascinating observation. Despite the S&P 500 being close to a new high, many stocks are near their one-month low. By ST’s count, more than 40% of stocks in the S&P 500 are at their one-month low which is an all-time record when (importantly) the overall index is so high.

  There are a few things that could be causing this. One is that this rally isn’t as broad as it appears. But I think the more likely scenario is that this rally has already been so broad and stable. As a result, dropping to a one-month low ain’t that big a deal.

  Think of it this way. Imagine if the stock market were a single stock and that stock had been trading between $99 and $100 per share every day for a month. Then suddenly it dropped to $98. That’s basically what last week was. Sure, that’s a one-month low but only because the market had been so stable.

  New High Today for Zoetis

  We added Zoetis (ZTS) to our Buy List this year. I really like this animal-healthcare stock. Despite my optimism, the stock was an immediate flop.

  In mid-February, the Q4 earnings report was pretty good. Zoetis beat by four cents per share. The company also said it expected full-year earnings between $4.36 and $4.46 per share. Wall Street had been expecting $4.26 per share.

  

  Still, Wall Street didn’t seem to care. By early March, we were sitting on a 13% loss. Slowly, the stock started to turn around for us. A few weeks ago, Zoetis reported Q1 earnings of $1.26 per share. That was 23 cents more than expectations.

  The company also lifted its full-year outlook. The new guidance is for $4.42 to $4.51 per share. Again, the stock took a short-term hit after the earnings report.

  Here we are a few weeks later and Zoetis hit a new high today. The stock is up close to 30% from its March low. We didn’t do anything other than buy and then hold onto a good stock.

  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: June 21, 2021
  Eddy Elfenbein, June 21st, 2021 at 7:05 am

  Cargo Is Piling Up Everywhere And It’s Making Inflation Worse

  Treasury, U.K. Yield Curves Weighed Down by Rethink on Reflation

  Fed’s “Big Tent” Framework May Fray Under Inflation Surge

  Powell Heads to Capitol Hill as Market Churns on Dot Shock

  The New Test for Central Bankers’ Cool: Booming House Prices

  Investment Firms Aren’t Buying All the Houses. But They Are Buying the Most Important Ones.

  As Lumber Prices Fall, the Threat of Inflation Loses Its Bite

  Bitcoin Falls to Two-Week Low as China Cracks Down on Crypto

  Wall Street Banks Struggle to Cash In on China Hiring Binge

  U.S. Employers Wrestle with COVID Vaccine Requirements in Regulatory “Hairball”

  How Do They Say Economic Recovery? ‘I Quit.’

  Worker Shortage Has Sparked a Rent-A-Staffer Boom in the Food Industry

  Big U.S. Retailers Line Up Deals to Take on Amazon Prime Day Frenzy

  New York Faces Lasting Economic Toll Even as Pandemic Passes

  Vivendi Agrees to Sell 10% of Universal Music Group to Ackman’s SPAC

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• Morning News: June 18, 2021
  Eddy Elfenbein, June 18th, 2021 at 7:02 am

  China Growth Decouples From Credit, With Global Implications

  China’s Steps Turn Iron Into World’s Most Volatile Commodity

  As China Scrutinizes Its Entrepreneurs, a Power Couple Cashes Out

  A Huge Backlog at China’s Ports Could Spoil Your Holiday Shopping This Year

  Venezuela’s Maduro Pleads for Foreign Capital, Biden Deal in Caracas Interview

  As Fed Wakes Sleeping Dollar, Jolted Bears May Bolster Gains

  Investors Dump Hedges on Junk Bonds Even as Europe Defaults Loom

  Mortgage Rates Shoot Higher After Fed Chairman Powell’s Comments

  The Problem With El Salvador’s Bitcoin Law

  Mark Cuban ‘Hit’ by Titan Crypto Crash As Coin’s Price Falls to Near Zero

  Wall Street Wrestles With Abrupt Arrival of Juneteenth Law

  There’s a New Duo That Could Help Rein In Amazon

  Nielsen Now Knows When You Are Streaming

  Facebook’s ‘Neighborhoods’ Faces Crowded Niche Market, Profiling Concerns

  Ben Carlson: How To Prepare For a Lengthy Bull Market

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