Archive for October, 2021

• Morning News: October 20, 2021
  Eddy Elfenbein, October 20th, 2021 at 7:01 am

  China’s Real Estate Crisis Could Threaten Growth Into 2022. Beijing’s Undeterred

  As Evergrande Teeters, Chinese Media Walks a Fine Line

  The Reclusive Dictator Behind a Global Climate Catastrophe

  Boris Johnson Claims a Positive in Britain’s Shortages. Economists Disagree.

  Hot Vax Summer to Winter of Discontent — Stagflation-Lite Looms

  Lower-Income Americans Starting to Opt Out of Holiday Spending

  Bitcoin Sits Below All-Time High After U.S. ETF Debut

  Stock Fear Gauge Defies Bond Turmoil. Here Are Four Reasons Why

  Senators Urge FCC to Address Surveillance Threats to US Telecom Networks

  Bundesbank President Jens Weidmann to Step Down

  Meta? Horizon? Facebook Renaming Report Sparks Speculation

  Britain Fines Facebook $70 Million for Breaching Order in Giphy Deal

  Biogen Posts Much Smaller-Than-Expected Sales of New Alzheimer’s Drug

  Elon Musk Will Become a Trillionaire With SpaceX, Morgan Stanley Says

  Of Shots and Supply-Chain Snarls

  The Incredible Disappearing Hotel Breakfast—and Other Amenities Travelers Miss

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• CWS Market Review – October 19, 2021
  Eddy Elfenbein, October 19th, 2021 at 6:40 pm

  (This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

  -508 Points

  Thirty-four years ago today, the stock market crashed. The Dow Jones Industrial Average plunged 508 points to close at 1,783.74.

  A loss of 508 points is big today, but in 1987, it was staggering. In percentages terms, the 1987 crash was a loss of 22.6%. That was the biggest one-day percentage loss in the Dow’s history, and it still is today. It was bigger than even 1929.

  In fact, given the market’s “circuit breaker” rules, it’s a record that may never be broken. Nowadays, the exchange shuts down for the day if the S&P 500 falls by more than 20%.

  The Crash of 1987 is a difficult fact for people like myself who advocate a long-term buy-and-hold philosophy. After all, how could a crash like that happen? How come no one saw it coming? Why did it happen?

  The answers aren’t so easy. Like many historical events, the crash appears to be obvious in retrospect, yet it was so surprising when it happened.

  Let’s consider a few facts surrounding the crash of 1987. For one, the stock market had been soaring. The bull market started in 1982 and it was putting up very impressive numbers in 1986 and 1987. The big crash really just gave back the last several months’ worth of returns. The Dow actually closed slightly higher for the year of 1987. Many people forget that.

  Here’s a chart I made. Sure, I omitted some important data. But viewed from this perspective, the market doesn’t look so bad.

  

  The Federal Reserve, under the leadership of Alan Greenspan, had started raising interest rates. That’s always a painful tonic for a rising market. Also, Greenspan was new on the job, having started in August.

  Markets were already nervous. On Friday, October 16th, the Dow closed down 108 points. That may not sound like a lot to us, but it was an all-time record back then. On that evening’s “Wall $treet Week With Louis Rukeyser,” Rukeyser talked about the problem of mindless program trading.

  October 19th was a Monday but over the weekend, London was hit by its worst storm in 300 years. The storm was so bad that the Bank of England declared Friday the 16th a holiday. In an eerie coincidence, London was hit by a massive storm 58 years before in October 1929. As it turns out, Winston Churchill was visiting the NYSE on Black Thursday 1929.

  On Saturday October 17, James Baker, who was then Treasury Secretary, threatened the German government to weaken its currency or else he would devalue the U.S. dollar. Baker was reacting to the recently-released trade deficit figures. Baker reiterated his currency threats on the Sunday morning talk shows. That clearly alarmed many investors.

  By the way, if you’re into the Fibonacci sequence, then 1987 had a lot to offer you. It was five years after the bull market start, 13 years from the 1974 low, 21 years from the 1966 high and 55 years from the 1932 low.

  I’m sure there are others I’m missing. The point is that a lot of strange things seemed to come together on October 19, 1987.

  That morning’s Wall Street Journal ran a chart overlaying the recent market with the one in 1929, supposedly showing them following a similar path. I often see these scary charts. The trick is that the two lines follow wildly different scales.

  Asian markets opened lower on Monday morning. That was followed by a messy open in the U.S. The early losses, however, weren’t that bad. But after 2 p.m., the losses started to accelerate. In the final hour of trading, it turned into a panic.

  From a long-term perspective, the 1987 crash was a great time to buy.

  

  There’s another lesson to the market crash of 1987. It’s that at root, the market is fundamentally mysterious. There really is no good explanation for the market doing what it does. It just happens. We have lots of fancy math formulas to model what the market might do, but all of that is a guess. The market gods are capricious.

  The market is a mob and it will be no more wise or patient than a mob. Sir Isaac Newton famously said, “I can calculate the motion of heavenly bodies, but not the madness of people.” That’s wise counsel to heed the next time you hear someone’s market forecast.

  Now, whenever I hear someone say, “this market reminds me a lot of 1987.” I’m inclined to respond, “so you think we’re going to rise 20-fold in 34 years?”

  In the Compound with Friends

  Last week, I was invited by Josh Brown and Michael Batnick of Ritholtz Wealth Management to be a guest on their first-rate podcast, The Compound & Friends. I’ve been friends with them and an admirer of them for many years. Blair duQuesnay, one of my favorite bloggers/writers, also of Ritholtz, was another guest.

  Check it out:

  (During the podcast, I mangled my explanation of Miller Industries. Here’s a better explanation.)

  The First Bitcoin ETF Hits the Market

  Earlier today, the first Bitcoin ETF started trading. The official name is the ProShares Bitcoin Strategy ETF and the ticker symbol is BITO.

  There’s been a long battle to get a Bitcoin ETF. The SEC has been adamantly opposed to just about every idea. The fear is that Bitcoin can be easily manipulated. Technically, this ETF trades Bitcoin futures, not Bitcoin itself. That means the ETF won’t exactly track Bitcoin. The fund will have to constantly roll its portfolio into the following month’s contract which will probably eat into returns. In day-to-day terms, that won’t mean much but it could have a big impact over the long haul. The fund’s expense ratio is 0.95%.

  There are still lots of indirect ways of investing in crypto. According to the latest numbers I’ve seen, the company Microstrategy (MSTR) owns over 114,042 Bitcoins. That’s over $7 billion (well, in boring fiat).

  Our Buy List has been in on the game as well. Yesterday, Bakkt Holdings (BKKT) started trading. Bakkt is a digital asset trading platform. The company was launched three years ago by our very own Intercontinental Exchange (ICE).

  The Alpharetta, Georgia-based company, founded in 2018, initially focused on developing Bitcoin futures contracts and a custodial service that can be used by hedge funds and other institutional investors to store their digital assets. The business has since expanded, partnering with travel and leisure companies such as Choice Hotels and Starbucks to allow their customers to convert loyalty points into cash or buy a cup of coffee with their coin via their app.

  It helps that that ICE owns the NYSE. The deal involved Bakkt combining with a SPAC called VPC Impact Acquisition Holdings. The new Bitcoin ETF should be a big boost for Bakkt. According to Bakkt, the total market could reach $5 trillion by 2025. Frankly, the initial launch of Bakkt on the market was a disappointment. I think many investors had been expecting a big pop on its first day and it didn’t come.

  Intercontinental Exchange continues to do very well for us. It’s been on our Buy List for nearly five years and it’s up 145% for us. The company is due to report earnings on October 28. The consensus on Wall Street is for earnings of $1.21 per share.

  

  Stock Focus: Public Storage

  Let’s say your boss offers you a big raise and a promotion, but the catch is that the job requires you to move out of the country. You love to see the world, so you jump at the chance.

  But there’s one nagging question: what do you do with all your stuff?

  Nowadays, there’s an easy answer. You rent a storage unit. There are lots of these facilities all over the country. If you look long enough, you’re bound to come across Public Storage (PSA).

  Public Storage is the largest self-storage real estate investment trust (REIT) in the United States. There are currently more than 2,600 Public Storage locations around the world. The company is based in Glendale, CA.

  If you’re not familiar with a REIT, it’s basically the landlord of some real estate. If the REIT pays out almost all of its income to shareholders, then it gets preferential tax treatment. As a result, REITs often have good dividend yields. It’s a great way to invest in real estate.

  

  Public Storage was founded in 1972 by B. Wayne Hughes and Kenneth Volk Jr. During a trip to Texas, Hughes saw that local real estate developers had made, in effect, mini storage units, so he decided to bring the idea to Southern California. It was a brilliant idea because he could charge as much as apartments in term of price per square foot. The difference is that the upkeep costs were far less.

  The business quickly took off and by 1989, it had grown to 1,000 locations. PSA officially became a REIT in 1995. Today it has a market cap of $56 billion, and PSA is one of the largest REITs around.

  More than 90% of PSA’s revenue comes from its self-storage business. The company does a lot more than just provide the space. They also provide a broad range of services for their clients. PSA offers insurance and packing products. The company also had a subsidiary that provides boxes and truck rentals.

  It’s an interesting business because the storage lots tend to be located in unforgiving parts of large cities. They’re often located in dense clusters near freeways and intersections. It’s also interesting that PSA has relatively few employees. The lots are automated so customers can access their units at any time.

  As any fan of the TV show Storage Wars knows, abandoned units are auctioned off. (Despite what you may have heard, most abandoned or unpaid lots contain useless junk.)

  PSA has been a tremendous business over the years.

  Thirty years ago, you could have picked up one share of PSA for $8. Since then, the stock has increased by 40-fold! And that doesn’t include dividends. If you include dividends, then PSA gained over 180-fold. All from renting storage units!

  I really like PSA’s dividend. The company currently pays out a quarterly dividend of $2 per share, or $8 for the year. Think of it this way: If you had bought PSA 15 years ago, you’d now be yielding close to 10% based on your original purchase price.

  One of the reasons why I like the stock right now is that the industry is rebounding from an early pandemic decline. I also like that PSA is the dominant player in the industry. The company buys up smaller companies all the time. There hasn’t been much self-storage building recently. That means there’s been a scramble to buy out smaller storage companies. There are lots of small operators and they’re happy to sell to PSA.

  Public Storage currently yields 2.5% which is 0.87% more than the 10-year Treasury’s yield. The next earnings report is due out on November 1.

  

  (Don’t forget, if you want to learn more about Intercontinental Exchange and our other Buy List stocks, you can sign up for our premium newsletter. Join us today!)

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

  – Eddy

• The Bitcoin ETF
  Eddy Elfenbein, October 19th, 2021 at 11:01 am

  The first Bitcoin ETF, the ProShares Bitcoin Strategy ETF, is now trading under the ticker symbol BITO. The fund tracks Bitcoin futures.

  

• Housing Starts Dropped Last Month
  Eddy Elfenbein, October 19th, 2021 at 10:52 am

  The S&P 500 is up again today. This could be the fifth up day in a row. The index is now above 4,500, and we’re not far from our all-time high close of 4,536.95 from September 2.

  Lots of earnings are coming in today. Philip Morris (PM), Procter & Gamble (PG) and Johnson & Johnson (JNJ) all beat estimates. Netflix (NFLX) is due to report after the close. Wall Street expects $2.56 per share.

  This morning’s report on housing starts shows that housing starts fell to a one-year low. Starts dropped by 1.6% to 1.56 million. That’s the annualized rate. Wall Street had been expecting 1.62 million.

  Permits to build fell by 7.7%. That’s the biggest drop since February. The backlog of homes to build is near a 15-year high.

  From Barron’s:

  Supply chain disruptions and shortages aren’t particularly new for the residential real estate industry. When polled by the National Association of Home Builders in May, industry professionals reported widespread shortages across an assortment of building materials and supplies, including appliances, lumber, and wiring. Several home builders said last month that supply chain issues had cut into sales or deliveries, while Zillow said Monday it would pause home purchases through its Zillow Offers program due in part to a renovations backlog.

  

• Morning News: October 19, 2021
  Eddy Elfenbein, October 19th, 2021 at 7:03 am

  World Faces Fiscal Problems Much Worse Than Those From Covid, OECD Warns

  China’s Coal Rally Slows as Authorities Act to Tame Price

  How Villagers in China’s Silicon Valley Built a $30 Billion Fortune

  HSBC, Citigroup Rush In to Catch China Cross-Border Wealth

  Bitcoin Pushes Toward Record Before Debut of Futures-Based ETF

  Treasury Warns That Digital Currencies Could Weaken U.S. Sanctions

  The S.E.C. Weighs In on Meme-Stock Mania

  Halliburton Posts Q3 Profit As Higher Oil Prices Fuel Drilling Demand

  J&J Raises 2021 Profit View, Keeps Vaccine Sales Outlook Unchanged

  Procter & Gamble to Raise Prices on More Staples as Supply Problems Hit

  As Starbucks Workers Seek a Union, Company Officials Converge on Stores

  App Deal Highlights a Push to Lure Workers Back Into Offices

  What’s Your Pleasure? How About a T-shirt?

  Disney Stock Downgraded for First Time in 3 Years Amid Streaming Worries

  Nuclear Fusion Edges Toward the Mainstream

  Be sure to follow me on Twitter.

• Industrial Production Unexpectedly Drops
  Eddy Elfenbein, October 18th, 2021 at 12:50 pm

  The S&P 500 is a little bit higher today although the Dow is barely lower. On our Buy List, Intercontinental Exchange (ICE) is up to a new 52-week high. ICE is a 13% winner for us this year.

  This morning’s report in industrial production showed a sharp drop for September. Output dropped by 1.3%. That’s the biggest fall since February. Wall Street had been expecting a gain of 0.2%. Once again, the problem is supply-chain disruptions. The number for August was revised downward to a loss of 0.1% from a gain of 0.4%.

  From the Wall Street Journal:

  Manufacturing output, the biggest component of industrial production, fell 0.7% in September compared with August. Motor vehicle and parts production decreased 7.2% amid the shortage of semiconductors.

  The lingering effects of Hurricane Ida also contributed to the drop in manufacturing, by 0.3 percentage point, the Fed said.

  Despite the bad number for September, industrial production has recovered nicely in the last year. Compared with a year ago, industrial production is up 4.6%.

• Morning News: October 18, 2021
  Eddy Elfenbein, October 18th, 2021 at 7:01 am

  China’s Economy Stumbles on Power Crunch, Property Woes

  Oil Prices Climb as Covid Recovery, Power Generators Stoke Demand

  Central Banks and Governments in Eastern Europe at Odds Amid Inflation

  Italy Faces Capital Demand of More than $8 Billion to Offload Monte dei Paschi

  Biden’s Plans Raise Questions About What U.S. Can Afford Not to Do

  Fed Staff Says Wall Street Is Getting Inflation Call All Wrong

  Bitcoin Comes to the Big Board

  Big Labor and the Supply Shortage

  The 60/40 Portfolio Isn’t Dead, Just More Expensive

  Barclays Trading Boss Saw the $6 Billion London Whale Coming

  Goldman Sachs Wins Approval to Buy Out Its Partner in China

  Zillow Tumbles After It Stops Buying New Homes

  Toyota to Invest $3.4 Billion on U.S. Automotive Batteries Through 2030

  Google CEO Pichai Opens Up on Its Biggest Moonshot Yet

  Instagram Struggles With Fears of Losing Its ‘Pipeline’: Young Users

  Roblox, the Gaming Site, Wants to Grow Up Without Sacrificing Child Safety

  Be sure to follow me on Twitter.

• In the Compound & Friends
  Eddy Elfenbein, October 15th, 2021 at 1:13 pm

  I was invited by Josh Brown and Michael Batnick of Ritholtz Wealth Management to be a guest on their first-rate podcast, The Compound & Friends. I’ve been friends and an admirer of them for many years. Blair duQuesnay, one of my favorite bloggers/writers, also of Ritholtz, was another guest.

  (During the podcast, I mangled my explanation of Miller Industries. Here’s a better explanation.)

• Morning News: October 15, 2021
  Eddy Elfenbein, October 15th, 2021 at 7:01 am

  UK Says Billions Already Raised for “Green Revolution” Ahead of Investment Summit

  Shareholder Democracy Is Getting Bigger Trial Runs

  China Breaks Silence on Evergrande, Saying Risks ‘Controllable’

  Bitcoin Futures Frenzy Erupts as Day Traders Pile Into ETF Bets

  Brent Oil Hits $85 as Energy Crisis Stokes Demand Before Winter

  Rising Rents Are Fueling Inflation, Posing Trouble for the Fed

  Why Does Everyone Suddenly Care About Supply Chains?

  U.S. Banks See Wealth Management Boom on Borrowing, New Assets

  China Is Forcing Fashion to Mute Itself Over Dirty Cotton

  Chinese Electric Cars Engulf Western Europe’s Top Oil Producer

  Microsoft Shuts LinkedIn China, Citing ‘Challenging’ Climate

  Plant-Based Food Companies Face Critics: Environmental Advocates

  Meet Me in My Office, in Men’s Underwear on 5

  Review: In ‘The Lehman Trilogy,’ a Vivid Tale of Profit and Pain

  5 Reasons Not to Quit Your Job (Yet)

  Be sure to follow me on Twitter.

• Jobless Claims Fall Below 300,000
  Eddy Elfenbein, October 14th, 2021 at 12:30 pm

  I’m on the road today but I wanted to give you a quick update on the markets. This morning’s jobless claims came in at 293,000. That’s a new pandemic low. That’s also the first time we’ve broken below 300,000 in 20 months. Wall Street had been expecting 318,000.

  The drop in claims comes at an important time for the labor market, which has added jobs over the past two months at a decidedly slower-than-expected pace – 366,000 in August and 194,000 in September, leaving the household employment total still more than 5 million shy of where it was pre-pandemic.

  Thursday’s jobless claims report covered the period just before the Labor Department’s survey week for the closely watched nonfarm payrolls report.

  Federal Reserve officials have been watching the job market’s progress closely as the central bank weighs when to begin pulling back on the extraordinary help it’s been providing. Minutes released Wednesday from the Fed’s September meeting indicated that the first pullback could start as early as mid-November with a reduction in the amount of bonds it buys each month.

  We’re also getting the first earnings reports this week. Usually, the big banks go first. Bank of America (BAC), Wells Fargo (WFC), Citigroup (C) and Morgan Stanley (MS) reported earnings and all beat expectations.

  Morgan Stanley earned $1.98 per share which beat by 30 cents per share. Wells Fargo made $1.17 which topped expectations of $1 per share. Bank of America made 85 cents per share versus a 71-cent estimate. Citigroup made $2.15 per share which beat by 50 cents.