Archive for December, 2021

• Morning News: December 15, 2021
  Eddy Elfenbein, December 15th, 2021 at 5:41 am

  How Did Turkey’s Economy Go So Wrong?

  China’s Economic Activity Slows on Property Slump, Weak Consumption

  These Are the Countries With the Clearest Crypto Tax Policies

  Crash in Shimao Bonds Stokes Contagion Fear, Bailout Speculation

  U.S. to Blacklist DJI and Seven Other China Firms, FT Reports

  U.S. Lawmakers Call for Sanctions Against Israel’s NSO, Spyware Firms

  The Fed Meets Amid Faster Inflation and Prepares to React

  French Billionaire Weighs IPO of Sotheby’s Auction House

  Uber Looking to Sell Didi, China Market Has Little Transparency, CEO Says

  Sears, Struggling to Sell Goods, Markets a Valuable Asset: Real Estate

  Zara Owner and H&M Bounce Back from Pandemic Blues

  Who’s Traveling Now—and Where and Why

  3M to Combine Its Food-Safety Unit With Neogen

  Group Nine, Vox Keep Price of Deal Quiet as Valuations of Digital Media Darlings Plummet

  What Elon Musk as ‘Person of the Year’ Says About Us

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• CWS Market Review – December 14, 2021
  Eddy Elfenbein, December 14th, 2021 at 6:53 pm

  (This is the free version of CWS Market Review. I’m going to unveil our 2022 Buy List on December 24. To see the new list, make sure you’re a premium subscriber. You can get the premium newsletter for $20 per month or $200 for the whole year.)

  The Worst Inflation in 40 Years

  Last Friday, the government released the inflation report for November and it confirmed that the U.S. is now having its worst bout of inflation in 40 years.

  Remember how Fed Chairman Jerome Powell kept telling us that inflation is merely “transitory”? Well, that’s all out the window. Now it looks like the Fed may ramp up its tapering bonds. (My apologies for the confusing syntax. By this I mean the Fed will reduce their bond purchases at a faster pace than before.)

  First, let’s look at the numbers. For November, headline inflation increased by 0.78%. That’s actually a slight decrease from October’s rate of 0.94%. For its part, the Federal Reserve puts a lot of the blame on the supply-chain crisis. In other words, the Fed says it’s not the fault of the Fed.

  I’m reminded of this quote from Milton Friedman:

  Central bankers always try to avoid their last big mistake. So every time there’s the threat of a contraction in the economy, they’ll overstimulate the economy by printing too much money. The result will be a rising roller coaster of inflation, with each high and low being higher than the preceding one.

  Personally, I’m not so worried about supply issues. As long as there’s money to be made, someone will come along and fix it. That just takes time. I’m more worried about consumers becoming used to higher prices. Once that mentality settles in, it’s hard to shake loose.

  Over the past year, consumer prices have increased by 6.88%. That means that if you have a $1 million portfolio, inflation eats up $68,800 every year. That’s the highest year-over-year rate of inflation since June 1982.

  

  The “core rate” of inflation, which excludes volatile food and energy prices, was a little better behaved. For November, the core rate was up by 0.54%. Over the past year, the core rate is up by 4.96%. That’s the fastest core rate in 30 years.

  By the way, the core rate comes in for a lot of criticism. It’s not that we ignore food and energy costs. That’s obviously an important part of every family’s budget, especially lower-income folks. Inflation is an especially cruel tax on the poor and those on fixed income.

  The problem is that food and energy can be highly volatile. As a result, the month-to-month prices may not give us an accurate measure of the trend in inflation.

  For example, here’s a surprisingly optimistic fact. November’s rise in core inflation was the fifth highest in the past eight months. That could suggest that inflation may already be cresting. I think it’s far too early to say that conclusively, but it’s something to take note of.

  There’s still more evidence of high inflation. Today we learned that wholesale prices are up 9.6% over the last year ending in November. That’s the highest on record which sounds impressive, but the data series only goes back 11 years. Still, it was higher than Wall Street’s estimate of 9.2%.

  The wholesale numbers are important to watch because higher inflation would hit this sector first before wending its way to consumers. Businesses generally do their best to make prices for the consumer as stable as possible.

  Inflation has an unusual impact on businesses and, in turn, on stocks. Not all earnings are the same, and inflation exacts a heavy toll on asset-heavy businesses. Companies with high assets relative to their profits tend to report ersatz earnings.

  Inflation has an impact similar to putting a magnet near a compass. Everything gets a little screwy. Historically, stocks have not performed well during periods of high inflation. Investors who lived through the 1970s will certainly recall that. During the entire decade of the 70s, the Dow gained a grand total of 38 points.

  While inflation has been tough on stocks, there’s only one thing worse for stocks, and that’s deflation. What the market truly loves is low consistent inflation. In other words, pretty much what we had over the last 30 years, minus 12 months.

  Of course, the recent inflation numbers haven’t scared off stock investors. On Friday, the S&P 500 closed at an all-time high. Our 67th record high this year. Last week was the second-best week for the S&P 500 all year.

  However, the problem isn’t inflation per se. The threat for stocks is really the threat from bonds. Inflation doesn’t impact the stock market directly. Instead, inflation wrecks the bond market and that throws sand in the gears of the stock market. The higher bond yields are greater competition for stocks.

  The last time inflation was this high.
  

  The Federal Reserve is meeting this week, today and tomorrow, and I think there’s a good chance that the Fed will change its taper policy. Previously, the Fed said it will reduce its pace of bond buying by $15 billion each month. They may double that. That means the Fed would be on pace to wrap up its bond purchases by March of next year. We can assume that rate hikes would come shortly after that.

  The bond market is already pricing in the rate increase. The futures market now sees three rate hikes coming next year. This is a sudden change from only a few months ago. On June 3, the two-year Treasury was yielding just 0.09%. Now that’s all the way up to 0.66%. That’s still very low, but it’s higher than where it was. Over the same time, the three-year yield has jumped from 0.16% to 0.95%.

  

  It’s as if the bond market is saying, “rates aren’t rising now, but they soon will be.” The Fed will release its policy statement tomorrow at 2 pm.

  The Stock Market Is Still on Defense

  I’ve become a broken record on this topic, but it’s too important to set side. The stock market has become much more defensive over the past month. Riskier stocks have been feeling the pain. Meanwhile, the stable stocks are doing just fine. Even though the surface of the stock market appears fairly staid, the undercurrents are quite dramatic.

  On our Buy List, stocks like Church & Dwight (CHD) and Hershey (HSY) have been at or near new highs. But former high-fliers like Nvidia (NVDA) and Tesla (TSLA) are down sharply. Tesla is more than 20% off its recent high.

  Here’s another look at the S&P 500 High Beta Index (red) compared with the S&P 500 Low Volatility Index (blue). Since November 8, the Low Vol Index is up by 3% while the High Beta stocks are down over 8.3%.

  

  This is a direct result of the Fed’s willingness to tackle inflation. Once the Fed gets tough, rates will go up. That’s why the defensive stocks are prospering. Already this year, we’ve had more than one rotation. Those have petered out. This one may not.

  Apple’s Lost 20 Years

  Every so often, I tweet this fact: “If you had invested $10,000 in Apple (AAPL) on June 6, 1983, by April 17, 2003, you’d be sitting on $8,400.”

  I’ll usually get a few responses telling me that this can’t possibly true. Or I obviously left out stock splits. Nope, the numbers are correct.

  

  It’s remarkable to consider that Apple, which is on the doorstep of a $3 trillion valuation, didn’t do much for nearly 20 years. I think there’s an important lesson for investors in that.

  Even if you’re right about the stock, you can get the timing all wrong. It even took a few years after Steve Jobs had returned to Apple for it to turn around. It’s also a reminder that companies are always changing. Sometimes for the better, but not always.

  Oh…by the way, that $10,000 investment is now worth more than $6.2 million.

  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.

• Morning News: December 14, 2021
  Eddy Elfenbein, December 14th, 2021 at 7:03 am

  Shimao Is the Latest Chinese Property Developer to Worry Investors

  Its Human Rights Record in Question, China Turns to an Old Friend

  How Beijing Influences the Influencers

  Investors Brace for Faster Fed Taper, Rate Hikes Next Year

  Central Bankers Are the Biggest Risk to Stocks in 2022, Survey Finds

  Worried About Inflation? Here’s What That May Reveal About You.

  How Covid Turbocharged the American Consumer

  Omicron Will Slow Oil Demand Recovery but Not Destroy It, IEA Says

  Heating Your Home Is Expensive and Carbon Heavy. Will Heat Pumps Help?

  Fires, Landslides, Lack of Snow: The Ski Industry Girds for Battle

  Toyota Says It Will Shift More Rapidly to EVs

  Tesla to Accept Dogecoin as Payment for Some Products, Musk Says

  How to Get Rich Sending Low-Income Workers to College

  Goldman and JPMorgan Plan Bumper Bonuses to Get Edge in Deal Boom

  Meet The Billionaire Robot Overlord Reinventing Walmart’s Warehouses

  Nike Just Bought a Virtual Shoe Company that Makes NFTs and Sneakers ‘For the Metaverse’

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• Stocks Down Some Before the Fed Meeting
  Eddy Elfenbein, December 13th, 2021 at 10:54 am

  Friday’s inflation report wasn’t enough to scare the market. The S&P 500 closed at an all-time high even though the economy had its worst inflation in four decades.

  Last week, the S&P 500 had its second-best weekly gain this year:

  

  The stock market is down so far this morning although there’s no major economic news. The Federal Reserve meets tomorrow and on Wednesday. The policy statement will be due out on Wednesday afternoon.

  There’s an unusually wide divide in today’s market. Both the energy and consumer cyclicals sectors are down over 2% while utilities, staples and REITs are up modestly. That’s another shift towards defensive stocks.

  On our Buy List, we have new highs this morning from Abbott Labs (ABT), Hershey (HSY), Church & Dwight (CHD) and Zoetis (ZTS).

  The WSJ reports:

  Companies in the S&P 500 repurchased $234.5 billion in shares during the third quarter, topping the previous record of $223 billion in the fourth quarter of 2018, according to preliminary data from S&P Dow Jones Indices. The wave of share repurchases has helped propel U.S. stock indexes to dozens of records in 2021. The S&P 500 is up 25% this year, notching 67 record closes.

• Morning News: December 13, 2021
  Eddy Elfenbein, December 13th, 2021 at 7:02 am

  What Could Possibly Go Wrong? These Are the Biggest Economic Risks for 2022

  India’s Latest Religious and Cultural Flashpoint: Eggs

  Workers in Europe Are Demanding Higher Pay as Inflation Soars

  Libor Limbers Up for ‘Y2K’ Walk Into a $265 Trillion Sunset

  China’s SenseTime Postpones its Hong Kong I.P.O. Following U.S. Sanctions

  Fed to Pivot on Inflation Fears in the Face of Another Uncertain Year

  SEC Lures Top Enforcer Who Says Tougher Punishment Is Coming

  Firms’ Shrinking Cash Piles Set to Fuel Sales of High-Grade Debt

  Ackman Says SALT Tax Deduction Increase ‘Makes No Sense’

  New Double Act Reinforces Ortega Family Grip on Inditex

  VP Harris Secures New Investment from Companies Like Pepsico, Cargill for Central America Strategy

  How Do You Feel About Inflation? The Answer Will Help Determine Its Longevity

  When Companies Fire Their Auditors, Timing Is Clue to Future Trouble

  Binance Drops Singapore Cryptocurrency Bourse Application

  The Big Question: Could Peloton Sue Over Its ‘And Just Like That’ Appearance?

  Her Instagram Handle Was ‘Metaverse.’ Last Month, It Vanished.

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• Abbott Raises Dividend for 50th Year in a Row
  Eddy Elfenbein, December 10th, 2021 at 4:39 pm

  Press release:

  Abbott (NYSE: ABT) today announced that its board of directors has increased the company’s quarterly common dividend, marking the company’s 50th consecutive year of dividend growth.

  Abbott’s quarterly common dividend has been increased to 47 cents per share, a 4.4% increase that follows a 25% increase to the company’s quarterly dividend in 2021. It will be the 392nd consecutive quarterly dividend to be paid by Abbott since 1924. The cash dividend is payable Feb. 15, 2022, to shareholders of record at the close of business on Jan. 14, 2022.

  Abbott is a member of the S&P 500 Dividend Aristocrats Index, which tracks companies that have increased dividends annually for at least 25 consecutive years.

  “Fifty years of dividend growth reflects the consistently strong performance of our diversified business model,” said Robert B. Ford, president and chief executive officer, Abbott. “It exemplifies our longstanding commitment to delivering sustainable growth that fuels innovation as well as shareholder returns.”

  Abbott’s board also has authorized the repurchase of up to $5 billion of the corporation’s common shares. This new authorization is in addition to the unused portion of the previous program authorized by Abbott’s board in October 2019. The purchases may be made from time to time as market conditions warrant and subject to regulatory considerations.

• Cerner Hikes Dividend by 22.7%
  Eddy Elfenbein, December 10th, 2021 at 9:45 am

  We got our third dividend increase this week. Today it’s Cerner‘s (CERN) turn.

  The company increased its quarterly payout from 22 to 27 cents per share. The new dividend will be payable on January 11 to shareholders of record as of December 27.

• November CPI = 0.8%
  Eddy Elfenbein, December 10th, 2021 at 8:32 am

  This morning, the government reported that inflation rose by 0.78% for November. Wall Street had been expecting an increase of 0.7%.

  Over the last year, inflation has increased by 6.88%. That’s the highest since June 1982.

  The government also said that the core rate rose by 0.54%. That’s in line with Wall Street’s forecast of 0.5%.

  The 12-month core rate is running at 4.96%. That’s the highest since May 1991.

• Morning News: December 10, 2021
  Eddy Elfenbein, December 10th, 2021 at 7:02 am

  The Illustrated Misadventures of the World’s Most Important Number

  As U.S. Inflation Surges, Japan Has Opposite Problem

  Washington Hasn’t Learned the Real Lesson of the China Shock

  No More 99 Cent Pizza: Why Washington Is Getting Worried About Inflation

  Stagflation at Hand? Inflation, Check. Stagnant Growth Not So Much

  Sustainable Investing Is Mostly About Sustaining Corporations

  The SEC Puts the Brakes on SPAC-Mania Among EV Makers

  Getty Images to List in $4.8 Billion Deal With Neuberger SPAC

  Miners Face Talent Crunch as Electric Vehicles Charge Up Metals Demand

  Royal Dutch Shell Shareholders Back Plan to Shift to London

  Microsoft Set to Win EU Antitrust Nod for $16 Billion Nuance Deal

  American Airlines to Reduce International Flights Due to Boeing Dreamliner Delays

  Elon Musk’s Latest Innovation: Troll Philanthropy

  Goldman Sachs to Ease Its Yearly Firings as Industry Faces Talent Shortage

  Covid Is Making Many Offices Obsolete. Here’s What Happens to Them Next.

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• Stryker Hikes Dividend by 10%
  Eddy Elfenbein, December 9th, 2021 at 11:31 am

  The jobless-claims report came in at 184,000 which is another multi-decade low. That last time claims were lower was September 6, 1969. The inflation report comes out tomorrow.

  Also this morning, Stryker (SYK) raised its dividend by 10.3%. The quarterly payout will rise from 63 cents to 69.5 cents per share.

  Stryker (NYSE:SYK) announced that its Board of Directors has declared a quarterly dividend of $0.695 per share payable January 31, 2022 to shareholders of record at the close of business on December 31, 2021, representing an increase of 10.3% versus the prior year and previous quarter.

  “Despite a challenging environment, we continue to deliver strong sales growth and drive solid financial results, and consistent with our stated capital allocation philosophy, we are raising our dividend 10.3%,” said Kevin Lobo, Chair and Chief Executive Officer.