Archive for February, 2022

• Morning News: February 15, 2022
  Eddy Elfenbein, February 15th, 2022 at 7:05 am

  Protesters Defy Trudeau’s Emergency Powers With Border Blockades

  For China, Hosting the Olympics Is Worth Every Billion

  Iraq’s $27 Billion TotalEnergies Deal Stuck Over Contract Wrangling

  Higher Interest Rates Not a Major Worry for CFOs of Large U.S. Companies

  Farmers Feel the Squeeze of Inflation

  4 Bed, 3 Bath, No Garage Door: The Unlikely Woes Holding Up Home Building

  The Age of Anti-Ambition

  Lockheed Deal Flop Is Just Antitrust Amuse-Bouche

  Morgan Stanley Among Block-Trading Firms Facing U.S. Probe

  Trader Known as ‘Big Shot’ Battles Mystery Nickel Stockpiler

  SpaceX’s Plans to Send Thousands More Satellites Into Orbit Worry NASA

  Musk Donated Over $5.7 Billion in Tesla Shares to Charity in November

  Top Hedge Fund Managers Made $15.8 Billion in 2021 Riding Volatile Markets

  Carl Icahn Won’t Stop Till He Gets What He Wants

  The Brothers Behind a Wedding Tent Empire Know When to Say Yes

  Discarded Grapes From White Wine Production Being Turned Into Chocolate ‘Superfood’

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• Warren Buffett from 1985
  Eddy Elfenbein, February 14th, 2022 at 2:22 pm

• Oil Nears $100 per Barrel
  Eddy Elfenbein, February 14th, 2022 at 11:17 am

  Happy Valentine’s Day.

  The market is down again today after a poor day on Friday. Today is a little unusual in that it’s a down day but Low Vol is down more than High Beta. That’s not unheard of, but it against the typical script.

  The S&P 500 may go back to “test” its recent low. That often happens as traders like to see how far they can push the market in either direction. On January 24, the intra-day low was 4,222.62. Today we’ve been as low as 4,385.52.

  The Energy Sector is down especially hard today. Many of the major oil companies are down over 3% today. The price for oil is getting close to $100 per barrel. All eyes are on the latest developments in Ukraine. There appears to be some talk of a resolution. We’ll see.

  I noticed that shares of 3M (MMM) are down again today. The stock is at a new 52-week low. 3M is now going for about 14 times next year’s earnings. The dividend currently yields about 3.8%. Of course, there’s a reason the stock is going for such a generous valuation. 3M has found itself in a heap of legal trouble.

  I’m not recommending 3M but I will add two notes. The first is that value investing often boils down to buying dented merchandise. The question is, how serious are the problems? The other point is that 3M is a large and diversified company. At some point, these issues will go away.

  Several Fed folks are talking today. St. Louis Fed President James Bullard is in the hawkish camp. He said the Fed’s credibility is on the line. Personally, I think the Fed shot its credibility a while ago, but it may repair some of the damage. In the futures market, the odds of a 0.5% cut in March are at 65%.

• Morning News: February 14, 2022
  Eddy Elfenbein, February 14th, 2022 at 6:59 am

  Europe Dumping Covid Curbs Puts Its Travel Rebound Ahead of Asia

  Himalaya Yogi Ran India’s Top Bourse As Puppet Master, Regulator Says

  India takes Aim at China’s Trade Coercion Against Australia

  Rapid Plunge in Developer’s Bonds Shows Transparency Risk in Chinese Property

  Why Russian Invasion Peril Is Driving Oil Prices Near $100

  Morgan Stanley’s Wilson Sees War a `Polar Vortex’ Risk to Stocks

  The Obnoxious Conceit Underlying 5G Nationalism

  Meta and Salesforce Present Differing Takes on the Metaverse

  No Sign of Light at End of Tunnel for Credit Suisse Investors

  Lockheed Martin Scraps Aerojet Rocketdyne Deal

  Olympian Eileen Gu’s Marketing Power: The Risks and Rewards for Brands

  How Did Squarespace Know Podcasts Would Get This Big?

  HSBC to Double Some Junior Banker Bonuses in Race for Talent

  Making ‘Dinobabies’ Extinct: IBM’s Push for a Younger Work Force

  Divorcing Couples Fight Over the Kids, the House and Now the Crypto

  Inside the Bitcoin Laundering Case That Confounded the Internet

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• Morning News: February 11, 2022
  Eddy Elfenbein, February 11th, 2022 at 6:45 am

  How Crypto Wealth is Gentrifying Puerto Rico

  The Billion-Dollar Nickel-Swap Scandal That Shocked Singapore

  Why Some Chinese Are ‘Lying Flat’ and What That Means

  How Trucker Protests Shut the Canadian Border and Rocked the Economy

  Canadian Mayor Makes Plea for Injunction as Trucker Protest Limits Ford, GM Auto Production

  Fed Doesn’t Yet Favor a Half-Point Hike or an Emergency Move

  After Dire Decade, Emerging Markets Face Fed Liftoff Again

  U.S. Inflation Rate Accelerates to 7.5%, a 40-Year High

  U.S. Inflation Data Is Like a ‘Punch In the Stomach’ for the Fed, Says Citi Economist

  Hot Inflation Fuels Case for ‘Big-Bang’ Fed Rate Hike in March

  SoftBank’s Woes Are Mounting

  Affirm Stock Plunges 21% After a Slip of the Tweet

  MoviePass Is Relaunching — and It Wants to Track Your Eyeballs

  Zillow Shares Surge on Faster Home-Flipping Wind-Down, ‘Super App’ Plans

  Zendesk Receives Takeover Approaches

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• Morning News: February 10, 2022
  Eddy Elfenbein, February 10th, 2022 at 6:22 am

  Russia Thrived as It Integrated With the West—a New Cold War Is Unraveling That

  China’s Anti-Graft Show Is Educational, With Unintended Lessons

  FDA Raises Concerns About China-Developed Drugs

  The Boston Fed Names Susan M. Collins as Its New President

  Treasury Wants to Stir Up U.S. Alcohol Market to Help Smaller Players

  Stock-Trading Ban for Congress Hits Pushback From Right and Left

  After Retail Investors’ Rebellion, the S.E.C. Wants A Stock Market Makeover

  The Real Reason America Doesn’t Have Enough Truck Drivers

  Rivian Loses Its Shine as Investors Fret About Production Delays

  Credit Suisse Posts $2.2 Billion Loss After Investment Bank Hit

  ArcelorMittal Posts Best Year Since 2008 on Historic Steel Boom

  Disney Earnings Surge Gives Boost to a CEO Finally on His Own

  WarnerMedia-Discovery Merger OK’d, But Amazon-MGM Remains in Limbo

  Solar Storm Destroys 40 New SpaceX Satellites in Orbit

  The Man Who Transformed Flying Finally Gets His Spirit-Frontier Deal

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• Reynolds Earned 51 Cents per Share
  Eddy Elfenbein, February 9th, 2022 at 1:06 pm

  This morning, Reynolds Consumer Products (REYN) released a very good earnings report. For Q4, the consumer products company earned 51 cents per share. That beat estimates by two cents per share. Quarterly sales rose 15% $1.021 billion.

  This capped off a very good year for Reynolds:

  “We reported another year of record net revenues and enter 2022 with continued strong demand for our products,” said Lance Mitchell, President and Chief Executive Officer. “We expect a third consecutive year of record revenue this year and a return to profit growth in the second quarter. RCP is stronger today thanks to the determination, hard work and creativity of our people in a very dynamic market. I am exceptionally proud of our team and see tremendous potential for our business in 2022 and beyond.”

  For the year, Reynolds earned $1.59 per share and sales rose 9% to $3.556 billion.

  Now let’s look at guidance. For 2022, Reynolds sees sales growth of 9% to 12%, and a lot of that will be driven by pricing. For earnings, Reynolds sees this year coming in between $1.56 and $1.70 per share. That’s pretty good.

  For Q1, which is nearly halfway gone, Reynolds sees revenue growth of 10% to 14%, and earnings of 24 to 28 cents per share. Again, that’s quite good.

• Morning News: February 9, 2022
  Eddy Elfenbein, February 9th, 2022 at 6:06 am

  European, U.S. Regulators Tell Banks to Prepare for Russian Cyberattack Threat

  Japan’s COVID Payouts Strain Lenders, Expose BOJ Policy Flaws

  The U.S. Trade Deficit Soared To A Record Last Year

  China Fell Far Short of Promises It Made to Purchase American Goods

  Household Debt Jumped by $1 Trillion in 2021, the Most Since 2007

  Wall Street Opens Its Wallet to Keep Talent. It’s Not Always Enough.

  Why This Could Be a Critical Year for Electric Cars

  As Automakers Add Technology to Cars, Software Bugs Follow

  Toyota Cuts Output Target By Half A Million More Vehicles Amid Chip Crunch

  500,000 Hyundais, Kias Recalled Over Spontaneous Combustion Risk

  Lyft’s Revenue Jumps 70% as Higher Fares Offset Fewer Riders

  Peloton CEO John Foley to Step Down, Firm to Cut 2,800 Jobs

  What Is Peloton Worth?

  Justice Department Says It Seized $3.6 Billion Worth of Bitcoin Stolen in 2016 Hack

  Judge Grants Bail to Crypto Couple in $4.5 Billion Hack

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• CWS Market Review – February 8, 2022
  Eddy Elfenbein, February 8th, 2022 at 7:42 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.”)

  The Blowout January Jobs Report

  Last Friday, the government released the jobs report for January and the numbers were quite good. In fact, they were so good that they’ve had a major impact on what the Federal Reserve has planned, and by extension, the outlook for the stock market.

  The bottom line for us is that this is a very good time to own conservative and defensive stocks, just like we have on our Buy List. In this issue, I want to lay out the case in more detail.

  First, though, let’s look at the jobs report. During January, the U.S. economy added 467,000 net new jobs. That more than tripled expectations of 150,000. On top of that, the numbers for November and December were revised much higher.

  Although the unemployment rate ticked higher to 4.0%, that’s still quite low by recent historical standards. Some of that is driven by fewer people looking for work, but make no mistake, there is underlying strength in the labor market.

  For context, in March and April 2020, the U.S. economy shed 22 million jobs. That’s a staggering loss. Since then, the economy has added back 19.1 million jobs. We’re not that far from hitting a record high for number of employed folks.

  This is a shift in the outlook for the economy. When the December jobs report came out, it was a complete bust. The Bureau of Labor Statistics said that only 199,000 new jobs were created in December. That was less than half of what was expected. On Friday, that number was revised upward to a gain of 510,000 new jobs.

  Here’s a look at the stock market (in red) along with the unemployment rate (n black).

  

  For November, the number of jobs created was revised from a wimpy 249,000 to a brawny 647,000. I should add that these revisions are part of a larger annual revision.

  Digging into the report, we see that the largest gains came from leisure and hospitality which added 151,000 jobs. Of that, 108,000 jobs were in bars and restaurants (I did my part). Retail added 61,000 and professional and business services added 86,000. Kathy Jones, the chief fixed income strategist at Charles Schwab, said, “It’s hard to find a weak spot in this report.” I have to agree.

  The broader U-6 unemployment rate is nearly back to where it was pre-Covid. It’s now at 7.1%. The last pre-Covid low was 6.8% in December 2019. That number can be a better stat to watch for the true health of the economy.

  The Labor Force Participation Rate rose 0.3% to 62.2%. That’s the highest since March 2020. This tells us how many people are out there working or looking to work. It’s not that far from where it was before Covid.

  The LFPR can be distorted because of the growing ranks of retired folks. But the LFPR for prime working age (25 to 54) is back to 82.0% which is higher than where it was in 2017 and much of 2018. (Frankly, some people tend to overemphasize the importance of the Labor Force Participation Rate.)

  Higher Rates Are Good for Defensive Stocks

  The blowout jobs report has caused some investors on Wall Street to speculate that the Federal Reserve could hike interest rates next month by 0.5%. That was an outlandish view a few weeks ago, but since Friday’s jobs report, it’s now gone mainstream.

  It could happen, but I won’t venture a guess as to what precisely the Fed will do. I’m more concerned with its general policy for this year. I think it’s very likely that the Fed will raise rates at each of the next four meetings, give or take. After that, it may take a more gradual approach. If this is right, that’s very good news for defensive investing.

  The key point is that the Fed wants to convey to us investors that they’re not behind the curve regarding inflation (which, of course, they are). The Fed also wants to make a clear break from their “transitory” language that they used much of last year. In plainer terms, the Fed wants to seem hawkish now due to their own laxity over the previous two years.

  As Milton Friedman said, there’s no such thing as a free lunch. That’s especially true with monetary policy. You’ll pay now or you’ll pay later, but you will pay.

  Ideally, I suspect the Fed wants to have short-term interest rates at or near 2% between one year and 18 months from now. The next key test comes this Thursday when the government releases the inflation report for January.

  

  The last inflation report showed that consumer prices rose by 0.47% in December. That was more than expectations of 0.4%. The good news is that energy prices finally started to ease up in December. For the month, energy prices fell by 0.4%. Within that, gasoline was down 0.5% and fuel oil was off by 2.4%. Still, we had significant energy inflation last year. Energy was up 29.3% in 2021 and gasoline increased by nearly 50%.

  In the most-recent CPI report, Wall Street was really spooked by the core rate, which excludes volatile food and energy prices. For December, core inflation rose by 0.55%. That was more than expectations of 0.5%. Used car prices have been a particular trouble spot for inflation. During 2021, used car prices increased by 37.3%.

  For all of 2021, headline inflation ran at 7.12%. That was the highest rate since June 1982 (see the chart above). The core rate increased by 5.49%. That’s the highest since February 1991. So we’re looking at 30- or 40-year highs for inflation depending on which measure. You can see why Wall Street is less than convinced by the Fed’s projections.

  For Thursday, Wall Street expects to see both headline and core inflation of 0.4%. If that comes in high, Wall Street will not be pleased.

  The Fed doesn’t meet again for another five weeks so a lot could happen between now and then. At the futures market, traders currently think there’s a 29% chance that the Fed will hike by 0.5%. The traders said that there’s a 71% chance of a 0.25% rate hike. According to the futures traders, there’s literally a 0% chance of the Fed doing nothing.

  Earnings from AFLAC and Hershey

  I want to home in on the point that this is a good time for conservative, defensive stocks. In the premium issues, I’ve been talking about our recent earnings reports. (Reminder, sign up!).

  I was particularly impressed by last week’s reports from AFLAC and Hershey. These are very good examples of the kinds of stocks that can prosper in this environment.

  Last week, AFLAC (AFL) said it made Q4 earnings of $1.28 per share. That’s an increase of 19.6%. The weaker exchange rate pinged earnings by five cents per share. Wall Street had been expecting $1.27 per share. This was another very good quarter for AFLAC.

  For the year, AFLAC made $5.94 per share. That’s up nicely from $4.96 per share in 2020. Forex pinged this year’s bottom line for six cents per share. Adjusting for that, AFLAC’s earnings were up 21% last year to $6 per share.

  AFLAC is already up 13.1% for us this year. That’s not bad for a little over one month. On Thursday, the shares hit a new 52-week high of $66.30. AFLAC has always been a good stock but it’s gotten a lot more attention recently because the Fed raising rates won’t hurt it.

  Check out this chart:

  

  On Thursday, Hershey (HSY) said it made $1.69 per share for Q4. That topped the consensus of $1.61 per share. Business is so strong that Hershey has boosted its capacity, yet it still can’t keep up with demand. Thank you, Covid!

  Hershey said it expects 2022 earnings of $7.84 to $7.98 per share. That’s a very optimistic outlook. The consensus on Wall Street had been for $7.57 per share. Hershey is a 7% winner for us so far this year. On Thursday, shares of HSY rallied to an all-time high of $207.21. The stock has more than doubled in four years.

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

  – Eddy

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• Earnings from Fiserv and Carrier
  Eddy Elfenbein, February 8th, 2022 at 11:04 am

  We got two more Buy List earnings reports this morning.

  First up, Carrier Global (CARR). For Q4, the HVAC folks made 44 cents per share. Sales were up 12% to $5.1 billion. The company had been expecting 38 cents per share.

  For the year, sales were up 18% and the company netted $2.26 per share. For 2022, Carrier sees earnings ranging between $2.20 and $2.30 per share. Wall Street had been expecting $2.27 per share.

  Overall, this is a solid report. The stock is up modestly in the morning’s trading.

  Fiserv (FISV) said it made $1.57 for Q4. That was within the range it had given of $1.54 to $1.59 per share. For the year, Fiserv made $5.58 per share. That’s not bad. It’s growth of 26%. One year ago, Fiserv’s original forecast had been for 2021 earnings of $5.30 to $5.50 per share.

  For 2022, Fiserv sees earnings growing by 15% to 17% which is a range of $6.40 to $6.55 per share. Wall Street had been expecting $6.44 per share.