Archive for July, 2021

• Morning News: July 21, 2021
  Eddy Elfenbein, July 21st, 2021 at 7:10 am

  Singapore’s Grip on $30 Billion Market Challenged by China

  Is the U.S. Economy Too Hot or Too Cold? Yes.

  ‘Every Time, It’s Messy:’ U.S. Again Approaching Debt Ceiling

  One Simple (Political) Reason to Explain Bond Yields

  Biden to Name a Critic of Big Tech as the Top Antitrust Cop

  U.S. Mortgage Applications Decline in Latest Week as Rates Steadily Rise

  Bankers Need 72-Hour Week to Master Job, $4 Trillion Wealth Manager Says

  JPMorgan Entices Dimon to Stick Around With Surprise Award

  Netflix to Add Mobile Video Games as Subscriber Growth Slows

  Disney Is Chipping Away At Netflix’s Dominance.

  Raytheon CEO Sees Hypersonic-Weapons Era: ‘Speed Trumps Stealth’

  Space Tourism Tax: Congressman Announces New Plan After Blue Origin Launch

  Taco Bell Latest Fast-Food Chain to Face Supply Shortages

  Coca-Cola Quarterly Revenue Tops 2019 Levels; Company Raises Full-Year Forecast

  8 Hours a Day, 5 Days a Week Is Not Working for Us

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• CWS Market Review – July 20, 2021
  Eddy Elfenbein, July 20th, 2021 at 7:11 pm

  This is the free version of CWS Market Review. If you have a chance, please sign up for the premium newsletter for $20 per month or $200 for the whole year.

  High-Beta Stocks Snap

  The stock market rose today which snapped a three-day losing streak. On Monday, the S&P 500 suffered its biggest drop in two months. At one point during the trading day, the index dropped below its 50-day moving average. That’s often a key bearish move for chart-watchers.

  What’s interesting is that the S&P 500 has come close to dipping below its 50-DMA a few times. In fact, it’s gone below it as well. However, each time the index gets near the 50-DMA, it acts almost like a trampoline. Every dip has become a buying opportunity. It happened again today.

  

  Here’s a great fact: The S&P 500 hasn’t closed below its 50-DMA on back-to-back days since October. That makes this the longest such streak in 25 years.

  The takeaway is that this has been a very calm and consistently rising market. That’s why any break has gotten some attention. It’s hard to think of a market where “buy the dip” has worked so consistently.

  But what’s really stood out recently has been the divergence between High Beta stocks and Low Volatility stocks. In plain English, these are stocks that move around a lot compared with the stocks that are more stable. Historically, the stable ones have done better, but the High Beta ones can be dramatic winners in a short period of time.

  It’s important to follow how these two types of stocks are performing relative to each other. When High Beta does well, that usually means investors are getting greedier. When Low Vol takes the lead, that usually means that investors are becoming more cautious. It’s not that one is better than the other. Rather, it’s a question of how investors feel about the current cycle.

  Since the pandemic low, the High Beta stocks have been big winners. I think that’s because of the optimism regarding the economy. Not that things are going swimmingly, but things are going better than the smart money had expected, especially since the beginning of the year.

  Since early June, however, the Low Vol stocks have been making their comeback. It started out quietly, but it got very dramatic over the last four days. Monday turned into an all-out rout for the High Beta stocks.

  Look at how dramatically the High Beta sector (blue line) has broken down.

  

  It’s funny that you can easily see that the black line is clearly less volatile.

  Our Buy List isn’t exactly a Low Vol portfolio, but it leans in that direction. Quick note: When you build a portfolio—really, any portfolio—you’ll find that you’ll unintentionally skew in one direction or another. That’s just how investing is. For example, if you buy a lot of REITs or Utilities, you’ll quickly find that your portfolio is very sensitive to any interest-rate comments from the Federal Reserve.

  I didn’t plan to have a Low Vol portfolio. I chose what I liked, and it turned out that the majority of our stocks bend in that direction. The good news is that we’ve outperformed the overall market significantly over the past few days.

  The shift to Low Vol has been too big to ignore. It’s not just a little bump like we’ve seen before. I think this could be the turning point for this cycle. Unfortunately, pinpointing the starting or ending points of market cycles is a notoriously difficult task. This earnings season will probably tell us a lot more where we stand. We have two Buy List earnings reports later this week, and 13 more coming next week. I suspect that Low Vol will continue to lead.

  Nearing the Top in the Presidential Election Cycle

  That’s not the only cycle to watch. Circle your calendars for August 4. Why? Because that’s been the traditional peak in the four-year market cycle.

  I took all of the daily closes of the Dow Jones Industrial Average going back to its beginning 125 years ago. I then crunched what the average four-year cycle looks like. I found that the market peaks on August 4 of the post-election year.

  Here’s what the cycle looks like. I started the line at 100 at the beginning of the post-election year.

  

  This mini-bear market lasts for about 14 months, until September 30 of the mid-term year. Over that time, the market loses about 2.58%. That may not seem like a lot—and it’s not—but for a 14-month segment in a 125-year data series, it stands out.

  For the other 34 months, the Dow has had an average gain of 38.73%. There’s another slow period from the middle of the pre-election year to the middle of the election year. Except for those two periods, the market does quite well.

  Let me be clear: I don’t put faith in these types of stats. I think they’re interesting in a general sense. I would never make a market decision based on this.

  Still, it’s interesting that incumbent presidents have probably had an effect on the stock markets. They work to make the economy peak by election day. The rally lasts for a few months before it stalls out. The market eventually bottoms around the mid-term elections. One of the best things about being a long-term investor is that you don’t have to worry about such things.

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  The Shortest Recession Ever!

  This National Bureau for Economic Research (NBER) is considered to be the industry standard in economics for dating economic recessions and expansions. They already told us that the economy went into recession in March 2020 (duh).

  We had been waiting for the official word on when the recession ended. This week, NBER said the economy bottomed in April 2020. That means it was just a two-month recession. That’s the fastest one on record. NBER lists all the economic cycles going back to 1854.

  The previous record for fastest recession was a six-month recession during the first half of 1980. That was a generally chaotic time for the U.S. economy.

  You often hear in the media that a recession is two or more consecutive quarters of negative GDP growth. That’s a good ballpark definition of a recession, but it’s not precisely correct.

  This is the official policy from NBER. (My apologies for the econo-speak).

  In determining the dates of business cycle turning points, the committee follows standard procedures to assure continuity in the chronology. Because a recession must influence the economy broadly and not be confined to one sector, the committee emphasizes economy-wide measures of economic activity. It views real gross domestic product (GDP) as the single best measure of aggregate economic activity. This concept is measured two ways by the US Bureau of Economic Analysis (BEA)—from the expenditure side and from the income side. Because the two measures have strengths and weaknesses and differ by a statistical discrepancy, the committee considers real GDP and real gross domestic income (GDI) on an equal footing. It also places considerable weight on total payroll employment as measured by the Bureau of Labor Statistics (BLS).

  Basically, real GDP is the best. The problem is that that’s quarterly data so the committee uses monthly data like nonfarm payrolls to fill in the gaps.

  In March and April 2020, the U.S. economy lost 22 million jobs. Since then, we’ve added back over 15 million. We’re still a long way from full employment, but I don’t see any recession on the horizon.

  Mueller Industries Jumps 7%

  A few weeks ago, I highlighted Mueller Industries (MLI) for you. At the time, I said “Keep an eye on Mueller. This could be a big winner in the months ahead.” The shares jumped nearly 7% today thanks to a great earnings report.

  One of the reasons why I like Mueller, other than being a great company, is that it’s mostly ignored by Wall Street. Mueller is a leading manufacturer of copper, brass, aluminum and plastic products. This is a classic small-cap cyclical stock. Once you realize the scope of their business, you understand that the use of Mueller’s products is seemingly endless. Mueller makes everything from copper tubing and fittings to brass and copper alloy bars and refrigeration valves.

  You can find Mueller most anywhere. Some of the companies that rely on Mueller are in sectors like plumbing, heating, air conditioning, refrigeration, appliance, medical, automotive, military and defense, marine and recreational. Mueller’s operations are located throughout the United States and in Canada, Mexico, Great Britain, South Korea, and China.

  Over the last 30 years, MLI has gained more than 110-fold (including dividends).

  

  This morning, Mueller reported Q2 earnings of $1.92 per share. That’s up from 50 cents for last year’s Q2. How does that compare with Wall Street’s consensus? Well, that’s hard to say because no analysts currently provide earnings estimates. Given the market’s strong reaction, we can probably assume that it was much better than expected.

  It’s pretty amazing that a company that’s been around for over 100 years and has gained more than 100-fold in 30 years is virtually ignored by Wall Street. I’ll reiterate what I said before, keep an eye on Mueller. This can be a big winner for investors.

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

  – Eddy

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• The 50-DMA Holds and the Market Rebounds
  Eddy Elfenbein, July 20th, 2021 at 11:10 am

  

  Yesterday, the S&P 500 dipped below its 50-day moving average but importantly, did not close below it. The market is rebounding nicely today.

  Some of the big losers yesterday were airlines and cruise stocks. In other words, companies tied to lockdowns. That’s the fear hanging over Wall Street.

  This week is all about earnings. We’ll get our first two Buy List earnings reports on Thursday.

  This morning’s housing starts report showed an increase for June. Housing starts increased 6.3% to a seasonally adjusted annual rate of 1.643 million. Economists had been expecting an increase of 1.590 million.

  The other report was for building permits. That dropped by 5.1% last month. Since May, lumber futures are down 70%.

• Morning News: July 20, 2021
  Eddy Elfenbein, July 20th, 2021 at 7:03 am

  U.S. Recession Ended in April 2020, Making It Shortest on Record

  Inflation Is Here — These 35 Metrics Tell You How Much to Worry

  As Stablecoins Explode in Popularity, Regulators Prepare A Response

  ‘A Lot of Very Young People’ Are Going to Buy the Dip in Stocks

  The Battles to Come Over the Benefits of Working From Home

  ‘Game Over’: Food Carts Adjust to a Changed City

  Top Brewers Toast Easing of Pandemic Curbs with Zero Alcohol Beer

  The Invisible Hand Behind the Tokyo Olympics

  Running Low on Battery Power: Brexit Britain Faces an Acid Test

  In Push to Supply Tesla, Piedmont Lithium Irks North Carolina Neighbors

  Israel Warns Unilever Chief Over Ben & Jerry’s Boycott

  Ben & Jerry’s Will Stop Selling Ice Cream in Palestinian Territories

  LVMH Gives Designer Virgil Abloh Bigger Role, Buys Stake in Off-White

  SPAC U-Turn Mars Ackman’s Hedge Fund Pivot

  Another Senior Goldman Sachs Executive Is Leaving – And Colleagues Are Vexed

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• NBER Calls the Official Recession Dates
  Eddy Elfenbein, July 19th, 2021 at 2:44 pm

  The National Bureau of Economic Research is widely considered to the be the official standard for dating economic recessions.

  They just called the most recent recession. The peak was in February 2020 and the trough was in April 2020. This was the fastest recession on record.

  The Business Cycle Dating Committee of the National Bureau of Economic Research maintains a chronology of the peaks and troughs of US business cycles. The committee has determined that a trough in monthly economic activity occurred in the US economy in April 2020. The previous peak in economic activity occurred in February 2020. The recession lasted two months, which makes it the shortest US recession on record.

  The NBER chronology does not identify the precise moment that the economy entered a recession or expansion. In the NBER’s convention for measuring the duration of a recession, the first month of the recession is the month following the peak and the last month is the month of the trough. Because the most recent trough was in April 2020, the last month of the recession was April 2020, and May 2020 was the first month of the subsequent expansion.

  You’ll often hear that a recession is two or more quarters of negative economic growth. That’s not exactly right. From their website:

  In determining the dates of business cycle turning points, the committee follows standard procedures to assure continuity in the chronology. Because a recession must influence the economy broadly and not be confined to one sector, the committee emphasizes economy-wide measures of economic activity. It views real gross domestic product (GDP) as the single best measure of aggregate economic activity. This concept is measured two ways by the US Bureau of Economic Analysis (BEA)—from the expenditure side and from the income side. Because the two measures have strengths and weaknesses and differ by a statistical discrepancy, the committee considers real GDP and real gross domestic income (GDI) on an equal footing. It also places considerable weight on total payroll employment as measured by the Bureau of Labor Statistics (BLS).

• The Peak of the Presidential Cycle
  Eddy Elfenbein, July 19th, 2021 at 11:16 am

  We’re coming up on the traditional peak in the four-year presidential cycle.

  I took the entire history of the Dow Jones back to 1896 and crunched how it performs in four-year segments.

  

  On August 4 of the post-election year, the Dow has historically peaked. This mini-bear market lasts until September 30 of the mid-term year.

  Over that time, the market loses about 2.58%. That may not seem like a lot—and it’s not—but for a 14-month segment in a 125-year data series, it stands out.

  For the other 34 months, the Dow has had an average gain of 38.73%. There’s another slow period from the middle of the pre-election year to the middle of the election year.

  I don’t put faith in these types of stats. I think they’re interesting in a general sense. I would never make a market decision based on this.

  Still, it’s interesting that incumbent presidents probably have had an effect on the stock markets. They work to make the economy peak by election day. The rally lasts for a few months before it stalls out. The market eventually bottoms around the mid-term elections.

• Dow -700 on Covid Fears
  Eddy Elfenbein, July 19th, 2021 at 10:26 am

  Covid is scaring the stock market once again. The Dow is currently down over 700 points. At its low, the S&P 500 was down 1.84%. This could be the worst day for market in two months. Some of the airlines are down over 5%.

  Also this morning, we learned that homebuilder confidence is still high, but it’s down a bit.

  A monthly sentiment index from the National Association of Home Builders dropped 1 point to 80 in July. The index stood at 72 in July 2020. Anything above 50 is considered positive. The index hit a record high of 90 in November of last year.

  “Builders continue to grapple with elevated building material prices and supply shortages, particularly the price of oriented strand board, which has skyrocketed more than 500% above its January 2020 level,” said NAHB Chairman Chuck Fowke, a homebuilder from Tampa, Florida.

  Robinhood is looking to sell 55 million shares between $38 and $42 per share. The ticker symbol is HOOD. It will probably go public towards the end of next week.

  Here’s a look at the growing gap between High Beta and Low Vol stocks.

  

• Morning News: July 19, 2021
  Eddy Elfenbein, July 19th, 2021 at 7:10 am

  As Lebanon Collapses, the Man With an Iron Grip on Its Finances Faces Questions

  OPEC Plus Agrees on Oil Production Increase, Easing Pressure on Supplies and Prices

  Record Steel Prices Inject Life Into Long-Suffering Industry

  The Pandemic Safety Net Is Coming Apart. Now What?

  Yellen Expresses Doubts on Results of Trump’s China Deal

  What China Expects From Businesses: Total Surrender

  China Frictions Steer Electric Automakers Away From Rare Earth Magnets

  The Failure of China’s Microchip Giant Tests Beijing’s Tech Ambitions

  Biden’s Antitrust Initiative Threatens a Big Railroad Takeover

  Bill Ackman Rejigs Universal Deal After Regulators Probe SPAC Plan

  Robinhood Seeks Up to $35 Billion Valuation in Mega U.S. IPO

  Bored Ex-Lehman Trader Builds a $6.7 Billion Fortune With a Hot App

  Tesla Unveils $199-A-Month Full Self-Driving Subscription Plan — But There’s A Catch

  Malaysian Police Destroy 1,069 Bitcoin Mining Rigs With Steamroller

  J&J Exploring Putting Talc Liabilities Into Bankruptcy

  Americans Sentenced to Prison for Helping Carlos Ghosn Flee Japan

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• Retail Sales Unexpectedly Increased in June
  Eddy Elfenbein, July 16th, 2021 at 12:56 pm

  The stock market is down again today. This could be our third loss in the last four days. The S&P 500 is on pace for its first back-to-back losses since June 17-18. The S&P 500 is trading 2.6% above its 50-day moving average, but 252 stocks in the index are trading below their 50-DMA.

  This morning’s retail sales report showed an unexpected increase for June of 0.6%.

  Receipts at auto dealerships fell 2.0% after declining 4.6% in May. Sales at clothing stores increased 2.6%. Consumers increased spending at restaurants and bars, leading to a 2.3% rise in receipts. Sales at restaurants and bars increased 40.2% compared to June 2020.

  Receipts at electronics and appliance stores rose 3.3%; sales at furniture stores fell 3.6%. Sales at sporting goods, hobby, musical instrument and book stores dropped 1.7%. Receipts at food and beverage stores gained 0.6%. Sales at building material stores fell 1.6%.

  Online retail sales rose 1.2%, likely lifted by Amazon’s Prime Day, which was emulated by other retailers.

  Excluding automobiles, gasoline, building materials and food services, retail sales increased 1.1% last month after a downwardly revised 1.4% decrease in May. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have dropped 0.7% in May.

  Here’s a great stat from Ryan Detrick. In May, lumber was up more than 130% YTD. It’s now down 20%.

  Check out the growing gap between High Beta and Low Vol. The S&P 500 High Beta Index is in red and Low Vol in blue.

  

• Morning News: July 16, 2021
  Eddy Elfenbein, July 16th, 2021 at 7:01 am

  Japan Beefs Up Diplomatic Efforts on Regulating Digital Currency

  ECB Policymakers Set for Showdown on Policy Path

  U.S. Warns Investors on Hong Kong, Citing China’s Pressure

  China Opened a National Carbon Market. Here’s Why it Matters.

  Building Solar Farms May Not Build the Middle Class

  More OPEC+ Crude is Needed, How Much Depends on Who You Believe

  U.S. Jobless Claims, Benefits Payments Fall to Pandemic Lows

  Yellen Sees ‘Several More Months of Rapid inflation’ Before Easing, Worries About Housing Impact

  Biden to Reappoint Jerome Powell as Fed Chair, Say Economists

  Fed Chair Jerome Powell Says Cryptocurrencies Are A ‘Failed’ Payment Mechanism and Stablecoins Need to Be Regulated

  Jack Dorsey’s Square Is Building A Bitcoin-Inspired Financial Services Business

  ‘The Market Is Insane’: Cars Are Sold Even Before They Hit the Lot

  Xiaomi Overtakes Apple as World’s No. 2 Phone Maker

  Intel Is in Talks to Buy GlobalFoundries for About $30 Billion

  ‘Shuttle Diplomacy Gone Bad’: How Japan’s Investing Star Became Embroiled in Toshiba Board Dispute

  Rolling Stone Names Top Daily Beast Staffer as New Editor-in-Chief

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