Archive for December, 2022

• The Fed Hikes by 0.50%
  Eddy Elfenbein, December 14th, 2022 at 2:30 pm

  This afternoon, the Federal Reserve decided to raise interest rates by 0.5%. The new target range for Fed funds is 4.25% to 4.50%. The vote was unanimous.

  In the policy statement, the Fed said there’s been modest growth in spending and production while job gains have been robust. The Fed said that inflation remains elevated due to imbalances in supply and demand.

  The Fed said it expects more rate hikes will be needed to bring inflation back to 2%. The Fed is also continuing to reduce its massive holdings of Treasury debt and mortgage-back securities.

  The Fed also released its economic forecasts for the coming few years. The median vote for interest rates for 2023 is now 5.1%. I think that’s too high. It had been at 4.6%.

  In September, none of the 19 Fed officials expected rates to get to 5% next year. Now 17 do. One voter expects rates to get to 5.63% through 2025.

  The stock market is down since the statement came out. I suspect that the hawkish forecasts concerned the bulls.

  Here’s the policy statement and here are the economic projections.

• Morning News: December 14, 2022
  Eddy Elfenbein, December 14th, 2022 at 7:00 am

  US to Add More Than 30 Chinese Companies to Trade Blacklist

  Europe Strikes Deal to Tax Imports Based on Greenhouse-Gas Emissions

  HSBC to Stop Funding New Oil and Gas Fields as Part of Policy Overhaul

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

  Slowing Inflation Could Intensify Fed Debate Over When to Stop Raising Rates

  In 60 Seconds Before CPI Hit, Heavy Trading Drove Mystery Rally

  BlackRock Is Becoming the Republican Bogeyman for ESG

  Pandemic Loans Are Coming Due but Some Businesses Aren’t Ready to Repay

  Supermarkets Offer More Store Brands to Lure Cost-Conscious Shoppers

  Mortgage Demand Inches Higher as Interest Rates Move Lower

  Delta Expects Profit to Nearly Double Next Year on ‘Robust’ Air Travel Demand

  FTX’s Sam Bankman-Fried Charged With Criminal Fraud, Conspiracy

  FTX Used ‘Old-Fashioned Embezzlement,’ New CEO Testifies

  YouTube Stars Cash In Video Rights for Millions of Dollars

  Avatar Sequel Helps Imax Bulls Make the Case That Cinema’s Not Dead

  Bloomberg 50: The People and Ideas That Defined Global Business in 2022

  Who Is Bernard Arnault, the World’s Richest Person?

  Tycoon’s Prison in the Sky Shows How Wealthy Set Their Own Rules

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• CWS Market Review – December 13, 2022
  Eddy Elfenbein, December 13th, 2022 at 10:37 pm

  “When you combine ignorance and leverage, you get some pretty interesting results.” – Warren Buffett

  Stay Tuned for the 2023 Buy List

  Before I get to today’s newsletter, be sure to circle your calendar for December 27, two weeks from today. That’s when I’ll unveil the 25 stocks for our 2023 Buy List. This will be the 18th year that I’ve published our Buy List.

  As usual, five new stocks will go into the Buy List and five old stocks will come out. For record-keeping purposes, all the changes are made as of the close of trading on Friday, December 30 which is the final trading day of the year.

  I announce our changes a few days before the end of the year so no one can say I’m trying to “game” the results.

  The new Buy List will go into effect on the first trading day of the new year which is Tuesday, January 3. All of our stocks will start the year equally weighted, meaning each stock will have a 4% weighting in the portfolio based on the year-end closing prices. We assume the Buy List is always 100% invested.

  As of now, it looks like 2022 will be a very good year for our Buy List, at least in relative terms. Not including dividends, our Buy List is down about 7% this year while the S&P 500 is down by 16%. The final numbers will be dividend-adjusted. We’ve done especially well versus the market over the last two months.

  It may sound odd to celebrate being down by less, but it’s an important thing to do for long-term success. We had a similar year in 2008 when the stock market fell sharply.

  If you own the ETF, you don’t have to do anything. The portfolio changes will happen automatically inside the shares.

  Wall Street Jumps on the Good CPI Report

  Wall Street had been waiting for this day for a few weeks. This was the start of the latest Fed meeting, and it’s also the day the government reported on inflation for the month of November.

  The report was a good one. It was especially good news because there had been hints and suggestions that inflation was cooling off. Now we have solid proof.

  Let’s get to the numbers. The government said that headline inflation rose by 0.1% last month. Wall Street had been expecting an increase of 0.3%.

  Over the last year, inflation is up by 7.1%. This is the fifth month in a row that the year-over-year inflation rate has ticked down. In June, the 12-month inflation rate was 9.1%.

  

  The core rate was also well behaved. Wall Street had been expecting the core rate to rise by 0.3% for November. Instead, it only rose by 0.2%. Over the last year, the core rate has increased by 6.0%. The 12-month core rate had peaked in September at 6.6%. Again, the trends are going in the right direction.

  Most important is that inflation-adjusted wages rose by 0.5% in November. Wages are still down in real terms over the last year.

  Falling energy prices helped keep inflation at bay. The energy index declined 1.6% for the month, due in part to a 2% decrease in gasoline. Food prices, however, rose 0.5% and were up 10.6% from a year ago. Even with its monthly decline, the energy index was higher by 13.1% from November 2021.

  Shelter costs, which make up about one-third of CPI weighting, continued to escalate, rising 0.6% on the month and now up 7.1% on an annual basis.

  Initially, the Fed dismissed inflation as being transitory. As the evidence became clear that inflation was hanging around, the Fed become more aggressive in fighting back with higher interest rates. Fed Chairman Jerome Powell said that the Fed will pay close attention to services inflation excluding shelter costs. That was mostly unchanged last month.

  Medical care services fell by 0.7% in November. Used car prices dropped 2.9% last month. That had been one of the areas with the worst inflation. The problem was that a shortage of microchips caused a backlog in car production so folks snapped up used cars. Not that long ago, used car prices were up 40% year-over-year. Now used car prices are down for the year. The free market can take care of problems quickly.

  Charlie Bilello points out that the average price of a used Tesla is now over $12,000 lower than the peak in July. Not surprisingly, shares of Tesla just hit a two-year low. Poor Elon is no longer the richest man in the world.

  The Fed’s Next Move

  The battle against inflation isn’t over, but the trend is certainly moving in the right direction.

  The promise for lower interest rates is exactly what the stock market wants to hear. Sure enough, the stock market loved the inflation report. As soon as the market opened, traders pushed stock prices higher.

  Shortly after trading started this morning, the S&P 500 broke above 4,100 to reach a three-month intra-day high. At its peak, the S&P 500 was up close to 2.8% today.

  

  The important fact for investors is that the morning rally was sharply titled towards growth stocks and high-beta names. It was almost the opposite of what we’ve seen in recent months when value and high-quality did so well. At one point, Trex (TREX), our deck stock, was up close to 9% today.

  It’s as if those riskier areas of the market finally got a chance to run at full speed. Soon, however, this morning’s rally petered out. We were left with decent gains on the day (+0.73%), but not quite as hopeful as this morning.

  Now all eyes turn to the Fed. Their two-day meeting began today, and it will conclude tomorrow. The FOMC will release its policy statement on Wednesday at 2 p.m. ET.

  The Fed has done a convincing job of telling the market to expect a rate hike tomorrow of 0.5%. Powell all but said so. That will bring the Fed’s target for its Fed funds rate to a range of 4.25% to 4.50%.

  But what about after that? Well, here’s where the outlook gets a little murky. I suspect that after tomorrow’s rate hike, the Fed will be very close to the end of its rate-tightening cycle. As a ballpark figure, I’d guess that after tomorrow’s increase, the Fed will increase rates by another 0.5%. This could come in one 50-point hike or two 25-point hikes. Either way, they’ll be done by the spring.

  After that, the Fed will probably pause for a few months. It’s even possible that the Fed will consider lowering rates sometime in 2023. That’s not an extreme view.

  Let’s consider that market interest rates have fallen sharply over the last month. Since November 9, the yield on the 30-year Treasury is down 78 basis points to 3.53%. The 30-year yield is over 1% below the yield on the one-year Treasury. That means there will be a significant gap between where the Fed has short-term prices and where the market has long-term rates. The Fed doesn’t want that gap to be that wide for too long.

  We’re also seeing evidence of lower commodity prices. That also helps the cause for lower inflation. For example, oil prices are down, and consumers are seeing better prices at the pump. Gasoline is down from $5 per gallon in June to about $3.25 per gallon now. The good news from today is that inflation appears to be retreating and that’s good news for stocks.

  Stock Focus: Colgate-Palmolive

  As an investor, I’ve learned that one of the best places to find great opportunities is in the regular and the ordinary. Too often, investors think that being a great investor involves finding the “next great” company that’s going to discover and market some revolutionary breakthrough.

  I have nothing against that concept except that it’s very hard to do. Let’s remember how often the winner is not the company that was first. Instead, it’s the company that was best able to exploit what others have done.

  On the other hand, we have the non-revolutionary companies. This week’s featured stock is Colgate-Palmolive (CL), which is about as non-revolutionary as they come.

  I know what you’re thinking. Colgate? You’re talking about investing in toothpaste?

  Well, yes, but Colgate is a whole lot more than toothpaste. Today’s Colgate-Palmolive is a household products powerhouse. In just about every home in America, you can probably find something made by Colgate.

  Colgate employs more than 33,000 people in dozens of countries all over the world. Last year, Colgate registered sales of more than $17.4 billion. On average, people buy over $47 million worth of Colgate’s products every day.

  Here’s another fact you may not know. Since 1990, shares of Colgate are up more than 5,000%. Colgate has been a massive winner for investors. Shares of Colgate-Palmolive have far outpaced the rest of the stock market. What’s more is that the company has increased its dividend every year for the last 60 years.

  Here’s how the stock has done since 1990. For context, the blue line is the S&P 500.

  

  Not bad for a toothpaste company!

  Of course, Colgate is a lot more than toothpaste. There’s also Palmolive dishwashing soap. Did you know Colgate makes Irish Spring? They sure do. They also own a good part of Tom’s of Maine. Ajax and Speed Stick – yep, those too. Colgate also makes Skin Bracer, Fresh Start and Cold Power. Colgate owns dozens of well-known brand names. (You can see a list of their brands here.)

  The current quarterly dividend is 47 cents per share, and I expect Colgate will keep their dividend-hiking streak alive. In October, the company reported Q3 earnings of 74 cents per share which beat the Street by one penny per share.

  When you dig into the numbers, you can see how well Colgate is doing. For example, their gross profit margin is over 60%. That’s a good sign of being a market leader. Colgate now has 40.5% global market share in toothpaste, and 32% in manual toothbrushes.

  Colgate is a classic defensive play and the shares led the market for much of this year, especially in the spring. The consensus on Wall Street now expects CL to earn $2.97 per share in 2022. I think that’s very doable.

  I like Colgate-Palmolive the company very much, but I don’t think this is an ideal time to start a new position in Colgate. For one, the shares aren’t cheap. If Wall Street’s forecast of $2.97 per share in earnings is close, that means Colgate is going for more than 26 times earnings. That’s a lot. The best part about being a disciplined investor is that there’s no hurry.

  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: December 13, 2022
  Eddy Elfenbein, December 13th, 2022 at 7:01 am

  FTX’s Sam Bankman-Fried Is Arrested in the Bahamas

  SEC Says Bankman-Fried Defrauded Investors of $1.8 Billion

  The Parents in the Middle of FTX’s Collapse

  In FTX Collapse, Binance Sees a Chance to Become the New Face of Crypto

  U.S. Consults with Japan, Netherlands on Chip Restrictions as China Pushes Back

  Supply-Chain Shortfalls Targeted by New Bill

  Slowing Growth Edges Out Inflation as Top Concern

  How Long Should Powell Keep Raising Interest Rates? Fed Officials Are Divided

  Shorts Eye More Gains After Reaping $50 Billion From Big Tech in 2022

  BlackRock’s Top Bet Is Shunning Sovereign Bonds in All Scenarios

  Goldman Sachs to Chop at Least 400 Jobs in Retail Banking Unit as Deals Fizzle

  SpaceX Tender Offer Is Said to Value Company at $140 Billion

  Tesla Stock Has Never Been This Cheap — And It Could Still Drop Further

  AmEx Hooked Big Spenders and Regained the Throne With a Pricier Platinum Card

  United Airlines Orders 100 Wide-Body Boeing 787 Jets

  Keystone Has Leaked More Oil Than Any Other Pipeline in US Since 2010

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• Morning News: December 12, 2022
  Eddy Elfenbein, December 12th, 2022 at 7:05 am

  Even as China Eases Covid Rules, Some Youths Still Fear a Grim Future

  Japan Needs Indian Tech Workers. But Do They Need Japan?

  How Washington Persuaded Europe to Put a Price Cap on Russian Oil

  Interest-Rate Paths for U.S., Europe Set to Diverge

  Inflation Was So Bad That It Even Crushed Inflation-Linked Bonds

  Investors on Alert for Policy Error After Cheering Slower Rate Hikes

  ‘Recession’ Is Every Bit as Foolish As the GDP Calculation That Informs It

  Microsoft to Buy 4% of London Stock Exchange Group

  Amgen to Buy Horizon Therapeutics in $27.8 Billion Deal

  Why Is Howard Schultz Taking This So Personally?

  Utility Bills Rise as Americans Pay Off Storm-Recovery Costs for Decades to Come

  Americans Flock to Europe for Holiday Shopping Binge

  The New Chatbots Could Change the World. Can You Trust Them?

  Biden Announces $2.5 Billion Loan to Help GM and LG Make EV Batteries

  Rivian Scraps Plan to Make Electric Vans in Europe with Mercedes

  Kia’s New Branding Strategy Looks to Compete in the EV Era

  Pouring Through a Crisis: How Budweiser Salvaged Its World Cup

  Elon Musk Relaunches Twitter Blue with Higher Price for iPhone Users

  Sam Bankman-Fried’s Parents Were There for FTX’s Rise, and Now Its Fall

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• Abbott Labs Raises Dividend for 51st Year in a Row
  Eddy Elfenbein, December 9th, 2022 at 11:46 am

  Abbott Labs (ABT) announced today that it’s raising its quarterly dividend by 8.5%, from 47 to 51 cents per share.

  This is the company’s 51st consecutive year of dividend growth. It will be the 396th consecutive quarterly dividend to be paid by Abbott since 1924. The cash dividend is payable on February 15 to shareholders of record at the close of business on January 13.

  

• Morning News: December 9, 2022
  Eddy Elfenbein, December 9th, 2022 at 7:02 am

  Qatar Extends Its Natural Gas Dominance at Russia’s Expense

  Keystone Pipeline Shuts Down After Oil Leak, Halting Flow of 600,000 Barrels A Day

  Millions of Angry Farmers Pose a New Climate Threat

  Letter From Apple Supplier Foxconn’s Founder Prodded China to Ease Zero-Covid Rules

  End of Covid Zero Threatens to Overwhelm China With Infections

  UK Announces Major Overhaul of Its Financial Sector in Attempt to Spur Growth

  The Pound Went on a Wild Ride Close to Dollar Parity in 2022

  World’s Top Money Managers See Double-Digit Stock Gains in 2023

  Fed Expected to Keep Peak Rates for Longer, Dashing Hopes for 2023 Cuts

  Yellen Is First Female Treasury Secretary With Signature on U.S. Dollar

  Saxo’s ‘Outrageous’ Prediction? Gold Will Top $3,000 in 2023

  Workers at GM-LG Battery Plant in Ohio Vote to Unionize

  FTC Sues to Block Microsoft’s Acquisition of Activision Blizzard

  Inside the Frantic Texts Exchanged by Crypto Executives as FTX Collapsed

  The Very Last 747 Jet Has Been Made, Ending a Run of More Than 50 Years

  Highbrow Films Aimed at Winning Oscars Are Losing Audiences

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• Morning News: December 8, 2022
  Eddy Elfenbein, December 8th, 2022 at 7:05 am

  How Will China Turn Its Economy Back On? The World Is About to Find Out.

  Out of the Public Eye, a Debate Is Raging Over a Postwar Ukraine Economy

  Britain Approves New Coal Mine Despite Climate Concerns

  Net Zero Will Radically Change How We Use and Generate Electricity

  U.S. Proposes Green Steel Club That Would Levy Tariffs On Outliers

  U.S. Gas Prices Are Now Lower Than a Year Ago

  Emerging Markets Lose $80 Billion in a Warning for the World

  The Federal Reserve Is Deflating Financial Bubbles, Without a Crash

  Carvana Pact Offers a Blueprint for Battle-Weary Debt Investors

  The $42 Billion Question: Why Aren’t Americans Ditching Big Banks?

  What’s Going On With the Housing Market?

  Auto Dealers Gird for Softening Demand Amid Higher Rates, Uncertain Outlook

  Pentagon Splits $9 Billion Cloud Contract Among Google, Amazon, Oracle and Microsoft

  Elon Musk’s Bankers Consider Tesla Margin Loans to Cut Risky Twitter Debt

  State Officials Seek to Revisit Sports-Betting Arrangements

  Celsius Judge Orders Return of User Crypto Worth $50 Million

  No. 2 Theranos Executive Is Sentenced to Nearly 13 Years for Fraud

  Wirecard Ex-Boss on Trial for Fraud in Scandal that Rocked Germany

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• Stryker Raises Dividend for 30th Year in a Row
  Eddy Elfenbein, December 7th, 2022 at 10:57 am

  Stryker (SYK) raised its quarterly dividend by 7.9% to 75 cents per share. This is SYK’s 30th annual dividend hike in a row.

  Kalamazoo, Michigan, Dec. 07, 2022 (GLOBE NEWSWIRE) — Stryker (NYSE:SYK) announced that its Board of Directors has declared a quarterly dividend of $0.75 per share payable January 31, 2023 to shareholders of record at the close of business on December 30, 2022, representing an increase of 7.9% versus the prior year and previous quarter.

  “We remain confident in our growth outlook, despite the challenging macroeconomic environment”, said Kevin Lobo, Chair & CEO. “Consequently, we are proceeding with a steady increase in our dividend to $0.75 per share, reflecting 7.9% growth”.

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

  China Eases ‘Zero Covid’ Restrictions in Victory for Protesters

  India Chases Clean Energy, but Economic Goals Put Coal First

  Secretive Gulf Family’s $300 Billion Fortune Is About More Than Oil

  EU Avoids Sledgehammer to Crack Euro Clearing Nut – For Now

  Over $400 Billion Has Been Erased from The Value of Europe’s Tech Industry This Year

  Fed to Weigh Higher Interest Rates Next Year While Slowing Rises This Month

  US Mortgage Rates Fall a Fourth Week, Longest Stretch Since 2019

  Wall Street Chorus Grows Louder Warning That 2023 Will Be Ugly

  The Cult of the Retail Trader Has Fizzled

  The ‘SPAC King’ Is Over It

  TikTok National-Security Deal Faces More Delays as Worry Grows Over Risks

  Why Losing to Meta in Court May Still Be a Win for Regulators

  Big Firms Like Ticketmaster Can Become ‘Too Big to Care,’ -U.S. FTC Chair

  Elon Musk’s Release of Documents Triggers Twitter Lawyer Jim Baker’s Exit

  Twitter’s Rivals Try to Capitalize on Musk-Induced Chaos

  Apollo, Pimco in Pact to Prevent Creditor Brawl Over Carvana

  Why Did So Many US Men Quit Working? Social Status May Hold the Key, Study Says

  Trump Organization Found Guilty of Criminal Tax Fraud in New York Trial

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