Archive for August, 2022

• Morning News: August 19, 2022
  Eddy Elfenbein, August 19th, 2022 at 7:02 am

  It Now Costs $300,000 to Raise a Child

  U.S. Home Sales Dropped in July for Sixth Straight Month

  The Fed Sees Housing Trouble Ahead

  Wall Street Bets the Fed Is Bluffing in High-Stakes Inflation Game

  More Money for I.R.S. Spurs Conspiracy Theories of ‘Shadow Army’

  Why Are C.E.O.s Suddenly Obsessed With ‘Elasticity?

  Pimco Spends Billions Buying Assets Depressed by Recession Fears

  For Bed Bath & Beyond, Investor’s Turnabout Adds to Problems

  Starbucks Replacement Opens in Russia With Similar Look

  FedEx Shipping Contractor Turmoil Intensifies as Peak Season Nears

  Streaming Tops Cable-TV Viewing for the First Time

  Kohl’s Cuts Guidance, Blaming Inflation for Softer Sales from Middle-Income Shoppers

  China Regulator Launches New Probe Into Banks’ Property Loan Exposure

  Chinese Canadian Billionaire Sentenced to 13 Years for Financial Crimes

  Social Media Was a C.E.O.’s Bullhorn, and How He Lured Women

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• Morning News: August 18, 2022
  Eddy Elfenbein, August 18th, 2022 at 7:08 am

  As China’s Economy Stumbles, Homeowners Boycott Mortgage Payments

  China Attacks US Chip Handouts While Warning of Market Slowdown

  US-Taiwan Trade Talks Kick Off in Long-Planned Counter to China

  Tesla Asks Chinese Government to Help Secure Power to Suppliers

  After 2,240% Run, Tesla Visionary Leaves UK Fund Bleeding Money

  Germany Has Worked Hard to Shore Up Winter Gas Supplies — and It’s Ahead of Schedule

  Fed Officials See Need for Continued Interest-Rate Increases, but Less Certainty Over Destination

  Fed Still Needs to ‘Shock the Market,’ Original ‘Dr. Doom’ Economist Says

  Browsers Are Back in the Antitrust Hot Seat

  Bank of America CEO Blasts White House’s ‘Recession’ Semantics

  It Was the Housing Crisis Epicenter. Now the Sun Belt Is an Inflation Vanguard.

  They Lost Crypto in the Crash. They’re Trying to Get It Back.

  Wait, When Did Everyone Start Using Apple Pay?

  Bed Bath & Beyond Shares Fall After Investor Ryan Cohen Reveals Intent to Sell Entire Stake

  FDA Approves Bluebird’s $2.8 Million Gene Therapy for Rare Blood Disease

  Could Elon Musk Wreck Manchester United Like He’s Wrecked Twitter?

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• Morning News: August 17, 2022
  Eddy Elfenbein, August 17th, 2022 at 7:06 am

  Inflation in Britain Jumps to 10.1 Percent, Pushed Higher by Food Prices

  German Utility Reports Huge Loss as Russia Slashes Gas Flows

  A $379 Billion Hole Emerges in Developing Nations’ War Chests

  China’s Worst Heatwave in 60 Years is Forcing Factories to Close

  Australia’s Santos Surprises with Backing for Alaska Oil Project

  Biden Signs Bill Aimed at Lowering Drug Costs, Boosting Renewable Energy

  Yellen Directs I.R.S. to Embark on $80 Billion Overhaul Plan

  Can the Texas Power Grid Survive the Crypto Mining Boom?

  Why the 1 Percent Buyback Tax Doesn’t Scare Investors

  Makers of Heating, Cooling Systems Expect Climate Bill to Boost Sales

  American Airlines Buys Supersonic Jets Twice as Fast as Regular Planes

  Target Misses Lowest Profit Estimate, Still Predicts Rebound

  AMC’s CEO Will Do Whatever It Takes to Keep His Company a Meme Forever

  China’s Tencent Reports First Revenue Drop as Gaming Regulations and COVID-19 Bite

  Tech Companies Are Relinquishing Some Control of Online Ads to Users

  Gambling Operators Including FanDuel, DraftKings Tweak Marketing as NFL Season Arrives

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• CWS Market Review – August 16, 2022
  Eddy Elfenbein, August 16th, 2022 at 7:22 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 Great Summer Rally of 2022

  Even if this latest bear-market rally proves to be another dud, you have to admire its resiliency. The market has rallied in the face of slowing economic growth, higher interest rates and persistent inflation. None of these seems to matter.

  During the day on Tuesday, the S&P 500 poked its head above 4,325. That’s a place the index has not been since early May. The S&P 500 has now gained back more than half of what it lost during this year’s unpleasantness. There’s even a reasonable, albeit small, chance that the index will close the year in the black.

  Sounds far-fetched? We’re only 11% away from a new all-time high. Bear in mind that we’ve gained more than 17% in less than two months. Check out the summer rally:

  

  About a month ago, the S&P 500 broke above its 50-day moving average (the blue line). On Tuesday, the index came within a hair, just 0.02%, of breaking its 200-DMA (the green line).

  The reason why it has a decent track record is that the moving average captures the market’s momentum, and the stock market tends to be a trend-sensitive data series. When it’s moving in one direction, the safe bet in the near-term is that it will keep moving in that direction.

  Sometimes the market seems like it can do nothing right, and sometimes it can do no wrong. There’s a lot of fancy math to bear that out.

  The Housing Recession Has Started

  Speaking of not being able to do anything right, have you seen the housing market lately? There was an economic report that came out on Monday that didn’t, in my opinion, get the attention it deserved.

  What happened is that a key index of homebuilder sentiment finally turned negative. The National Association of Home Builders/Wells Fargo Housing Market Index fell 6 points to 49. That was its eighth-straight monthly decline.

  The reason why this is so important is that 50 is the tipping point. Any number above 50 is considered positive, while any number below it is considered negative. Now we’re negative. Except for a brief period around Covid, this index hasn’t been negative in eight years.

  It’s hardly a secret what’s happening. Homebuilders are being squeezed by higher interest rates from the Federal Reserve and also by higher housing costs. All of this is falling on buyers. The index is composed of three parts. The most alarming is that buyer traffic dropped 5 points to hit 32.

  While it’s a matter of debate as to whether or not the overall market is in a recession (I don’t think we are…yet), it’s quite clear that the housing sector is in a recession. In response, homebuilders are slashing prices.

  The math is simple—home prices are too darned high. Thanks to the Fed, home prices soared during the pandemic. But now, again thanks to the Fed, mortgage rates are climbing. Since early 2021, the rate on a 30-year mortgage has doubled. The combined effect is to push millions of Americans out of the housing market.

  

  The problem is made worse by the fact that there are far too many homes on the market. Home sellers have crowded inventories and few people looking to buy. One stat I like to watch is the supply of new homes relative to the number of homes sold. That’s at its highest level since 2010. Bloomberg notes that in June, “824,000 single-family homes were under construction in the US, more than at any time since October 2006.”

  The thing about housing is that it impacts so many different areas. In many regards, the U.S. economy is centered around housing. There’s even a well-regarded academic paper by Dr. Edward E. Leamer titled “Housing IS the Business Cycle.” Note the emphasis on “is.” I think he’s exactly right.

  (Side note: Leamer also has a paper called “Let’s Take the Con Out of Econometrics.” How can you not like that?)

  Whenever a new home is sold, that spurs the buyers, often a young couple, to head down to Lowe’s or Home Depot to buy new things to fill out the home. Of course, this usually starts with a home mortgage which gives business to the financial sector. The sale of a new home is really the core act that has several spokes that radiate outward.

  We can also see the impact on our Buy List. In recent weeks, stocks like Sherwin-Williams (SHW) and Trex (TREX) have felt the impact of a slowing housing market. On Tuesday, Home Depot (HD) reported Q2 earnings of $5.05 per share which was an 11-cent beat, but the company said it expects same-store sales growth of 3% this year. That should be slowing during the second half of the year. Home Depot said that during last quarter, customer transactions fell 3%, but the average purchase rose by 9% to $90.02. In other words, people are paying more for less stuff.

  This gets to the key dilemma of the current economy. The broader economy is probably not in a recession at the moment, but its most important sector likely is.

  If there is a silver lining to the recent economic news, it’s that earlier today, Walmart (WMT) released a decent earnings report. This is a relief since the company has been struggling lately. After the last earnings report three months ago, traders gave the shares a super-atomic wedgie. I often say that the Walmart earnings report is, in effect, a report on American consumer behavior.

  For Q2, Walmart earned $1.77 per share which was a 14-cent beat, but the most important news is that Walmart reiterated its forecast for the second half of this year. The company expects same-store sales to rise by 3% for the back half of 2022. For earnings, that’s still ugly. Walmart said it expects EPS to decline by 9% to 11% for this year.

  For Q2, same-store sales rose by 6.5%. That’s not bad. Digging into the numbers, Walmart is being helped by rising food sales, which has been aided by inflation. Here’s an interesting stat via CNBC: About three quarters of Walmart’s market share gains in food came from customers with annual household incomes of $100,000 or more. Rich folks like a good bargain.

  Quarterly revenue was $152.86 billion. That works out to more than $1.1 million every minute. It also beat estimates by $2 billion. This report is good news for Walmart and should help to alleviate some concerns about the health of the American consumer. Still, the problem of inflation needs to addressed without delay.

  

  Stock Focus: Polaris

  Polaris (PII) is one of those oddball stocks that deserves more respect than it gets. It’s especially intriguing right now because the valuation appears to be quite favorable.

  If you’re not familiar with Polaris, the company started off making snowmobiles. They still do today, but they also make all sorts of off-road vehicles, those crazy “slingshot” cars, plus snowmobiles, power boats, pontoon boats and lots of other stuff. They also do a nice business in selling apparel. (Off the record, it’s basically a toy store for adult men. That’s a very good business to be in.) If you want to see an example of wares Polaris has to offer, here’s Chad “Ochocinco” Johnson going off-roading in a Polaris RZR Pro R.

  Polaris is based in Medina, MN and they’ve been in business since 1954. Polaris currently has more than 35 brands and it does business in more than 120 countries. Last year, the company did $8.1 billion in sales. Wall Street expects that to rise to $8.5 billion this year and to $8.73 billion in 2023. Global employee count is over 16,000.

  Polaris is a good example of a company with a wide “moat.” Not many firms can do what they do. In fact, Polaris is one of the largest holdings in the VanEck Morningstar Wide Moat ETF (MOAT).

  These days, Polaris is a complete company that makes parts and accessories. The company IPO’d in August 1987, right near the market top.

  The stock has been a massive home run. Since the IPO, PII is up nearly 100-fold. Including dividends, it’s up more than 160-fold. Despite this massive return, the share price today is lower than where it was eight years ago.

  

  Even though the share price has lagged, business continues to go well for Polaris. In 2019, the company made $6.32 per share. In 2020, that increased to $7.74 per share, and last year it rose to $9.13 per share.

  In April, Polaris bombed its Q1 report. The company earned $1.29 per share which was 49 cents below expectations. Sales were flat. Three weeks ago, Polaris rebounded with a solid Q2 report. Polaris earned $2.42 per share for Q2 which beat the Street by 33 cents. Sales were up 8% to $2.063 billion.

  For guidance, Polaris now expects sales for this year to rise by 13% to 16%. That’s up from the prior guidance of 12% to 15%. Polaris also sees full-year earnings ranging between $10.10 and $10.30 per share. That’s up 11% to 14% over last year. If those forecasts are accurate, that means Polaris is going for just 12 times earnings. Not that long ago, Polaris used to go for twice that valuation. One more thing: Polaris has increased its dividend every year for the last 27 years.

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

  – Eddy

• Morning News: August 16, 2022
  Eddy Elfenbein, August 16th, 2022 at 7:09 am

  To Escape the War, Ukraine’s Factories Are Moving West

  Israel’s First International Bank Net Profit Drops 15% in Second Quarter

  Israel’s Bank Leumi Q2 Profit Boosted by Financing Income Jump

  India’s Digit Insurance Eyes $440 Million in IPO

  Falling Oil Prices Defy Predictions. But What About the Next Chapter?

  The Fed’s Past Crises Hold Secrets to Tackling Future Recessions

  Wall Street Deal Making Faces Greater Scrutiny, Delays Under FTC’s Lina Khan

  Andreessen Horowitz Thinks It’s Time for Adam Neumann to Build

  A Frustrating Hassle Holding Electric Cars Back: Broken Chargers

  SoftBank-Backed Ola to Launch First Electric Car in 2024

  Walmart Strikes Streaming Deal with Paramount

  Dan Loeb’s Third Point Calls for Disney to Spin Off ESPN, Refresh Board

  Apple Lays Off Recruiters as Part of Its Slowdown in Hiring

  Home Depot Posts Higher Sales as Transactions Continue to Drop

  Why Is Airline Travel So Miserable? Blame Florida

  Judge Refuses to Toss Financial Aid Lawsuit Against Top Colleges

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• Morning News: August 15, 2022
  Eddy Elfenbein, August 15th, 2022 at 7:01 am

  Japan Bounces Back to Economic Growth as Coronavirus Fears Recede

  China Unexpectedly Cuts 2 Key Rates, Withdraws Cash from Banking System

  What a Chinese Blockade of Taiwan Would Mean for Global Business

  China Stocks With US Listings Slump as NYSE Exit Gathers Pace

  Wall Street Revives Russian Bond Trading After U.S. Go-Ahead

  As Fed Warns of Turbulence Ahead, Markets Remove Their Seat Belts

  JPMorgan Says the Stock Rally Has Legs. Morgan Stanley Disagrees

  Robinhood May Need to Join Forces with a Larger Wall Street Rival

  Wells Fargo Plans Major Retreat From Mortgage Business It Long Dominated

  Restaurant Meals Become a Relative Bargain as Grocery Prices Soar

  Washington’s Top Labor Prosecutor Battles Whole Foods Over Black Lives Matter Masks

  Why Local Governments Trail Private Employers in Hiring

  If the Job Market Is So Good, Why Is Gig Work Thriving?

  The Rise of the Worker Productivity Score

  Saudi Aramco Posts 90% Jump in Profit, Generating Billions for Kingdom

  How Frustration Over TikTok Has Mounted in Washington

  Movie Theaters Plot Revival as Americans Show Up for Blockbusters

  Being Thrown Off Social Media Was Supposed to End Alex Jones’s Career. It Made Him Even Richer

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• Broadridge Earns $2.65 per Share
  Eddy Elfenbein, August 12th, 2022 at 7:34 am

  For its fiscal Q4, Broadridge (BR) earned $2.65 per share. That was two cents better than estimates. For the year, earnings grew 14% to $6.46 per share. The company is raising its annual dividend by 14% to $2.90 per share.

  “A strong fourth quarter capped another great year for Broadridge, with record closed sales, 16% recurring revenue growth, continued margin expansion, and 14% Adjusted EPS growth,” said Tim Gokey, Broadridge’s CEO. “Our results reflect continued execution of our long-term growth strategy, the ongoing digitization of financial services, and strong performance from our Itiviti acquisition.

  For next year, Broadridge see recurring revenue growth of 6% to 9% and EPS growth of 7% to 11%. Working off a base of $6.46 per share, that implies 2023 earnings of $6.91 to $7.17 per share.

• Morning News: August 12, 2022
  Eddy Elfenbein, August 12th, 2022 at 7:03 am

  Global Population Is About to Hit 8 Billion—and Some Argue It Is Near Its Peak

  Britain’s Economy Shrank in Second Quarter, as Warnings About the Future Get Bleaker

  Mostly Bluster: Why China Went Easy on Taiwan’s Economy

  China State-Owned Giants to Delist From US Amid Audit Spat

  BofA Says Cash Racing to Stocks, Bonds as Inflation Fears Ease

  Stocks Set for Best Stretch of Year, as Inflation Fears Recede

  3 Warning Signs About the Economy Coming Out of America’s Top Companies

  Credit Suisse Weighs Break With Trading Unit That Minted Billions

  Masayoshi Son Is Now Down $4 Billion on His SoftBank Side Deals

  Climate and Tax Bill to Rewrite Embattled Black Farmer Relief Program

  What the Great Mayonnaise Inflation Mystery Can Tell Us About Prices

  Gas Prices in the U.S. Fall Below $4 a Gallon

  For Electric Vehicle Makers, Winners and Losers in Climate Bill

  Rivian’s Losses Nearly Triple to $1.7 Billion

  Shops Ordered Lots of Bikes in 2020. Peddling Them Is an Uphill Climb.

  Disney+ Price Increase Shows Limits of Subscriber-Growth Push

  Johnson & Johnson Will Discontinue Talc-Based Baby Powder Globally in 2023

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• Morning News: August 11, 2022
  Eddy Elfenbein, August 11th, 2022 at 7:11 am

  The Snowballing US Rental Crisis Is Sparing Nowhere and No One

  Inflation Cooled in July, Welcome News for White House and Fed

  Fed Likely to Want Further Evidence of Inflation Slowdown

  Lower Gasoline Prices Portend Higher Consumer Confidence, Affect Inflation

  Republicans Are Outraged at Joe Biden for Accurately Describing the Economy

  Mark Cuban Says Buyback Levy Is Top of ‘Bad Taxes’ List

  The Boy Bosses of Silicon Valley Are on Their Way Out

  Regulators Weigh Asking Hedge Funds to Report Crypto Exposure

  Inflation Takes a Bite Out of the Fast-Food Value Menu

  Russians Lining Up to Snag H&M Clothes, IKEA Furniture as Stores Close Over Ukraine War

  Investindustrial to Pay $950 Million for TreeHouse Meal-Prep Business

  Disney Posts Profit Surge, Cuts Forecast on Streaming Users

  Daimler Truck to Keep Prices High, Sees Strong 2023

  Thyssenkrupp’s Q3 Operating Profit Nearly Triples on Steel Price Rebound

  Samsung’s New $1,800 Galaxy Z Fold 4 Tests High-End Budget

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• Morning News: August 10, 2022
  Eddy Elfenbein, August 10th, 2022 at 7:09 am

  Historic Drought Threatens to Cripple European Trade

  Greece to Exit EU’s ‘Enhanced Surveillance’ Framework After 12 Years

  U.S. Renewables Investors See Senate Bill Sparking Gold Rush

  U.S. Republicans Prepare Consumer Watchdog, SEC Probes as Mid-Term Elections Loom

  The Fed Is Cooling Down the Economy, but Stocks Are Hot. What Gives?

  Coinbase Reports 63 Percent Drop in Revenue Amid Industry Slump

  Chip Makers Expect Demand Slowdown to Expand Beyond PCs, Smartphones

  Musk Sells $6.9 Billion of Tesla to Avoid Twitter Fire Sale

  Bankers Turned Billionaires for an Instant, Then Came 89% Crash

  VC Funding Is Drying Up. Here’s a Four-Time Founder’s Guide to Surviving a Market Downturn

  Ford’s New F-150 Lightning Truck to Get Price Hike

  Disney’s Streaming Strategy, Theme Park Outlook Face Investor Scrutiny

  Ralph Lauren, Michael Kors Buck Consumer-Spending Woes

  Chipotle Agrees to Pay Over $20 Million to Settle New York City Workplace Case

  DOJ Is Preparing to Sue Google Over Ad Market as Soon as September

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