Archive for December, 2022

• Morning News: December 23, 2022
  Eddy Elfenbein, December 23rd, 2022 at 7:04 am

  Ukraine’s Parallel War on Corruption to Unlock Door to West

  Japan’s Consumer Inflation Hits Fresh 40-Year High

  Egg Prices Surge to Records as Bird Flu Hits Poultry Flocks

  As Cases Explode, China’s Low Covid Death Toll Convinces No One

  China’s Future Isn’t What It Used to Be

  France Desperately Needs Workers, but the Fixes Could Anger Left and Right

  Why America’s Economy Remains Surprisingly Strong – But You Don’t Realize It

  It’s Boom Times for Santa

  For Many Wall Street Bankers, This Year’s Bonus Season Is a Bust

  Why New Year’s Eve Revelers Will Find Fewer Places to Party in Times Square

  BlackRock’s Pitch for Socially Conscious Investing Antagonizes All Sides

  YouTube Paying Roughly $2 Billion a Year for NFL Sunday Ticket

  Elon Musk Says He Will Not Sell More Tesla Stock for About Two Years

  Meta Agrees to Pay $725 Million Over Cambridge Analytica Scandal

  SBF’s $250 Million Bail Is One of the Largest in US History. It Doesn’t Mean He Has That Much

  Bankman-Fried’s ‘Epic’ Legal Battle

  Top Executive for Financier Greg Lindberg Pleads Guilty to Charges Related to Insurance Fraud

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• Morning News: December 22, 2022
  Eddy Elfenbein, December 22nd, 2022 at 7:04 am

  Without a Covid Narrative, China’s Censors Are Not Sure What to Do

  Zelenskiy Wins Applause, Aid in Half-Day Dash Through Washington

  Investors Trapped in Russian Bonds Find Saviors in Kazakh Buyers

  How Changing Diets Leave Us Exposed to War, Extreme Weather and Market Turbulence

  Oil Prices Rise, Extending Rally, After Decline in U.S. Inventories

  Japanese Homeowners Face An Unfamiliar Headache: Higher Mortgages

  Home Sales Dropped 7.7% in November

  Biden and Congress Still Haven’t Made Inflation Central in Budget Matters

  Fed’s Balance Sheet Drawdown Could Sunset Next Year

  Bankman-Fried Associates Flip as FTX Co-Founder Arrives in NYC

  All The Ways That Crypto Broke in 2022

  A New Chat Bot Is a ‘Code Red’ for Google’s Search Business

  Microsoft Gambles on ‘Nice Guy’ Strategy to Close Activision Megadeal

  Tesla Dangles $7,500 Discount in Rare Move to Boost Deliveries

  Elon Musk’s Distraction Is Just One of Tesla’s Problems

  The End of Netflix Password Sharing Is Nigh

  Sports and Fashion Won Big Together This Year

  What Will Happen in 2023: All the Latest Predictions for Next Year

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• Morning News: December 21, 2022
  Eddy Elfenbein, December 21st, 2022 at 7:02 am

  Russia and Iran Are Building a Trade Route That Defies Sanctions

  Italy Backs Levy on Payments Firms, Banks If They Do Not Cut Fees for Retailers

  Japan Bends to Global Forces Pushing Up Interest Rates

  S&P 500 Facing a Historical Warning Sign After This Year’s Slump

  Big Changes to 401(k) Retirement Plans Move Ahead in Congress

  Jamie Dimon Is More Crucial Than Ever to the Bank He’s Run for 17 Years

  High Commodity Prices Feed a Boom in the U.S. Farm Belt

  Many Hospitals Get Big Drug Discounts. That Doesn’t Mean Markdowns for Patients.

  3M to Stop Making, Discontinue Use of ‘Forever Chemicals’

  Bans on TikTok Gain Momentum in Washington and States

  Elon Musk Plans to Step Down as Twitter Head After Casting Doubt on Poll

  Musk Says Cost-Cutting Averted $3 Billion Twitter Shortfall

  Meta is Building Virtual World Open to App Makers, CEO Tells Antitrust Court

  Core Scientific Files for Bankruptcy. Crypto Miners Are at Rock Bottom.

  Nike: Huge Q2 Earnings Beat

  Google’s YouTube in Talks for Rights to NFL Sunday Ticket

  Phoenix Suns, Mercury Valued at $4 Billion in Record NBA Deal

  Wells Fargo to Pay $3.7 Billion Over Consumer Banking Violations

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• CWS Market Review – December 20, 2022
  Eddy Elfenbein, December 20th, 2022 at 6:51 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.”)

  Before we get to today’s issue, let me remind you that we will unveil the 2023 Buy List one week from today. As usual, the Buy List will have 25 stocks. Five new names go into the Buy List and five old names will come out.

  This will be the 18th year of our Buy List. In honor of the new Buy List, the stock market will be closed on Monday, December 26. The 2023 Buy List won’t go into effect until Tuesday, January 3, which is the first trading day of the year.

  This looks to be a very good year for our Buy List in terms of relative performance. Since April, we’ve outperformed the overall stock market by a nice margin. I’ll have full details on our 2022 performance in upcoming issues.

  The Stock Market’s Lousy December

  Unfortunately, the stock market has been somewhat sluggish this month. Today, the S&P 500 snapped a four-day losing streak with a gain of just 0.1%. Earlier this month, the index compiled a five-day losing streak.

  Until December, the S&P 500 had been recovering well since the low in mid-October. It seems like every time the stock market gets going, it stumbles to another new low. Was that just another bear-market rally?

  

  It’s too early to say, but there’s been a crucial difference between the market in December and previous pullbacks, and that’s the strength of the bond market. Interest rates, especially at the long end, have gradually slumped lower over the past few weeks. On November 9, the 30-year Treasury yielded 4.31%. It’s recently ticked below 3.5% (although it’s up to 3.7% now).

  The paring of high bond prices and lower stocks is often taken as the market preparing for a recession. That may be a prudent decision. There are lots of reasons to believe the overall economy may slow down next year, or even fall into a recession.

  Bloomberg recently surveyed economists and found that 70% of them expect a recession next year. That’s double the number from a similar survey in June. The economists see the U.S. economy expanding by a measly 0.3% next year.

  They’re not alone. In September, the Federal Reserve was expecting the U.S. economy to grow by 1.2% next year. Last week, the Fed lowered that forecast to growth of just 0.5%. I don’t think the economy will fall off a cliff, but it’s wise to expect a modest slowdown. The economy had a mild slowdown in 2015-2016 without going into a recession.

  The housing market is already feeling the squeeze. Today we learned that housing starts fell by 0.5% last month to an annualized rate of 1.43 million. Single-family homebuilding fell to its lowest rate in more than two years.

  The outlook may not improve soon. Applications to build fell by 11.2% and permits to build single-family homes dropped by 7.1% to their lowest level since 2020. Housing in some areas of the country is pretty ugly. Bill McBride points out that home sales in California are down 48% over the last year. Homebuilder confidence fell to 31 last month from 33 the month before. Any number below 50 means the homebuilders are pessimistic.

  Another place where we see pessimism is on Wall Street. Analysts have been cutting back their earnings forecasts. At the middle of the year, Wall Street was expecting the S&P 500 to report Q4 earnings of $60.46 per share (that’s the index-adjusted number). Since that time, the Q4 forecast has been ratcheted back to $53.91 per share. That’s a decrease of more than 10% in less than six months. That also helps explain the recent behavior of stocks and bonds.

  For all of 2023, Wall Street had lowered its forecast by 8% since the summer. The full-year 2023 forecast is now down to $227.17 per share from $249.01 per share this summer.

  If those forecasts are accurate (which is a big if), then it means that the stock market is reasonably priced. The S&P 500 is currently going for just under 17 times next year’s earnings estimate. That’s not bad, especially if the Fed keeps rates steady for much of this year.

  This has been an unusual year for the stock market, and it may be one of the worst years in decades for an old stand-by portfolio. I’m speaking of the 60/40 Portfolio. That means a portfolio that’s 60% in stocks and 40% in bonds.

  For many years, the 60/40 Portfolio has represented the optimal well-balanced portfolio. It’s not that this portfolio performed the best but rather that it performed the best relative to its volatility. According to Vanguard, the 60/40 Portfolio has gained an average of 8.8% per year for nearly 100 years. Owning the 60/40 Portfolio meant you could sleep well at night.

  That is, until this year. In normal times, stocks and bonds tend to move in opposite directions which has meant that the right combo of the two would balance each other out. Investors got growth with stability.

  Thanks to inflation and higher interest rates, both stocks and bonds moved lower for much of this year. As a result, the 60/40 split didn’t do much to help you. Both were losers. The failure of the 60-40 this year has shocked many investors. It was assumed that a 60-40 portfolio could never have a really bad year, but it happened. One of the lessons for investors is that so-called extreme events happen more often than you think.

  There really isn’t a substitute for owning high-quality stocks. Speaking of which, let’s look at a stock that’s been an all-star, until about five years ago.

  Stock Focus: J.M. Smucker

  “With a name like Smucker, it has to be good.” So said the old slogan for J.M. Smucker (SJM). I’m not sure why a name would cause anyone to discount the seriousness of a business enterprise, but the famous slogan certainly worked.

  For over 120 years, Smucker has kept America fed with its high-quality brand names. If you’re inclined to think Smucker is just jelly, allow me to disabuse you of that notion. Of course, it owns Jif peanut butter as well.

  Ok, it’s more than PB&J as well.

  In fact, there’s an entire stable of brand names that Smucker owns. This company owns Crisco and Knott’s Berry Farm. The Dunkin’ Donuts brand is also licensed to Smucker to sell coffee at the retail level. Coffee is a big part of their business. Smucker also owns Folgers.

  It doesn’t end there. Smucker has an entire pet food division to make sure Rover gets fed. Smucker owns Meow Mix, 9 Lives and Milk-Bone. Both Folgers and Milk-Bone are the top brands in the U.S. Smucker also owns Uncrustables, a personal favorite. About 95% of the company’s sales come from the United States. Smucker also used to be a Buy List stock for three years, from 2017 to 2019.

  Check out this long-term chart:

  

  You’ll notice that while Smucker has been a long-term winner, it hasn’t done so well lately. Since the middle of 2016, the S&P 500 has more than doubled, including dividends, but SJM is only up by about 20%.

  What happened? Well, the company made a few ill-advised acquisitions that didn’t turn out as well as planned. I can’t help but think of Peter Lynch’s observation that too much cash on a firm’s balance sheet is not a good thing because it forces them to do something dramatic and unwise. Lynch referred to this as the Bladder Theory of Corporate Finance. In particular, Smucker’s premium dog food biz has not been a winner.

  Today, Smucker’s current market value is just over $16 billion. That’s a good-sized company, and I have strong hopes for the company.

  

  The last earnings report came out on November 21, and it was quite good. Smucker earned $2.40 per share for its fiscal Q2. That beat the Street by 21 cents per share. This was for three months ended in October.

  I was also impressed to see Smucker increase its full-year guidance. The company now sees earnings ranging between $8.35 and $8.75 per share. That’s an increase of 15 cents per share to both ends of its guidance.

  “Our second quarter results reflect the ongoing strength of our business, continued demand for our leading brands, and the ability of our team to execute with excellence,” said Mark Smucker, Chair of the Board, President and Chief Executive Officer. “We delivered organic top-line growth across all of our businesses, driven by the strength of our portfolio, and our ability to recover cost inflation and manage our supply chain environment.”

  The next earnings report will be out in late February. Wall Street expects $2.12 per share. That’s a decrease over the $2.33 Smucker earned in the same quarter one year ago. Smucker currently pays a quarterly dividend of $1.02 per share. That works out to a yield of 2.6% which isn’t bad.

  Smucker is an attractive buy at this price. It won’t be a giant winner for you but it could prove to be a consistent performer in your portfolio. It’s one of the best consumer staples stocks. Smucker has increased its dividend every year for the last 25 years in a row.

  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.

• FactSet Earns $3.99 per Share
  Eddy Elfenbein, December 20th, 2022 at 8:44 am

  This morning, FactSet (FDS) said it made $3.99 per share for its fiscal Q1. That’s up 22.8% over last year. Wall Street had been expecting $3.61 per share. Revenues rose 18.9% to $504.8 million.

  The company reiterated its full-year earnings guidance of $14.50 to $14.90 per share.

• Morning News: December 20, 2022
  Eddy Elfenbein, December 20th, 2022 at 7:03 am

  Europe’s Gas Price Cap Threatens to Intensify Energy Crisis

  Finland to Get Vital Floating LNG Terminal to Secure Gas Supply

  Bank of Japan Surprises Markets With Policy Tweak

  King Charles III Is the New Face of U.K. Money

  Economists Place 70% Chance for US Recession in 2023

  The US Child-Care Industry Braces for the End of Pandemic Assistance

  Big US Banks Fall Short on Promises to Create Black Homeowners

  Release of Trump Tax Returns Could Herald New Era for Taxpayer Privacy

  Tech Companies Make Final Push to Head Off Tougher Regulation

  Amazon and E.U. Reach Deal to End Antitrust Investigation

  How TikTok Became a Diplomatic Crisis

  Why This Is No Madoff Moment for FTX Creditors

  The Sam Bankman-Fried Collapse Is a Paradoxical Sign of Progress

  Musk Narrows Voting on Twitter Policy to Blue Members After Poll

  Epic Games, Maker of ‘Fortnite,’ to Pay $520 Million to Resolve FTC Allegations

  Honeywell to Pay $203 Million in Settlements Over Brazil, Algeria Bribery

  The Golden Age of Cocaine Is Happening Right Now

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• Heico Beats the Street and Raises Its Dividend
  Eddy Elfenbein, December 19th, 2022 at 4:29 pm

  After the closing bell, Heico (HEI) reported fiscal Q4 earnings of 70 cents per share. That was one penny more than expectations. Quarterly sales rose 20% to $609.6 million. Operating income was up 27% and Heico’s operating margin improved to 24%.

  For the year, sales rose by 18% to $2.2 billion. This is for the fiscal year that ended in October. For the year, Heico made $2.55 per share. The company also raised its semi-annual dividend by 11% to 10 cents per share.

  The CEO said:

  “As we look ahead to fiscal 2023, we anticipate net sales growth in both the FSG and ETG, principally driven by demand for the majority of our products. Additionally, recent cost inflation and potential supply chain disruptions lingering from the COVID-19 global pandemic (the “Pandemic”) may lead to higher material and labor costs. During fiscal 2023, we plan to continue our commitments to developing new products and services, further market penetration, and an aggressive acquisition strategy while maintaining our financial strength and flexibility.”

• Morning News: December 19, 2022
  Eddy Elfenbein, December 19th, 2022 at 7:06 am

  Qatar’s World Cup Building Frenzy Reaches Its Day of Reckoning

  US Won’t Help Fund China’s Chip Ambitions, Rahm Emanuel Says

  Time Might Run Out on Japan’s Low-Rate Policy

  Repeat It Over and Over Again, Economic Growth Is All About Falling Prices

  Trust the Models? In This Economy?

  Morgan Stanley’s Wilson Says US Profit Drop Could Rival 2008 Era

  Highest Interest Rates in 15 Years Are Derailing the American Dream

  Why This Housing Downturn Isn’t Like the Last One

  The World Is Addicted to Chicken. So Is the Bird Flu Virus

  Tech’s Bust Delivers Bruising Blow to Hollowed-Out San Francisco

  Defense Contractor L3Harris Plans to Buy Aerojet Rocketdyne for $4.7 Billion

  Streaming’s Golden Age Is Suddenly Dimming

  MLB, NBA and NHL Unlikely to Save Struggling TV Regional Sports Networks

  Toyota Chief Says ‘Silent Majority’ Has Doubts About Pursuing Only EVs

  Tesla’s Direct Sales Model Helps It Thwart Customer Lawsuits

  Twitter Users Vote for Elon Musk to Step Down as CEO

  The Education of CNN’s Chris Licht

  The Backstory of ChatGPT Creator OpenAI

  In the U.S., His Site Has Been Linked to Massacres. In Japan, He’s a Star.

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• Morning News: December 16, 2022
  Eddy Elfenbein, December 16th, 2022 at 7:02 am

  EU Greenlights 15% Corporate Minimum Tax, Advancing Global Deal

  Short Sellers Are Zeroing In on Europe’s Embattled Landlords

  Russia’s Central Bank Governor Nabiullina Speaks After Holding Rates at 7.5%

  Fed’s High Inflation Forecast Baffles Wall Street After Soft CPI

  Why 2022 Was Such a Wild Year for Traders Who Bet on Dealmaking

  Americans Pessimistic About Prospects for the Economy in 2023, WSJ Poll Finds

  Can a Federally Funded ‘Netflix Model’ Fix the Broken Market for Antibiotics?

  Verizon Lost Its Network Superiority — Now It’s Paying the Price

  A Traditional Exchange? FTX Was Anything But.

  Musk Disables Twitter Spaces After Clash With Journalists

  Blue Bird vs. Cash Cow

  Once You See the Truth About Cars, You Can’t Unsee It

  Amazon Agrees to Change Some Business Practices in E.U. Settlement

  TikTok’s Efforts to Distance Itself From Chinese Parent Stumble Over Talent

  The Bleisure Traveler—Coming to the Rescue of Airlines Everywhere

  What Is a ‘Culture Budget’?

  Ben & Jerry’s, Unilever Settle Dispute Over Israeli Ice Cream

  The World’s Biggest Hashish Exporter Is Struggling to Go Legal

  How a Cocaine-Smuggling Cartel Infiltrated the World’s Biggest Shipping Company

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• Morning News: December 15, 2022
  Eddy Elfenbein, December 15th, 2022 at 7:04 am

  Qatar’s $300 Billion World Cup Is Headed for an Epic Comedown

  Swiss Central Bank Slows Rate Hiking With Half-Point Move

  Britain’s Inflation Rate Dips From a Four-Decade High to 10.7 Percent

  BOE Raises Key Rate a Half Point to 3.5%, Highest Since 2008

  This Is the World’s Biggest Stock Winner of 2022 With 1,600% Gain

  The Federal Reserve Signals More to Come Even as It Slows Rate Increases

  Jerome Powell’s Grim Inflation Outlook Is at Odds With Markets

  Why Inflation Took Off in 2022—and What Happens Next

  One of World’s Richest Families Is Building an Investment Firm

  How A Sprawling Hospital Chain Ignited Its Own Staffing Crisis

  Twitter Suspends Accounts Sharing Live Locations, Including the Tracker of Elon Musk’s Private Jet

  Jack Dorsey Says Twitter Has Too Much Power

  ‘FinTwit’ Influencers Face Charges in $100 Million Scheme

  Musk Cashes Out Another $3.6 Billion in Tesla Stock

  FTX Executive Ryan Salame Tipped Off Bahamian Regulators to Possible Fraud

  Goldman Sachs May Slash Bonuses for 3,000 Investment Bankers by 40%

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