Archive for August, 2021

• Wall Street Turns Defensive
  Eddy Elfenbein, August 16th, 2021 at 12:00 pm

  Like many of you, I’ve been watching the horrible scenes coming out of Afghanistan. The president said he will be addressing the nation at 3:45 pm, just 15 minutes before the close.

  So far, the stock market is down about 0.5%. It’s a very defensive day. For example, the Nasdaq is down about twice as much as the rest of the market. Energy is down the most while Utilities, Consumer Staples and Healthcare are the leaders.

  The S&P 500 Low Vol Index is up 0.57% today while the S&P 500 High Beta is down 1.38%.

  The Wall Street Journal notes that corporations are hoarding cash.

  Cash and short-term investments on corporate balance sheets globally are at an all-time high of $6.84 trillion, according to data from S&P Global, extrapolated from second-quarter earnings reports. That is 45% higher than the average in the five years preceding the pandemic and a 2.6% increase from the previous quarter.

  In April, analysts at Goldman Sachs had lifted their 2021 forecast for spending growth by S&P 500 companies to 19% from 10%, “as uncertainty continues to fall and global economies continue to reopen.”

• Morning News: August 16, 2021
  Eddy Elfenbein, August 16th, 2021 at 7:05 am

  Japan’s Economy Returns to Growth, But Virus Threat Looms

  Higher Inflation Target Could Trigger Jobs Boom, Former Fed Staffers Say

  U.S. SEC Prepares to Take on Corporate America Over Workforce Disclosures

  The Delta Variant Is Already Leaving Its Mark on Business

  Companies Are Hoarding Record Cash Amid Delta Fears

  50 Years After Going Off Gold, the Dollar Must Go for Crypto

  Democrats’ Debt Dare Risks Shutdown Fight With No Easy Way Out

  Taxing Rich Peoples’ Empty Homes Isn’t Helping the Housing Crisis

  Hedge Funds Are Demanding Their SPAC Money Back

  A Skeptical Stock Analyst Wins Big by Seeking Out Frauds

  Detroit Sticks with Trucks, SUVs Despite Lofty 2030 Goals for EVs

  You’ve Never Heard of the Biggest Digital Media Company in America

  The Cutthroat World of $10 Ice Cream

  How a 27-Year-Old Built a $3 Billion Fortune After an Allergic Reaction

  Google Infringed on Patents Owned by Sonos, a Trade Judge Says

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• Morning News: August 13, 2021
  Eddy Elfenbein, August 13th, 2021 at 7:01 am

  China’s Port Shutdown Raises Fears of Closures Worldwide

  Oil Extends Losses as Delta Variant Slows Demand Recovery

  Mystery Hedge Fund Bolsters 500% Return on Curious Nasdaq Stock

  As Fed Shifts Gears, Shaping Consensus Gets Trickier for Powell

  The Way the Senate Melted Down Over Crypto Is Very Revealing

  Fortune Raised 429 Ether—About $1.3 Million—In Its First-Ever NFT Sale

  Adidas Sells Reebok to Authentic Brands for $2.5 Billion

  Disney+ Reaches 116 Million Subscribers, and Its Parks Division Returns to Profitability

  Speaker Pioneer Sonos Fighting Google in ‘Golden Age of Audio’

  Apple’s Child Protection Features Spark Concern Within Its Own Ranks

  Drumbeat Grows Louder for BHP to Exit Petroleum

  Reddit is Valued at More than $10 Billion in Latest Funding Round

  Amazon Drops ‘Draconian’ Policy on Making Games After Work Hours

  The Wedding Business Is Booming, a Short-Term Jolt to the Economy

  Richard Branson Sells $300 Million Stake in Virgin Galactic

  The Elan of Elon Musk

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• Jobless Claims Fall to 375,000
  Eddy Elfenbein, August 12th, 2021 at 11:47 am

  This morning’s jobless claims report fell to 375,000, down from 387,000 last week. This was the third weekly decline in a row.

  

  We’re still above the pandemic low of 368,000 reached twice earlier this summer. Continuing claims fell to 2.866 million. That’s the lowest in 17 months.

  Jobless claims numbers have come down sharply since the spring as the economy has recovered, and they have settled near the 400,000 level in recent weeks. The four-week average is now 396,250 initial claims.

  The latest jobless claims report, which reflects the first week of August, came a week after the July jobs report showed a bigger-than-expects gain in employment. There were also a record high number of open jobs at the end of July.

  Eligibility of unemployment benefits, and the payouts, were expanded during the pandemic as businesses were forced to close due to public health restrictions. Some states have already ended the expanded programs, while the national program is set to expire next month.

  The bond market doesn’t seem terribly worried. The yield on the five-year Treasury has crept up from 0.65% on August 3 to 0.81% yesterday, but it’s still below where it was in late June.

  The futures market thinks the odds are against any Fed rate hikes over the coming 15 months.

  

• Two More Earnings Reports
  Eddy Elfenbein, August 12th, 2021 at 10:44 am

  Our final three earnings reports for Q2 earnings season are due out today. The first two came out before the opening bell.

  Broadridge Financial Solutions (BR) said it made $2.19 for its fiscal Q4 which matched Wall Street’s consensus.

  “Broadridge delivered strong fiscal year 2021 results, with 10% Recurring revenue growth, 13% Adjusted EPS growth, and record sales driven by increased investor participation and strong demand for digital solutions,” said Tim Gokey, Broadridge’s CEO.

  “We have continued to invest in our long-term growth both organically and with the recent acquisition of Itiviti. We are also continuing to return cash to our shareholders, and we are raising our annual dividend by 11% to $2.56. Broadridge has increased its annual dividend every year since we became a public company, and we have announced double digit increases in eight of the past nine years, highlighting our commitment to delivering long-term shareholder returns,” Mr. Gokey added.

  “Looking ahead to fiscal year 2022, we expect another strong year, with 12-15% Recurring revenue growth, continued margin expansion, and 11-15% Adjusted EPS growth. Broadridge continues to execute on our long-term strategic goals across Governance, Capital Markets and Wealth & Investment Management, and we remain on track to deliver at the higher end of our three-year financial objectives.”

  For the coming year, Broadridge expects earnings growth of 11% to 15%, recurring revenue growth of 12% to 15% and operating margins around 19%.

  For the year, Broadridge’s revenues rose 12% to $1.532 billion. Annual EPS was $5.66. That’s up from $5.03 per share last year.

  The company is increasing its quarterly dividend from 57.5 cents per share to 64 cents per share. That’s an increase of 11.3%. This is Broadridge’s 15th annual dividend increase in a row.

  Middleby (MIDD) said it made $2.11 per share for Q2. Wall Street had been expecting $2.04 per share. Sales rose 71.4% to $808.8 million. At the end of the quarter, MIDD’s backlog stood at $994.2 million compared with $522.7 million at the end of the fiscal 2020.

  “Our strong second quarter results reflect the ongoing recovery in our foodservice businesses with measurable progress toward our long-term growth initiatives and realized profitability improvements at all three of our business segments,” said Tim FitzGerald, CEO of The Middleby Corporation. “We continued to make investments in technology solutions to capture rapidly-evolving market trends and execute upon our strategic sales initiatives as we position for the future.”

  Disney‘s (DIS) earnings are due out after the close.

• Morning News: August 12, 2021
  Eddy Elfenbein, August 12th, 2021 at 7:00 am

  Poland Defies U.S. and EU by Passing Contentious Media Law

  Joe Biden Wants OPEC to Drill

  Biden’s OPEC Plea Is Really Directed at Anxious Drivers

  Consumer Prices Keep Climbing as Fed and White House Await a Cool-Down

  Liquidity Is Evaporating Even Before the Fed Taper Hits Markets

  One Number to Gauge Where the Economy Is Headed

  Fed Framework Gives Rise to Mash-Up of Views, Averaging Strategies

  U.S. Employers Get Religion With Vaccine Mandates

  Your $4.39 Latte From the Local Roaster Could Soon Cost More

  MacKenzie Scott’s Money Bombs Are Single Handedly Reshaping America

  The New Rich Are Overtaking Old Money in Korea’s Billionaire Rankings

  Apple’s Hot Antitrust Autumn: Storm Clouds Are Forming from Multiple Directions

  NIO Earnings Beat Estimates — and Its Stock Is Doing Something It Usually Doesn’t Do

  Let’s Make A Deal: Who’s For Sale In Hollywood And For How Much?

  We Need to Build Our Way Out of This Mess

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• The Next Fed Chairman
  Eddy Elfenbein, August 11th, 2021 at 2:31 pm

  Jerome Powell’s term as Fed Chairman expires in six months. It gets a little confusing because there are actually two separate appointments.

  One nomination is to be a Fed governor. That’s a 14-year term, but members rarely fill out a full term. Powell was appointed in 2012 to fill out a term that expired in 2014. He was then nominated for a full term that expires in 2028.

  To be Fed Chairman is a separate nomination and that’s for four years. Powell was already a governor when President Trump appointed him to be Fed Chairman in 2018. The Senate confirmed him as Fed Chair by a vote of 84-13.

  President Biden has the option to reappoint him. It’s not uncommon for presidents to reappoint Fed chairs even if they didn’t originally nominate them. Bernanke was appointed by President Bush and President Obama. Greenspan was appointed by Reagan, Bush-41, Clinton and Bush-43.

  One name that’s discussed as a possible successor is Lael Brainard. PredictIt has a betting contract for the next Fed Chair.

  

  I don’t place much stock in these online betting markets. In my view, they’re just for fun. However, this look at the current possible replacements seems about right.

• Hetty Green: The Witch of Wall Street
  Eddy Elfenbein, August 11th, 2021 at 12:41 pm

• Inflation Cooled Slightly in July
  Eddy Elfenbein, August 11th, 2021 at 10:56 am

  The government released the inflation report for July this morning. According to the number-crunchers, inflation rose 0.47% last month. That’s the lowest reading since February. It’s nearly half the rate we saw in June. Over the past year, inflation is up by 5.28%. That’s just slightly below the 12-month number we had last month.

  Core inflation rose by 0.33% last month. That’s also the slowest rate since February. Wall Street had been expecting an increase of 0.4%. In the past year, core inflation is running at 4.23%.

  Used car and truck prices, which rose rapidly between April and June as Americans looked to vacation, gained just 0.2% in July after a climb of more than 10% in the prior month.

  Apparel prices were flat after a 0.7% increase in June, and transportation services prices actually declined after a pop of more than 1% at the end of the second quarter.

  The Federal Reserve has been keeping a close eye on inflation reports since it’s the central bank’s job to maximize employment and keep prices stable.

  Chairman Jerome Powell and other officials acknowledge the recent acceleration in prices but believe that the inflation is “transitory” and that prices won’t continue to increase at their current pace for too long.

  “Today’s CPI data should help assuage investor fears that the Fed is too laid-back about inflation pressures,” wrote Seema Shah, chief strategist at Principal Global Investors. “The details of the data release suggest some easing in the reopening and supply-shortage driven boost to prices, and tentatively suggests that inflation may have peaked. Investors in the transitory camp will feel slightly vindicated.”

  Here’s the 12-month inflation rate. Headline is in black and the core rate is in red.

  

  By the way, this chart also shows you how much more stable core prices are which is why economists like to track it.

  Here’s an interesting chart. This is simply the CPI, but notice the big notch in the early part of last year. That’s behind much, but not all, of the increase in inflation.

  

  Stats folks call this the base effect. Whenever you hear someone claim that “X is up so much percent,” you need to ask, up since when? If we measure the inflation rate since January 2020, then inflation isn’t so bad.

• Morning News: August 11, 2021
  Eddy Elfenbein, August 11th, 2021 at 7:14 am

  The Global Economy Is Shrugging Off the Delta Variant, For Now

  How Sweden Became the Silicon Valley of Europe

  China’s New Carbon Market Is Crippled by Low Turnover, Prices

  Shoots of Greenflation Spring New Challenges on Portfolio Managers

  How to Sell ‘Carbon Neutral’ Fossil Fuel That Doesn’t Exist

  Investors Look Under the Radar for Winners from U.S. Infrastructure Bill

  Workers Are Getting Pay Raises And It Could End Up Contributing To High Inflation

  Coinbase Rides Cryptomania to a $1.6 Billion Quarterly Profit

  Coinbase Drops Promise of Token’s Cash Backing That Wasn’t True

  U.S. Postal Service Proposes Holiday Surcharges for Businesses and Individuals

  Masa Son Pours Money Into New Fund as Softbank Scales Back China Bets

  Norton and Avast Are Merging into an $8 Billion Antivirus Empire

  Mountain Dew Goes Hard as PepsiCo, Boston Beer Partner on a Boozy Version

  What Cuomo’s Resignation Means for Business

  ‘Revenge Travel,’ Family Edition

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