Archive for October, 2022

• Morning News: October 24, 2022
  Eddy Elfenbein, October 24th, 2022 at 7:05 am

  China Released Seemingly Rosy Economic Data. Shares Fell Anyway.

  Xi’s Power Grab Spurs Historic Market Rout

  Japan’s Suspected FX Intervention Fails to Stem Yen Slide

  Wall Street Is Heading to Saudi Arabia as US Oil Spat Simmers

  Europe’s Economy Contracts as Tough Winter Looms

  Discounters Thrive as Cost-of-Living Crisis Hits European Households

  Higher Interest Rates Can Take a Long Time to Bring Down Inflation

  Most in NABE Survey Say US Already in Recession or May Be Soon

  There Is a Rosy Projection for the US Economy. Americans May Not Have Felt It

  The Way Los Angeles Is Trying to Solve Homelessness Is ‘Absolutely Insane’

  The Fantasy of Instant Delivery Is Imploding

  Palace Intrigue at UBS Pits CEO Against a Rising Star

  Rising Shipping Costs Prompt Businesses to Get Creative With Deliveries

  Meta-Backed Meesho Is Beating Amazon, Walmart in Race for Indian Shoppers

  Starbucks Showdown in Boston Points to New Phase of Union Campaign

  Tesla Cuts Prices in China as Costs Fall, Competition Heats Up

  Elon Musk’s Twitter Takeover Seen Swelling the Company’s Debt

  “My Price Will Only Go Up”: Collectors Bet on Nostalgia as They Resell McDonald’s Adult Happy Meals Toys

  Be sure to follow me on Twitter.

• Morning News: October 21, 2022
  Eddy Elfenbein, October 21st, 2022 at 7:03 am

  As Inflation Stalks Europe, Leaders Shudder

  After a Storm, Britain’s Economy Finds Itself Rudderless

  Putin’s Conscriptions Supercharge Russia’s Brain Drain

  Why Japan Stands Virtually Alone in Keeping Interest Rates Ultralow

  Long-Term Deals Help Japan Secure Ample Gas Amid Global Shortfall

  Energy Crisis Tests Resilience of Italian Businesses

  Slower Economy, Higher Borrowing Costs to Add Upward Pressure on Federal Deficit

  U.S. Home Sales Drop for Eighth Straight Month in September

  Turkeys Will Be Scarcer and Pricier Than Ever This Thanksgiving

  BofA Says Investor Capitulation Yet to Show Up in Equity Flows

  Crypto’s $2 Trillion Wipeout Is Coming for the C-Suite

  Google Hit with $162 Million Fine from Indian Regulators Over Anti-Competitive Practices

  Twitter Tumbles After US Weighs Security Reviews for Musk Deals

  Elon Musk Calls Tesla ‘Recession-Resilient’ as Wall Street Eyes Demand

  Instacart Is Said to Pull Plans to Go Public This Year

  Snap Reports Slowest-Ever Quarterly Growth but Adds New Users

  Airlines Cash In as Flexible Work Changes Travel Patterns

  Kroger-Albertsons Antitrust Review Likely to Focus on Local Store Overlap

  Be sure to follow me on Twitter.

• Morning News: October 20, 2022
  Eddy Elfenbein, October 20th, 2022 at 7:00 am

  Global Housing Market Pain Has Echoes of a Crash 30 Years Ago

  China Summons Chip Firms for Emergency Talks After US Curbs

  Why Another Xi Jinping Term Might Be in U.S.’s Interest

  Truss and UK Market Turmoil: What You Need to Know

  Truss Resigns as PM, Hunt Rules Out His Candidacy

  After U.K. Market Blowout, American Officials Ask: Could It Happen Here?

  Biden Expands Effort to Secure U.S. Energy Independence

  Ahead of the Midterms, Energy Lobbyists Plan for a Republican House

  Appeals Court Says Financial Watchdog Agency CFPB’s Structure is Unconstitutional

  Businesses Expect Economy to Weaken, Fed’s Beige Book Says

  Your Paycheck Next Year Will Be Affected by Inflation. Here’s How.

  Drugmakers Look to Curb Medicare’s New Power to Negotiate Lower Drug Prices

  Tesla Drops as Musk Says Demand ‘A Little Harder’ to Come By

  Tesla’s Valuation Doesn’t Add Up Today, Never Mind $4.4 Trillion Tomorrow

  Blackstone’s Earnings Fall 16% on Sharp Drop in Asset Sales

  JPMorgan, Goldman Face Probe by 19 States Over ESG Investing

  Small Gunmakers Find State Weapons Bans Offer a Lucrative Niche

  Philip Morris Raises Offer for Swedish Match and Buys U.S. Rights for IQOS

  Burned Out on Your Personal Brand

  Be sure to follow me on Twitter.

• Morning News: October 19, 2022
  Eddy Elfenbein, October 19th, 2022 at 7:05 am

  Hong Kong Offers Visas, Perks to Reverse Brain Drain After Losing 140,000 From Workforce

  Bread Prices Skyrocket as Inflation Grips Europe

  UK Inflation Returns to 40-Year High

  Britain Scales Back Foreign Aid, Threatening Progress in Global Health

  Biden to Sell More Oil From Strategic Reserve to Keep Gas Prices in Check

  The Fed, Staring Down Two Big Choices, Charts an Aggressive Path

  Three Hidden Words From Fed Insiders Point to Much Higher Rates

  Inflation Causes IRS to Raise Tax Brackets, Standard Deduction by 7%

  Weary of Snarls, Small Businesses Build Their Own Supply Chains

  US Housing Market in ‘Free Fall’ as Builder Confidence Suffers ‘Disastrous’ Drop

  Dubai’s Luxury Property Market Is Cashing in on the Global Slowdown

  Billionaire Ambani Splurges $163 Million on Priciest Dubai Villa

  Nestlé to Acquire Seattle’s Best Coffee Brand From Starbucks

  Netflix Returns to Growth, Saying the Worst of Slowdown Is Over

  The Great Netflix Debate: Do Its Movies Belong in Theaters?

  John Mack, Who Led Morgan Stanley Into a Crisis, Regrets Little

  Rarely-Humbled Goldman Sachs Concedes Missteps in Plan to Take on Megabanks in Retail Finance

  Deutsche Bank HQ Raided by German Prosecutors in Tax Probe

  Be sure to follow me on Twitter.

• CWS Market Review – October 18, 2022
  Eddy Elfenbein, October 18th, 2022 at 6:34 pm

  The stock market is surging again. Yesterday, the S&P 500 gained 2.65%, and today the index was up another 1.14%.

  I’m fine with the gains, but we’ve been burned before. As we know, the stock market loves to use big short-term gains to lure investors back. We’re not falling for it. We’re still in the market, but we’re cautious about it.

  Here’s an interesting stat: Prior to today, the S&P 500 was up only five times in the last 20 sessions, but all of those up days were up big. The smallest of the five was a gain of 1.97%.

  

  In other words, the stock market has been working in two modes. Stocks are either zooming higher or they’re down. There seems to be no middle ground. The last two days were in up mode.

  Right now, Wall Street’s attention is on focused on earnings season. It’s still early, but we’ve already had several important earnings reports. Goldman Sachs (GS) crushed its earnings ($8.25 versus the estimated $7.69). Johnson & Johnson (JNJ) made $2.55 per share which was a seven-cent beat. Lockheed Martin (LMT) earned $6.71 per share which beat the Street by four cents. Netflix (NFLX) had good news (finally!). The stock is up 14% after hours.

  The good news may have calmed the market for the time being. Instead of worrying only about inflation, interest rates and the Federal Reserve, investors are seeing clear evidence that many companies are still making a healthy profit.

  The first Buy List stocks will report earnings later this week, and I’m expecting good results. I think there’s a good chance that Stepan (SCL) will announce its 55th dividend increase in a row. There aren’t many companies that can say that.

  Our strategy continues to work very well in this market. Here’s a look at the AdvisorShares Focused Equity ETF (CWS) since mid-June:

  

  I need to be clear that our ETF is based on the Buy List, but it’s not exactly the Buy List. Still, it mimics it very well. When investors get scared, they seek out quality and for the last several months, that’s us. Also, we just got our fifth star from Morningstar for our overall rating. You can learn more about the ETF at the AdvisorShares website.

  Last Thursday, the stock market got spooked again by another lousy CPI report. Instead of showing that inflation is fading away, the data says it’s still plaguing the economy. For September, headline inflation was up by 0.4% which was 0.1% more than estimates. Core inflation was up by 0.6%. Wall Street had been expecting 0.4%.

  This report has pretty much ended discussion on the next Fed meeting. The futures market now places a 95.2% chance that the Fed will hike by 0.75% at its November meeting. I’d say that’s about 4.7999% too low, but that’s me.

  It’s not just the November meeting; futures traders are now placing a 66% chance of another 0.75% hike in December. If that’s right, that would mean the Fed will hike by 0.75% five times in a row. These rate hikes are going to do some damage.

  Economists See a Recession Coming Next Year

  Speaking of which, the Wall Street Journal recently surveyed economists and they placed the odds of a recession starting in the next 12 months at 63%. That’s up from 49% in July. They expect the economy to contract in the first two quarters of 2023.

  In July, the economists were expecting the economy to grow in real terms at an annualized rate of 0.8% in Q1 of 2023. Now that’s been pared back to -0.2%. For Q2, the forecast has been pulled back from +1% to -0.1%.

  Most economists expect the Fed to raise interest rates too far. That’s a serious concern that I share. The problem with the Fed’s interest rate policy strategy is that it takes a long time to see the results. Historically, that’s caused Fed members to see the lag time as evidence that they’re not pursuing their policy hard enough.

  The Fed may also soon impact the labor market.

  Economists believe that nonfarm payrolls will decline by 34,000 a month on average in the second quarter and by 38,000 in the third quarter. According to the last survey, they expected employers to add about 65,000 jobs a month in those two quarters.

  If there’s a silver lining, it’s that economists see the recession being shorter than the historical average. I would not be surprised to see the Fed start cutting interest rates sometime in 2023. A more pliant Fed would also convince me that any rally is real and not some head-fake.

  The healthcare sector has done very well this year in relative terms. That’s not much of a surprise since healthcare tends to be one of the better defensive sectors. Even in a recession, people don’t cut back much on their medical expenses. At least, not the way they do for cars or houses.

  Before this year, healthcare had been lagging the market for six years. Beginning in late November, the tide started to turn. At the same time, this is when we saw so many of the high-flying stocks of the Covid era start to lose momentum. More than a few have crashed.

  The healthcare sector briefly lagged again this summer during another bear-market rally. As that rally faded, healthcare again started to lead the market. This is a trend that may continue into next year.

  Stock Focus: Mettler-Toledo International (MTD)

  I’m a big of Mettler-Toledo International (MTD) but the stock doesn’t seem to get much attention, despite having a market cap of $26 billion and a remarkable performance history.

  Mettler-Toledo makes scales and lab equipment. It’s a competitor of Thermo Fisher Scientific (TMO). The company is incorporated in the United States, but the headquarters are in Switzerland. The stock IPO’d 25 years ago at $14 per share, and it’s been a huge winner. MTD has never split or paid a dividend. The shares are currently trading at $1,200 (on the nose!). That works out to an annualized gain of nearly 20%.

  Mettler-Toledo is having another strong year. For Q2, MTD reported earnings of $9.39 per share. That was a 16% increase over last year’s Q2. It topped Wall Street’s forecast by 63 cents per share. The company also increased full-year EPS guidance to a range between $38.85 and $39.05. That was an increase of 65 cents per share to the low end and 55 cents per share to the high end.

  But what I like best about MTD is its “earnings line.” By that I mean that the company’s annual EPS line (the blue line below) is very consistent.

  

  (The chart is from FastGraphs.)

  This is an important point about stock valuations. Consider this hypothetical:

  Imagine you have two companies that are equal in every way. Both are expected to earn $1 per share next year. However, there’s one important difference. Company A is expected to earn $1 per share, plus or minus two cents per share. Company B is expected to earn $1 per share, plus or minus 20 cents per share. Which stock will have the higher share price?

  In almost all normal cases, company A will have a higher share price. This is because Wall Street values the stability of earnings. The premium of A over B will ebb and flow over time depending on the market’s appetite for risk. The premium probably won’t be very much, but it will be visible over the long term.

  I use this thought exercise because Mettler-Toledo may have the steadiest earnings line I know of, and that’s why Wall Street gives it a high valuation. Going by today’s price and the company’s latest guidance, MTD is trading at more than 30 times earnings—and that’s in a bear market. The stock is down in 2022. Late last year, MTD was trading north of $1,700 per share.

  I also like that Mettler-Toledo has bought back so many shares over the years. I’ve been critical of many companies that use share buybacks as a way of enriching executive bonuses, but MTD has reduced its share count.

  

  For Q3, Mettler-Toledo expects earnings between $9.75 and $9.85 per share. The consensus on Wall Street is for earnings of $9.83 per share. I would be surprised if Q3 earnings came in at less than $10 per share.

  In summary, I like Mettler-Toledo a lot. The sad part is that I understand why it’s so expensive.

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

  – Eddy

  P.S. If you want to learn more about the stocks on our Buy List, please sign up for our premium service. It’s $20 per month, or $200 per an entire year.

• Morning News: October 18, 2022
  Eddy Elfenbein, October 18th, 2022 at 7:12 am

  Xi Jinping’s Ideological Ambition Challenges China’s Economic Prospects

  China Abruptly Delays GDP Release During Communist Party Conference

  In the Netherlands, Balancing Energy Security Against Climate Concerns

  Russia Wipes Out Exxon’s Stake in Sakhalin Oil-and-Gas Project

  Putin’s War Escalation Is Hastening Demographic Crash for Russia

  Economists Now Expect a Recession, Job Losses by Next Year

  Looming Leadership Void at I.R.S. Raises Concerns Over $80 Billion Overhaul

  Treasury Dept. to Ask Insurers for Data on Climate Risks to Measure Coverage Affordability

  Even as US Inflation Climbs, Wall Street Sees Steep Fall Coming

  Retailers, Brands and Tech Platforms Bet Big on Live-Streamed Shopping in the U.S.

  BofA Survey ‘Screams’ Capitulation Among Investors

  How Switzerland’s Oldest Bank Became a Meme Stock

  Goldman Sachs Unveils Revamp as Third-Quarter Profit Falls

  Meta Ordered Again to Sell Giphy as UK Watchdog Blocks Deal

  Netflix Looks to Put an End to Subscriber Losing Streak

  All This Talk About “Quiet Quitting” Is Absurd

  Be sure to follow me on Twitter.

• Morning News: October 17, 2022
  Eddy Elfenbein, October 17th, 2022 at 7:00 am

  In Xi’s China, the Business of Business Is State-Controlled

  China Delays Indefinitely the Release of G.D.P. and Other Economic Statistics

  China’s Economy Needs to Double in Size to Meet Xi’s Ambitious Plans

  New U.K. Finance Minister Drops Almost All of Tax-Cut Plan

  How Russian Ships Are Laundering Grain Stolen From Occupied Ukraine

  Saudi Arabia’s Super Fund Leans on Influence of BCG Power Broker

  Big Coal Uses This Playbook to Avoid Cleaning Up its Messes

  New England Risks Winter Blackouts as Gas Supplies Tighten

  Democrats Spent $2 Trillion to Save the Economy. They Don’t Want to Talk About It.

  Despite What the Experts Told You, This Was Never ‘Inflation’

  The Rent Revolution Is Coming

  What the $24.6 Billion Kroger-Albertsons Merger Could Mean for Groceries

  Goldman Shakes Up Leadership Ranks in Yet Another Overhaul

  Bank of America Profit Drops on Loan-Loss Reserve Build

  Procter & Gamble Bets Inflation Won’t Push Shoppers to Trade Down

  Families Still Struggle to Find Baby Formula Nearly One Year After Shortages Began

  Sports TV Rights Are Costlier Than Ever — But They’re Cable’s Last Lifeline

  Ye to Buy Controversial Social Networking App Parler

  Be sure to follow me on Twitter.

• Morning News: October 14, 2022
  Eddy Elfenbein, October 14th, 2022 at 7:02 am

  War Colliding With Recession Risks Leave Energy Markets on Uncertain Path

  The UK’s Crisis Is Threatening the Global Inflation Fight

  Kwasi Kwarteng Out as UK Chancellor

  Inflation Is Unrelenting, Bad News for the Fed and White House

  Inflation Report Seals Case for 0.75-Point Fed Rate Rise in November

  Why Social Security’s Inflation Protection Is Priceless

  Retirees Catch a Break With the Social Security COLA

  Private Bets Shield World’s Largest Investors From Market Mayhem

  BofA Strategists See More Pain in Store Before Stocks Reach Low

  Investing for Your Values, but Betting on Growth

  Computer Buyers Curtail Purchases After Pandemic Splurge

  Kroger, Albertsons Forge $24.6 Billion Grocery Giant Combination

  Chinese Drone Billionaire’s Dominance Threatened by US Blacklists

  It Shouldn’t Matter So Much Whether Elon Musk Buys Twitter

  Want to Get Ahead? Pick the Right Company

  Netflix to Get Nielsen Ratings as Streaming Giant Rolls Out Ad-Supported Plan

  A Pair of Levi’s That Sold for $76K Reflects Anti-Chinese Sentiment of 19th Century

  Be sure to follow me on Twitter.

• Morning News: October 13, 2022
  Eddy Elfenbein, October 13th, 2022 at 7:02 am

  IMF Urges Governments Restrain Spending to Fight Inflation

  OPEC+ Supply Cut Could Tip Global Economy Into Recession, IEA Says

  Bad Policies Are Greasing the Wheels for a Global Recession

  A Weed Gummy Theory for the Fed’s High-Stakes Interest Rate Gamble

  America’s 6 Biggest Banks Are Expected To Set Aside $4.5 Billion In Q3 To Cover Future Loan Losses — Why That’s A Clear Bad Sign For The Global Economy

  Volatility Is Only Certainty for Stocks With Inflation Data Due

  Bitcoin Becoming Less Volatile Than Stocks Raises Warning Flag

  As Bond Investors’ Bets Blow Up, They Might Usher In Era of Higher Rates

  TSMC to the World: We Have No Good News for You

  Battle Over Wage Rules for Tipped Workers Is Heating Up

  BlackRock Profit Beats as ETF Demand Holds Up Against Market Rout

  Exxon’s Exodus: Employees Have Finally Had Enough of Its Toxic Culture

  Walgreens Beats Sales Expectations, As It Expands its Health-Care Business

  TikTok Parent ByteDance Sets Sights on Spotify With Music-Streaming Expansion

  TikTok Wants to Open Warehouses in Amazon’s Backyard to Expand e-Retail Business

  Delta Reports Profit and Projects Strong Travel Demand in Coming Months

  Be sure to follow me on Twitter.

• Morning News: October 12, 2022
  Eddy Elfenbein, October 12th, 2022 at 7:07 am

  A Warning for the World Economy: ‘The Worst Is Yet to Come’

  Bailey Pressed to Extend Gilt Purchases Amid Deadline Confusion

  US Core Inflation Seen Returning to 40-Year High as Rents Rise

  U.S. Mortgage Interest Rates Rise to Highest Level Since 2006

  Hedge Fund Managers Paid for Stockpicking Genius Aren’t Showing Much of It

  Wall Street Braces for an Earnings Season of Mixed Signals

  Credit Suisse Shares Drop on US Tax Probe Over Accounts

  Biden Proposal Could Lead to Employee Status for Gig Workers

  Companies Hoarding Workers Could Be Good News for the Economy

  Amazon Labor Union, With Renewed Momentum, Faces Next Test

  Twitter Faces Only Bad Outcomes If the $44 Billion Musk Deal Closes

  Philips to Take $1.3 Billion Write-Down on Sleep-Apnea Business

  PepsiCo Raises Guidance Again as Higher Prices Lift Sales

  Nissan Sells Russian Business for Less Than $1, Takes $687 Million Loss

  Toyota Starts Plant in Junta-Led Myanmar Making 1 to 2 Cars a Day

  Federal Officials Trade Stock in Companies Their Agencies Oversee

  A Nobel Prize for the Economics of Panic

  Be sure to follow me on Twitter.