Archive for June, 2021

• Morning News: June 14, 2021
  Eddy Elfenbein, June 14th, 2021 at 7:10 am

  What’s At Stake for Markets as Debt Ceiling Looms

  The Recession Isn’t Over Till They Say It’s Over. (But Who Are They?)

  Powell Dashboard Shows Uneven Recovery as Fed Plots Next Steps

  Fed Tiptoes Towards the Taper Stage Months Before the Curtain Call

  The Fed Can Neither Leave Out The ‘Punch Bowl,’ Nor Take It Away

  Private Inequity: How a Powerful Industry Conquered the Tax System

  ‘Like Taxing Horseshoes’: Landlines Wane, Sap U.S. Broadband Aid

  In Leak Investigation, Tech Giants Are Caught Between Courts and Customers

  A Meme Stock Is Born: How to Spot the Next Reddit Favorite

  How Trump’s Trade War Built Shein, China’s First Global Fashion Giant

  Four at Toshiba Resign Over Campaign to Thwart Foreign Shareholders

  American Duo Plead Guilty to Helping Former Nissan Chief Ghosn Flee Japan

  Winning Bidder Paid $28 Million for Ticket to Space With Jeff Bezos

  Joshua Brown: Bitcoin Thirstmonsters

  Ben Carlson: Why I’m Not Worried U.S. Household Debt Is At Record Highs & The Coming Boom in Travel Credit Card Rewards

  Michael Batnick: Animal Spirits: The State of Residential Real Estate & Animal Spirits: The State of Residential Real Estate

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• Morning News: June 11, 2021
  Eddy Elfenbein, June 11th, 2021 at 7:04 am

  China May Not Be A Member of the G7, But It’s Dominating the Agenda

  The Global Logistics Logjam Shifts From Suez to Shenzhen

  As EU Preps Debut Recovery Bond, A Reality Check for “Safe Asset”

  El Salvador Plans To Use Electricity Generated From Volcanoes To Mine Bitcoin

  Saudi Arabia Takes Bullish Oil Message Straight to Wall Street

  Prices Jumped 5% in May From Year Earlier, Stoking Debate in Washington

  Sorry Millennials, Boomers Are Most Important Group for Market

  Push to End Pandemic Benefits May Not Be Panacea for U.S. Labor Shortage

  Netflix: The Store!

  Starbucks, Flush With Customers, Is Running Low on Ingredients

  Credit Suisse’s 30-Year-Old Trading Prodigy Goes It Alone

  How Microsoft Is Ditching the Video Game Console Wars

  Ben Carlson: How To Hedge Against Inflation

  Joshua Brown: I Did the Business Casual Podcast This Week

  Howard Lindzon: Jim Lanzone, CEO of Tinder, Joins Me on Panic with Friends to Discuss the Internet’s Battle for Attention

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• Jobless Claims and CPI
  Eddy Elfenbein, June 10th, 2021 at 9:52 am

  Some more economic reports this morning. Initial claims fell to 376,000. That’s another pandemic low. The estimate was for 370,000.

  This morning’s CPI report showed that consumer prices rose by 0.644% last month. Core inflation rose by 0.737%.

  In the last year, headline inflation is up 4.927%. That’s the highest year-over-year rate since 2008. Core inflation is up 3.795%. That’s the highest year-over-year rate since 1992.

  Used cars and truck prices continued their climb higher, rising 7.3% on the month and 29.7% for the past 12 months. The new vehicles index increased 1.6%, its biggest-single month gain since October 2009 and was up 3.3% for the 12-month period, the highest move since November 2011.

  However, the energy index was about flat for the month despite the huge runup in gasoline prices this year, while the food index repeated its April rise of 0.4%.
  The gasoline index is up 56.2% over the past year, part of an overall 28.5% increase in energy during the period. Food prices have remained comparatively tame, up 2.2% for the 12-month period.

• Morning News: June 10, 2021
  Eddy Elfenbein, June 10th, 2021 at 7:07 am

  Counting Down to a Big Inflation Number

  Inflation Is Surging. The Price Of A Toyota Pickup Truck Helps Explain Why

  An Exposé Has Congress Rethinking How to Tax the Superrich

  World’s Richest Face Tax Squeeze After 40% Run-Up in Fortunes

  Pipeline Investigation Upends Idea That Bitcoin Is Untraceable

  Bank Regulators Plot Toughest Capital Rule for Bitcoin & Banks to Face Stiff Bitcoin Capital Requirements

  United to Split Major Jet Order Between Boeing, Airbus

  Broadcaster Sky Turns to Original Shows to Fight Netflix, Amazon

  Meat Processor JBS Paid $11 Million In Ransom to Hackers

  GameStop Taps Amazon Australia Chief as CEO, May Sell Shares

  Toshiba Colluded with Japan Ministry to Undermine Shareholders, Probe Finds

  MoviePass Was Even Shadier Than We Thought

  Ben Carlson: Permanent Stimulus

  Michael Batnick: The Shoeshine Indicator is Dead

  Howard Lindzon: FinTech 3.0 Re-Architecting Financial Market Infrastructure & DeFi

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• Morning News: June 9, 2021
  Eddy Elfenbein, June 9th, 2021 at 7:06 am

  The Price of Goods Leaving China’s Factories Is Rising at Its Fastest Pace in 13 Years

  China Is Trying to Tame Inflation. It Matters to Much of the Globe.

  The Retreat of Exxon and the Oil Majors Won’t Stop Fossil Fuel

  Surprise Jump in U.S. Wages Gives Inflation Debate a New Twist

  Newest Meme Stocks Extend Gains With No Sign of Craze Fading

  Gig Companies’ Push for State-Level Worker Laws Faces Divided Labor Movement

  Farewell, Millennial Lifestyle Subsidy

  China’s Huawei to Be Excluded from Influential JPMorgan Bond Indices

  How An Ex-Semipro Poker Player Bet Big And Won The $4.3 Trillion Mortgage Market

  Wealthiest Executives Paid Little to Nothing in Federal Income Taxes, Report Says

  Nick Maggiulli: Is There A Better Way to Invest in Meme Stocks?

  Ben Carlson: Why Interest Rates Have to Stay Low For a Very Long Time

  Cullen Roche: Three Things I Think I Think – Bitcoin, Memes and Inflation

  Joshua Brown: It’s Not a Housing Bubble, It’s a Supply Bust

  Michael Batnick: Animal Spirits: Permanent Stimulus & Everybody Knows the Dice are Loaded

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• CWS Market Review – June 8, 2021
  Eddy Elfenbein, June 8th, 2021 at 5:23 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!)

  The “Dangerous” Stock Market

  The stock market continues to advance while disregarding any and all concerns for valuation. The latest rally has alarmed veteran market observers, especially the gains we’ve seen in highly-speculative and less-sound areas of the market.

  According to Nobel prize-winner Robert Shiller’s cyclically adjusted Price/Earnings Ratio or CAPE, stock valuations have never been higher. Seasoned market observers believe the market is due for a period of rest. Until now, the outlook has been clear, and the buy-it-all strategy has been painless. But newer investors, especially younger investors, have been lured in with the promises of easy wealth. This is dangerous and these newer investors have not experienced a painful bear market. In 1987, the Dow plunged 22% in a single day. It can happen again.

  A toxic combination of a cheerleading media and careless politicians have cynically boosted the rally which is increasingly taking the form of a Ponzi scheme. Investors are ignoring fundamentals and are buying to order to quickly sell to a “greater fool.” It’s a dangerous game and no one wants to be the last one holding the bag. This is the hallmark of a casino, not the economy of a responsible country.

  

  The speculation has been aided by a reckless Federal Reserve which seems blind to the threat of inflation and dollar depreciation. Trees don’t grow to the sky and similarly, stock prices don’t rise to the heavens. Moreover, investors aren’t considering geo-political risks. It’s a dangerous world and stability is a mirage. A painful reckoning is at hand.

  The lesson is that stocks are dangerous things to own. In case you had forgotten, a little over a year ago, the Dow was at 18,000. If it could be there then, it can be there again and soon. The fact is that we’re entering a period of massive volatility. You, as an individual investor, simply don’t have the risk appetite to deal with that kind of volatility.

  The above five paragraphs are nonsense from start to finish. I made it up in about five minutes. Yet it could pass, lightly edited, in the financial press any day of the week. In fact, the last paragraph is almost verbatim from a Felix Salmon video in 2010.

  The language is flat. It’s filled with clichés. It ascribes human characteristics to the market. Most importantly, it takes a hectoring and moralizing tone. So much financial commentary is thinly disguised public moralizing. Once you recognize it, you see it everywhere.

  Please forgive my unconventional digression, but this needs to be said. Stocks aren’t in any sense “dangerous.” Landmines are dangerous. Any comparison to 1987 is highly misleading. Nor do stocks need to rest, and there’s no such thing as a healthy correction. There won’t be some point in the future when the outlook is clear. I’m afraid it’s never clear.

  I don’t mean to attack the media. There’s a lot of excellent financial journalism. But I will point out a certain type of behavior that aims to stoke the fires of righteous indignation. The reason I call it out is because it’s the precise opposite attitude one needs in going about his or her investment decisions. My made-up intro contained zero information that could help an investor.

  Investing in the market is business. That’s all. Nothing more. Nothing less. Hopefully, sound judgement will lead you to better returns. Take the meme stocks. They had another strong day today. Will it continue? Beats me. They’re overpriced, but that’s my opinion. They can easily become more overpriced, but I would never say they’re dangerous or that the longs have some moral failing.

  A good deal of financial commentary aims to simplify that day’s market action into an easy-to-digest narrative that’s clear, concise and almost always, wrong. The public scolder and the incessant cheerleader will always have a platform, but investors should not confuse their rhetoric with a sober and clear-minded analysis of the market. The media’s agenda is not the same as yours.

  The best way to view the markets is to have a long-term focus and an independent mind. The rest is BS.

  Heico Raises Its Dividend

  Over at the premium service (which you can sign up for here), we’ve been doing very well with Heico (HEI) this year. The stock is up over 12% for us in 2021. The company announced today that it’s raising its semi-annual dividend from eight to nine cents per share.

  That’s a tiny part of their earnings, but it’s nice to see a vote of confidence from management. Heico also has an interesting tradition of having frequent yet small stock splits. I count 17 splits since 1995.

  Shares of Heico touched another new high today. This was the stock’s ninth consecutive up day. The reason I’m highlighting Heico, in addition to the dividend hike, is that the stock initially fell after its earnings report even though the numbers were quite good.

  

  That’s not uncommon. Traders like to act first and find out the details later. Many times we see stocks fall on earnings news, only to rebound later once the market gets hold of it senses.

  This is from Heico’s press release:

  Laurans A. Mendelson, HEICO’s Chairman and Chief Executive Officer, along with HEICO’s Co-Presidents, Eric A. Mendelson and Victor H. Mendelson, commented, “This dividend recognizes HEICO’s strong cash flow generation, coupled with our confidence in the future, including for a sustained commercial air travel recovery. Further, as is the case for all HEICO shareholders, the vast majority of HEICO’s Team Members will directly benefit from the dividend increase through their share ownership and we are deeply grateful for our Team Members’ outstanding efforts, especially during the COVID-19 Pandemic.”

  Considering the impact of cash dividends, prior stock splits and stock dividends, one share of HEICO worth $8.38 in 1990 has become worth on a combined basis approximately $5,361, representing an increase of approximately 640 times the 1990 value and a compound annual growth rate of approximately 24% as of June 4, 2021.

  A gain of 640-fold in 31 years is truly remarkable. That’s why I don’t dismiss a minor dividend hike. Over the years, it adds up. Heico is a wonderful stock.

  Workers Needed Everywhere!

  Earlier today, the Labor Department released its jobs openings report. According to the report, there are now 9.3 million job openings across the United States.

  The report completely floored Wall Street. Not only is it an all-time record, but it’s also over one million more jobs than Wall Street had been expecting.

  The economy is reopening at an impressive rate. According to the latest survey, 48% of companies say they have unfilled jobs. Bloomberg notes that hotel and restaurant workers are quitting at the highest pace on record. The New York Times says that for the first time in many years, workers are gaining leverage over employers. Hopefully that will result in higher wages, and that will result in more revenues for business.

  According to the May jobs report, which came out on Friday, the U.S. economy created 559,000 net new jobs and the employment rate dropped 5.8%. Wall Street had been expecting 671,000 new jobs.

  Private payrolls added 492,000 and manufacturing added 23,000. Average hourly earnings increased by 0.5%. In the last year, average hourly earnings are up 2%.

  The average work week was 34.9. The labor force participation rate was 61.6%. The under-employment rate fell to 10.2%. The payroll gain for March was revised to 785,000. The number for April was revised up to 278,000.

  If these numbers continue, I think the Federal Reserve could taper its bond purchases before most people think. We’re still probably 18 months from getting back to normal. For now, the labor market appears to be headed in the right direction.

  Stock Focus: Raven Industries

  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.

  Check out this long-term chart of Raven (black line) against the S&P 500 (blue line):

  

  Raven has beaten the S&P 500 by such a large margin that the index nearly looks like a flat line. Raven has gained more than 5,200% while the market is up 335%.

  What’s also impressive is that Raven is still below its all-time high from three years ago. Notice how the chart shows several downdrafts, but each time, Raven has bounced back.

  Raven has a market cap of $1.6 billion and only four analysts cover it. Compare that with Facebook (FB) which has over 50.

  Raven’s business got hit hard during the lockdown, but it’s coming back nicely. Raven’s fiscal year ends at the end of January. The Q1 report came out a few weeks ago. In it, Raven said it made 26 cents per share which nearly doubled estimates. That’s up from 11 cents per share one year ago. Quarterly sales rose 30% to $112.5 million.

  Raven isn’t on our Buy List this year, but if it were to fall to a decent valuation, like it did a year ago, it would be an attractive addition to our Buy List.

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

  – Eddy

  P.S. Don’t forget to sign up for our premium newsletter.

• Sherwin-Williams Raises Guidance
  Eddy Elfenbein, June 8th, 2021 at 5:11 pm

  After the closing bell, Sherwin-Williams (SHW) raised its sales guidance for Q2 and the entire year. The paint people also raised their earnings guidance for this year.

  Sherwin now sees Q2 sales rising by “a high-teens percentage” over last year’s Q2. For the entire year, Sherwin sees sales “up a high-single to low-double-digit percentage” compared with last year.

  SHW sees 2021 earnings of $9.15 to $9.45 per share. The previous forecast range was $8.80 to $9.07 per share.

  “We outperformed expectations in the first quarter, and sales in The Americas Group and Performance Coatings Group have been stronger than expected in the second quarter,” said Chairman, President and Chief Executive Officer, John G. Morikis. “Demand remains strong in our architectural end markets, led by residential repaint and new residential, with continued improvement in commercial and property management. Demand is also strong on the industrial side of our business and is recovering faster than expected. At the same time, the raw material inflation we experienced in the first quarter has continued in the second quarter. We have great confidence we will offset these higher costs, and we are implementing additional price increases across all our segments, including a 7% August 1st price increase in The Americas Group. We now expect our full year 2021 adjusted diluted net income per share to increase 13.6% at the midpoint of the range compared to the prior year.”

  The stock is down some in the after-hours market due to the cost pressures mentioned above in bold.

• Heico Raises Its Dividend
  Eddy Elfenbein, June 8th, 2021 at 10:22 am

  Heico (HEI) announced today that it’s raising its semi-annual dividend from eight to nine cents per share. That’s a tiny part of their earnings, but it’s nice to see anyway. Heico also has an interesting tradition of having frequent yet small stock splits. I count 17 splits since 1995.

  Shares of Heico touched a new high today. The stock initially fell after its earnings report even though the numbers were quite good. That’s not uncommon. Traders like to act first and find out the details later.

  From the press release:

  Laurans A. Mendelson, HEICO’s Chairman and Chief Executive Officer, along with HEICO’s Co-Presidents, Eric A. Mendelson and Victor H. Mendelson, commented, “This dividend recognizes HEICO’s strong cash flow generation, coupled with our confidence in the future, including for a sustained commercial air travel recovery. Further, as is the case for all HEICO shareholders, the vast majority of HEICO’s Team Members will directly benefit from the dividend increase through their share ownership and we are deeply grateful for our Team Members’ outstanding efforts, especially during the COVID-19 Pandemic.”

  Considering the impact of cash dividends, prior stock splits and stock dividends, one share of HEICO worth $8.38 in 1990 has become worth on a combined basis approximately $5,361, representing an increase of approximately 640 times the 1990 value and a compound annual growth rate of approximately 24% as of June 4, 2021.

  

• Morning News: June 8, 2021
  Eddy Elfenbein, June 8th, 2021 at 7:11 am

  China’s Wolf Warriors Are Turning the World Against Beijing

  Biden Administration Sets Up ‘Strike Force’ to Go After China on Trade

  Biden Administration Moves to Unkink Supply Chain Bottlenecks

  Small Business Optimism Slips on Hiring, Inflation Worries

  The Debate Over Hacking Ransomware Hackers

  One Crypto Exchange Is Going to Extreme Lengths on Cybersecurity

  Bitcoin’s Terrible Run Isn’t Over Yet

  El Salvador President’s Bitcoin Push Casts Shadow Over IMF Efforts

  AMC, Other Meme Stocks Turn Options Market Upside Down

  Apollo Global to Buy Gas Transportation Firm Total Operations

  Burger King Trolls Chick-fil-A with LGBTQ+ Donations

  Michael Batnick: Am I Diversified?

  Ben Carlson: The Future of Bear Markets

  Joshua Brown: Base Effects & Is Food Delivery the Worst Business Ever?

  Howard Lindzon: Momentum Monday – Yoots Will Be Yoots And Lots Of Strength Behind The Silliness

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• AFLAC’s Fraud Charges 3.5 Years On
  Eddy Elfenbein, June 7th, 2021 at 1:12 pm

  In early 2018, the Intercept ran a series of articles attacking AFLAC (AFL). I thought the charges were exaggerated.

  This is what I wrote:

  The allegations, if true, are disappointing. However, nothing I’ve seen so far has me concerned for AFLAC’s future.

  First, let me say that I’m hardly an independent observer. I’ve owned AFLAC’s stock for many years, and I’ve admired the company.

  Also, The Intercept has a political bent to their reporting. I’m reading this with my eyes open.

  But most of what I’ve read so far is what I’d call the unseemly byproduct of running a large and profitable enterprise.

  For example, the sales jobs described and very tough and demanding. That’s not a surprise. Perhaps AFLAC makes the jobs seem better than they are, but that’s a long way from an Enron-type scam. It’s not difficult for them to revamp their recruitment process.

  Any big company will have lawsuits brought against them. If you read what the lawyers have to say, without any explanation from the company, the picture can look quite ugly. That’s what lawyers do.

  In the movie Raising Arizona, the police asked Nathan Arizona, Sr., if he had any disgruntled employees. He answered, “Hell, they’re all disgruntled. I ain’t running no damn daisy farm.”

  At the time, it was a big deal. The stock plunged more than 7% on the news. I’m revisiting this years later to show you how things like this often blow over. Since the article, AFLAC is up by more than 36%, including dividends. The stock just touched another new high today.