Archive for November, 2021

  • October Jobs Report = +531,000
    , November 5th, 2021 at 8:35 am

    This morning, the government said the U.S. economy created 531,000 net new jobs last month. Wall Street had been expecting a gain of 450,000 jobs. August was revised higher by 117,000 and September was revised up by 235,000.

    The unemployment rate fell to 4.6%. The unemployment rate is lower now than it was in every single month from 1971 through 1997.

    Breaking down the numbers, private payrolls rose by 604,000. Manufacturing added 60,000 jobs. Government lost 73,000 jobs. Leisure and hospitality added 164,000.

    Average hourly earnings rose by 0.4%. In the last year, it’s up by 4.9%. The workforce participation rate was 61.6%. The broader U-6 rate was 8.3%.

  • Morning News: November 5, 2021
    , November 5th, 2021 at 7:03 am

    ECB Can’t Yield Digital Money Space to Private Sector

    Volatile Bonds Are the Price of Unreliable Boyfriends

    Marketmind: Headed for $100 Trillion

    Shiba Inu Coin Craze Is Driving Demand for—What Else?—Shiba Inu Puppies

    The World’s Addiction to Palm Oil Is Only Getting Worse

    Here’s What Citigroup to Goldman Say About Oil After OPEC+ Move

    The Power Grid Is Just Another Casino for Energy Traders

    Silicon Valley Exec Sam Altman Puts $375 Million, His Biggest Investment Ever, Into Fusion Start-Up Helion Energy

    If the Labor Shortage Continues, the U.S. Economy Won’t Be Able to Recover

    Battered Bond Traders Brace for Whiplash From U.S. Payrolls

    Pfizer Develops Covid Pill That Cuts Hospitalizations and Deaths by 89%

    To Build the Metaverse, Meta First Wants to Build Stores

    Airbus Deliveries Slip Amid Supply-Chain Struggles

    Boeing Shareholders Reach Settlement in 737 MAX Board Oversight Suit

    Elon Musk Is Building a Sci-Fi World, and the Rest of Us Are Trapped in It

    What Red Flags? Elizabeth Holmes Trial Exposes Investors’ Carelessness

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  • Morning News: November 4, 2021
    , November 4th, 2021 at 7:05 am

    OPEC and Russia Will Decide on Oil Output Under Pressure from President Biden

    China Is Permanently Damaging Its Marketplace

    Inflation Bonds Are Getting a Big Rate Bump

    As Fed Kicks Off Taper, Some Investors Seek to Dial Down Risk

    John Authers: Powell Dodged a Taper Tantrum With Ease. That’s Suspicious

    Retailers Dream of A Glitzy Christmas, Even As Supply Chain Snarls Loom

    U.S. Airline Disruptions Cast A Pall Over Holiday Travel

    Google Wants to Work With the Pentagon Again, Despite Employee Concerns

    Toyota Boosts Profit Outlook on Weaker Yen, But Warns of Production Risks

    SoftBank’s $100 Billion Fund for Startups Pays Too Little to Retain Top Talent

    Highly Paid Union Workers Give UPS a Surprise Win in Delivery Wars

    How Tyson Foods Got 60,500 Workers to Get the Coronavirus Vaccine Quickly

    The Price of Living in ‘Paradise’ Is Higher Than Ever

    GlobalFoundries Hopes to Turn Profitable Amid the Chip Shortage

    Credit Suisse Revamps Business in Post-Archegos Overhaul

    The New Magazine Alexander Hamilton Might Have Written For

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  • Earnings from Miller Industries and Ansys
    , November 3rd, 2021 at 4:46 pm

    Miller Industries (MLR) reported that their third-quarter net sales were $164.7 million. That’s a drop of 2.2%. Net income was 34 cents per share. That’s down from 57 cents per share for last year’s third-quarter.

    Gross profit was $17.8 million, or 10.8% of net sales, compared to $17.8 million, or 10.6% of net sales, for last year’s Q3.

    For the nine months ended September 30, 2021, net sales were $515.8 million, an increase of 9.1% compared to $472.9 million in the prior year period. The Company reported net income of $13.5 million, or $1.19 per share for the first nine months of 2021, a decrease of 24.0% compared to net income of $17.8 million, or $1.56 per share for the first nine months of 2020.

    Jeffrey I. Badgley, Co-Chief Executive Officer of the Company said, “Supply chain challenges and inflationary pressures increased throughout the quarter, making it increasingly difficult to secure certain parts to complete finished goods. However, we are pleased with our performance during the quarter despite these challenges and are encouraged by the demand trends in our end-markets. That said, we are unsure of when the supply chain disruptions and labor headwinds will subside, and we will continue to leverage all of our resources to ensure that we meet customer demand.”

    Mr. Badgley continued, “Given demand near all-time highs, we feel confident about our long-term business prospects. Further, our international operations had a very successful quarter as Europe’s pandemic restrictions began to ease. Though supply chain challenges remain, we continue to be conservative with our cash, grow our backlog, and improve our operational efficiency. As we move towards and into 2022, we believe the Company is well-positioned to take advantage of growth opportunities when supply chain related issues eventually subside. We believe that our strong financial position and cash flow will allow us to bounce back from these headwinds and give us the financial flexibility to deliver for our customers and generate long-term shareholder value.”

    Ansys (ANSS) reported Q3 revenue growth of 21% and earnings of $1.59 per share. Wall Street had been expecting earnings of $1.34 per share.

    “Ansys recorded excellent third quarter results, in which we exceeded our financial guidance across all key metrics. Our double-digit growth thus far in 2021 is further evidence of our multiphysics product leadership and strong customer relationships, which are furthering our strategy of making simulation pervasive across the product lifecycle. In October, we added to our market-leading portfolio with the acquisition of Zemax, expanding the scope of Ansys’ solution offering. With the addition of Zemax technologies, the industry-leading Ansys product portfolio will offer customers comprehensive, end-to-end solutions for simulating next-generation optical and photonics products,” said Ajei Gopal, Ansys president and CEO.

    Nicole Anasenes, Ansys CFO, stated, “Our strong Q3 performance reflects the strength of our core business and continued momentum across our enterprise and small- and medium-sized customers. During Q3, Ansys recorded ACV growth of 20% and revenue growth of 20% and 21% on a GAAP and non-GAAP basis, respectively. The Q3 results further contributed to the strong year-to-date performance, reflecting ACV growth of 17% and revenue growth of 18% and 19% on a GAAP and non-GAAP basis, respectively.”

    Anasenes further stated, “Our year-to-date results indicate we are tracking to our business model of double-digit growth with industry-leading margins. Looking towards the end of the year, we continue to see a robust deal pipeline and momentum in the business, bolstering our confidence to raise full-year financial guidance above and beyond the impact of our strong Q3 top-line performance.”

    Ansys expects Q4 earnings to range between $2.48 and $2.81 per share. That comes to full-year earnings of $7.05 to $7.38 per share. The previous guidance range was $6.85 to $7.15 per share.

  • The Taper Is On!
    , November 3rd, 2021 at 2:02 pm

    Here’s the Fed’s policy statement. The central bank says that the taper is on.

    The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

    With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months, but the summer’s rise in COVID-19 cases has slowed their recovery. Inflation is elevated, largely reflecting factors that are expected to be transitory. Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

    The path of the economy continues to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remain.

    The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In light of the substantial further progress the economy has made toward the Committee’s goals since last December, the Committee decided to begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities. Beginning later this month, the Committee will increase its holdings of Treasury securities by at least $70 billion per month and of agency mortgage‑backed securities by at least $35 billion per month. Beginning in December, the Committee will increase its holdings of Treasury securities by at least $60 billion per month and of agency mortgage-backed securities by at least $30 billion per month. The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook. The Federal Reserve’s ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

    In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

    Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.

  • ADP Payroll Report = +571,000
    , November 3rd, 2021 at 1:29 pm

    The ADP report on private payrolls said that 571,000 new jobs were created last month. Expectations were for 400,000.

    Leisure and hospitality, a category that includes bars, restaurants, hotels and the like, saw a gain of 185,000 for a sector that remains well below its pre-pandemic employment level. The sector is seen as a proxy for an economic recovery that stalled over the summer due to a rise in the delta Covid variant and a massive clog in supply lines.

    “The job market is revving back up as the delta wave of the pandemic winds down,” said Mark Zandi, chief economist at Moody’s Analytics, which aids ADP in compiling the report. “Job gains are accelerating across all industries, and especially among large companies. As long as the pandemic remains contained, more big job gains are likely in coming months.”

    The official jobs report is due out on Friday.

  • Broadridge Financial Earned $1.07 per Share
    , November 3rd, 2021 at 12:10 pm

    This morning, Broadridge Financial Solutions (BR) said it made $1.07 per share for its fiscal Q1. Analysts had been expecting 99 cents per share. Recurring fee revenue rose 16% to $751 million.

    “Broadridge reported strong first quarter results,” said Tim Gokey, Broadridge’s CEO. “Recurring revenues grew by 16%, propelled by revenue from new sales, continued robust governance trends, and our ongoing integration of Itiviti.

    With a strong first quarter, Broadridge is on track to achieve our full-year guidance of 12-15% recurring revenue growth and 11-15% Adjusted EPS growth. We are focused on delivering sustainable, long-term growth across our governance, capital markets and wealth businesses, and we remain well-positioned to achieve the higher end of our three-year growth objectives.”

    Last year, Broadridge made $5.66 per share. The current guidance comes to $6.28 to $6.51 per share for this year. This is a reiteration of what they’ve said before. The shares are down about 5% today.

  • Morning News: November 3, 2021
    , November 3rd, 2021 at 7:02 am

    China Coal Surges to End Longest Losing Streak Since 2015

    Global Finance Industry Says It Has $130 Trillion to Invest in Efforts to Tackle Climate Change

    Bankers Committing to ‘Net Zero’ Don’t Agree on What It Means

    ECB “Very Unlikely” to Raise Rates in 2022, Lagarde Says

    How “Substantial” Was Progress for the Fed?

    As the Fed Prepares to Slow Support, Attention Shifts to Rate Increases

    In a ‘Workers Economy,’ Who Really Holds the Cards?

    Just When You Think the YOLO Trade Is Done, Another Meme Comes Along

    Bed Bath & Beyond Stock Soared 80% After a ‘Short Squeeze’ Was Triggered by Company News

    Facebook, Citing Societal Concerns, Plans to Shut Down Facial Recognition System

    A Startup Says It Applied to Trademark Meta Before Facebook – But It May Be Willing To Stand Down If Mark Zuckerberg Pays Up

    Justice Dept. Sues Penguin Random House Over Simon & Schuster Deal

    A Sinking Student Housing Empire

    From BTS to ‘Squid Game’: How South Korea Became a Cultural Juggernaut

    Wall Street Legend Perelman’s Family Trust Tied to Mystery Loans

    Why People In China Are ‘Donating’ Money To Tesla CEO Elon Musk — The World’s Richest Person

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  • CWS Market Review – November 2, 2021
    , November 2nd, 2021 at 10:45 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.”)

    Today, the Dow Jones Industrial Average closed above 36,000 for the first time in history. This is noteworthy because of a book published 22 years ago called Dow 36,000.

    In it, authors James K. Glassman and Kevin A. Haslett argued that the investing world had radically changed and that stock valuations were far too low. They claimed that the Dow, then around 9,000, needed to be four-fold higher to be properly valued.

    They weren’t predicting that the Dow would eventually rise to 36,000. Instead, they said that it should be at 36,000 at the time, which was October 1999.

    The authors have come in for a lot of ribbing which I think is mostly unfair. Make no mistake – they were completely and totally wrong, but I admire anyone who puts forth a heterodox position, especially so publicly.

    These topics are very much what I’m interested in. Twenty-two years ago, I bought Dow 36,000 and read it in one day. My goal was to find the exact mistakes in their theory. I wrote up a book review and shopped it around to different publications. No takers.

    This was a shame because I believe I’m the only person who has correctly identified where and how they’re wrong. I had an email exchange with the authors. (One was friendly. The other was not.)

    In any event, now I don’t need the approval of a newspaper to get my views to the public. I have a newsletter. Below I’m reproducing my book review from 22 years ago. I should apologize in advance because I go deep into the weeds on some arcane topics so some of it may bore you. Still, I’m proud of what I wrote.

    Here it is:

    Why the Dow 36,000 Argument Doesn’t Work

    Now that the Dow Jones Industrial Average has soared over 4,500 points since Alan Greenspan warned us of the market’s “irrational exuberance,” a mini-industry has evolved of publishing books that attempt to explain the “new market.” The latest addition to the genre is Dow 36,000 by James K. Glassman and Kevin A. Hassett, both of the American Enterprise Institute. To give you an idea of how crowded the field is becoming, two other books are titled Dow 40,000 and Dow 100,000.

    Unfazed by the Dow’s stunning climb, mega-bulls Glassman and Hassett have developed their own theory as to why the market has risen so much and why it will continue to rise. Their theory isn’t the usual litany one hears from Wall Street bulls (demographics, triumph of capitalism). Instead, their “36,000” theory goes right to the heart of investment analysis by questioning one of its elemental suppositions: namely, the idea that investments in stocks should demand a premium over investments in bonds due to the riskier nature of stocks. This isn’t split hairs they’re taking on.

    Reciting historical data, Glassman and Hassett show that over the long haul, there is no difference between the risks of stocks and Treasury bonds. Therefore, they reason, there should be no risk premium at all. The authors claim that with the risk premium excised from the market, the perfectly reasonable price, or PRP as they call it, for the Dow is 36,000 (more on that later). Mind you, they’re not merely saying the Dow will eventually hit this magic number sometime in the future. Instead, Glassman and Hassett claim that 36,000 is where the Dow ought to be right now. Or more precisely, that’s where the Dow should have been early this year when they started writing the book. Could they be onto something? At the time, the Dow was at 9000.

    The Dow very well may head to 36K, but it will have little to do with Glassman and Hassett’s theory. Their theory is seriously flawed due to major methodological errors.

    First, Glassman and Hassett err in their selection of an appropriate measure of risk for their purpose. The free market prices risk, just like it prices everything else. That price is included in the price of stocks. In order to measure risk, Glassman and Hassett should use a measurement that isolates risk from the price of stocks. They don’t do this. Instead, they compare the standard deviation of stock returns to the standard deviation of risk-free-bond returns. That’s a different animal. Sure enough, with progressively longer holding periods, stock returns’ standard deviations gradually get smaller. Upon realizing that at long term, the standard deviation of stock returns is the same as bond returns’, actually slightly less, Glassman and Hassett conclude that stocks are “no more risky” than Treasury bonds.

    That’s a faulty conclusion. Even if the standard deviations are the same size, it doesn’t say anything about the risk that they’re looking for. The point is, that risk has still never been isolated: It’s inside those returns no matter how long term you go. The variability of risk’s part of all these returns may be diminishing as well. That can happen even if risk stays exactly the same size. With Glassman and Hassett’s method, we have no idea how big the risk inherent in stock ownership is.

    Without all the mumbo-jumbo, think of two houses, identical in every way except one has a great view of the river, the other does not. How much does the river view cost? Easy. Compare the prices of the two homes, and the difference must be the price of the view. The fact that the prices paid may deviate from their own respective averages the same way, speaks nothing as to the price of the view. Glassman and Hassett are saying that since those deviations are the same, the river view is free.

    Running with this assumption, Glassman and Hassett reason that since risk and reward are related, assets with the same risk will have the same return. Therefore, stocks and bonds will have the same returns. For this to happen, they claim, “the Dow should rise by a factor of four.” How do they get four?

    Glassman and Hassett start with the “Old Paradigm” premise that bond returns plus a risk premium equals stock returns. With the risk premium “properly” removed, the yield on Treasuries—meaning their expected return—should be the same as the expected return for stocks. And that’s their dividend yield plus the dividend’s growth rate. So far, so good. Since the sum of these two is now about 1.5% above today’s Treasury yield, the yield on stocks needs to be adjusted downward in order to bring everything into balance. Specifically, it needs to drop from about 2% to 0.5%. With the yield dropping to one-fourth its previous level, stock prices will jump fourfold. Presto. That’s how we get from 9000 to 36000.

    Not exactly. The authors have made another mistake. It’s impossible to have a one-time-only ratcheting down of the market’s dividend yield. The reason is that if long-term stock returns don’t change, as the authors do assume, a lower dividend yield will always create a commensurate increase in the dividend growth rate. As a result, there will always be a new higher dividend whose yield will always be in need of being notched back down. And as a result, the dividend growth rate will increase, and the cycle will continue ad infinitum. The correct conclusion from their model is not a one-time-only fourfold increase in stocks, but one-time-only infinite increase in stocks. This means the authors are actually insufficiently bullish and, moreover, they’ve mistitled their book.

    Fortunately, the second half of the book is the more valuable by far. Once the authors stop making theories, they start making some sense. In this section, the authors discuss how investors can capitalize on the continuing market boom. The authors estimate the market has another three to five years perhaps before 36K is reached. In any case, their strategies are rather conservative: Buy and hold, diversify, don’t trade too much, don’t let market fluctuations rattle you, don’t time the market. All perfectly sound ideas and not specifically dependent on “Dow 36,000.”

    Glassman and Hassett also give the names of stocks and mutual funds they like. There’s nothing wrong with their stocks in the realm of theory, but readers definitely ought to avoid the author’s so-called Perfectly Reasonable Prices, which invite comparison to the famous description of the Holy Roman Empire—not holy, not Roman, not an empire.

    I’m not familiar with Kevin Hassett’s former work, but I’ve always liked James Glassman’s investing articles for The Washington Post. His articles are consistently incisive and informative. This book, however, is nothing of the sort. Dow 36,000 contains egregious errors and fallacious reasoning.

    Still, I do admire their ambition. With this book, Glassman and Hassett challenged a well-entrenched perception of reality. Being that this perception underwrites trillions of dollars, it’s a very, very, very, well-entrenched perception. Glassman and Hassett lost, and they lost badly. Old paradigms die hard, but they do die.

    Me again in 2021. Reading the review again, I wasn’t as clear as I could have been. The older Eddy today would be brief and point out their math error. The authors argue that the market needs a lower dividend yield but they overlook the fact that a lower yield will in turn lower returns going forward.

    Mueller Industries Soars to a New High

    In June, I told you about Mueller Industries (MLI). At the time, I wrote, “Keep an eye on Mueller. This could be a big winner in the months ahead.” In the last six weeks, Mueller is up 34%. This is one of those little stocks that have delivered tremendous gains, and no one knows about them.

    So what does Mueller do? Let’s get to brass tacks…literally.

    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.

    Over the last 30 years, the stock is up more than 150-fold.

    Mueller is pretty small. The market cap is about $3 billion. Two weeks ago, Muller reported very good earnings.

    It helps that the price for copper is going up. Sales rose 59% to $982.2 million. Earnings rose from 76 cents per share for last year’s Q3 to $3.01 per share for this year’s Q3. Those aren’t exactly comparable since Mueller sold off some businesses. The company reduced its debt by $230 million. Even without the business sales, Mueller is doing well. MLI closed at another all-time high today.

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

    – Eddy

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  • No Buy List Earnings Today
    , November 2nd, 2021 at 9:29 am

    There are no Buy List earnings reports today. However, the Federal Reserve begins its two-day meeting today. The central bank will release its policy statement tomorrow afternoon. There are also local elections happening today.

    Tomorrow, ADP will release its private payroll report. Then on Thursday, we’ll get another report on jobless claims. That leads us up to Friday when the government will release the official jobs report for the month of October.

    The consensus on Wall Street is that the U.S. economy created 450,000 net new jobs last month. Also, economists expect that the unemployment rate to fell to 4.7%.