Archive for January, 2023
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Morning News: January 31, 2023
Eddy Elfenbein, January 31st, 2023 at 7:07 amCash Is King in Lebanon as Banks Atrophy
Common Currency Proposal for Brazil and Argentina Draws Skepticism
Russia Sidesteps Western Punishments, With Help From Friends
The World’s Next Big Inflation Surprise Is Looming In China
Europe’s Economy Edges Higher, Heading Off Forecasts of Recession
IMF Upgrades Outlook for Global Economy as Inflation Eases and China Reopens
The Alternative, Optimistic Story of Population Decline
Fed Points Toward a Pause in May Once Hikes Have Time to Sink In
Fed Officials See Lots of Room to Shed Bonds from Balance Sheet
Wall St. Is Counting on a Debt Limit Trick That Could Entail Trouble
Top Bond Fund Bets Markets Are Wrong on Rates, Again
Ex-Citi Analyst Who Exposed Libor Takes Aim at Its Successor
The U.S. Consumer Is Starting to Freak Out
The Pandemic Used-Car Boom Is Coming to an Abrupt End
Caterpillar Costs Bite in First Earnings Miss Since 2020
The Last Boeing 747 Leaves the Factory
Can the DOJ Disrupt Google’s Ad Tech Dominance?
Celebrities Who Endorsed Crypto, NFTs Land in Legal Crosshairs After Investor Losses
J&J’s Talc Bankruptcy Case Thrown Out by Appeals Court
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Morning News: January 30, 2023
Eddy Elfenbein, January 30th, 2023 at 7:02 amUpstart Indian Shipper Helps Get Russian Oil to Market
How Quickly Rate Increases Slow the Economy Could Shape 2023 Fed Policy
Milton Friedman Isn’t Required To Confirm That Monetarism Is Monetary Phrenology
Morgan Stanley Says Don’t Buy the Rally as Fed Looms
Adani Rout Hits $68 Billion as Fight With Hindenburg Intensifies
Even on $100k Plus, More Americans Are Living Paycheck-to-Paycheck
Key Part of Biden’s Student Loan Plan Carries Hefty Price Tag
Wall Street Is Losing Out to Amateur Buyers in the Housing Slump
Politicians Want to Keep Money Out of E.S.G. Funds. Could It Backfire?
‘Recession Resilient’ Climate Start-Ups Shine in Tech Downturn
Toyota Rethinks EV Strategy With New CEO
Nissan, Renault Agree on Alliance Shake-Up
The Computer Chip Wars: How AMD Ended Intel’s Market Dominance
Historic Crash for Memory Chips Threatens to Wipe Out Earnings
Chinese Search Giant Baidu to Launch ChatGPT-Style Bot
How a Drug Company Made $114 Billion by Gaming the U.S. Patent System
When Private Equity Came for the Toddler Gyms
Bed Bath & Beyond’s Woes Prompt Landlords to Line Up New Tenants
Will the Metaverse Be Entertaining? Ask South Korea.
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Morning News: January 27, 2023
Eddy Elfenbein, January 27th, 2023 at 7:04 amUK Chancellor Dismisses Tax Cuts and Pushes Against Green Subsidies
Is UK Being Left Behind in Global Fight for Investment?
Bond Strategists Take Axe to U.S. Treasury Yield Forecasts
Debt Ceiling Clash Revives Dispute Over Paying Bondholders First
Fed Sees Soft Landing as Silver Lining of Temp Jobs Decline
This Fund Made a 32% Return by Embracing the ‘Uncomfortable’
What’s Passive Income? It’s Not What Influencers Say It Is.
Want a Pay Raise? Work Five Days a Week in the Office
Thank You for ‘Navigating’ the Pandemic
Adani Rout Crosses $51 Billion as Stocks Plunge by Daily Limits
World’s Richest Man Sees LVMH Empire Post Record $86 Billion in Sales
Chevron Posts Record Profit, Bolstering $75 Billion Buyback Plan
AmEx Misses Profit Estimate as Loan-Loss Provisions Weigh
Bed Bath & Beyond Says It Defaulted on Debt Payments
H&M Profit Battered by Rising Costs, Russia Exit
Intel Slumps on Disappointing Earnings Amid PC Weakness
BuzzFeed to Use ChatGPT Creator OpenAI to Help Create Quizzes and Other Content
How Lego Built a Media Empire Beyond Bricks
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Morning News: January 26, 2023
Eddy Elfenbein, January 26th, 2023 at 7:09 amStrong U.S. Economic Growth Expected in Fourth Quarter, Outlook Darkening
The Cost of Going Over the Fiscal Cliff Is Trauma Then Unending Pain
U.S. Inflation Roller Coaster Prompts Fresh Look at Long-Ignored Money Supply
America Has a Debt Problem, and the Answer to It Starts With Form 1040
NYSE Mayhem Traced to a Staffer Who Left a Backup System Running
Why The Times is Resuming Its Emphasis on Annualized Figures for G.D.P.
Hindenburg vs Adani: The Short Seller Taking on Asia’s Richest Person
Morgan Stanley Fines Its Bankers Over Messaging Breaches
Canada Expected to Buck Trend of Big Investment Banking Layoffs
Small-Business Hiring at Odds With Fed Strategy
Google Girds for Second Antitrust Battle as DOJ Targets Its Ads Business
What the NFL Playoffs and Tech Layoffs Have in Common
Tesla Warns of Uncertainties as It Posts Record Profit
Elon Musk Explores Raising Up to $3 Billion to Help Pay Off Twitter Debt
The US Hasn’t Noticed That China-Made Cars Are Taking Over the World
Toyota CEO to Step Down, Become Chairman
High-Earning Men Are Cutting Back on Their Working Hours
McDonald’s, In-N-Out, and Chipotle Are Spending Millions to Block Raises for Their Workers
Sundance, Once a Hotbed for Film Deals, Tries to Find Its Footing
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Morning News: January 25, 2023
Eddy Elfenbein, January 25th, 2023 at 7:04 amNatural Gas Shortages Hit China as Temperatures Plunge
Climate Change May Usher in a New Era of Trade Wars
The Newest Contraband at the Mexican Border: Eggs
Inflation Is Cooling, but Prices on Many Items Are Going to Stay High for Months
U.S. Economy Slows, as Europe’s Picks Up
Is a US Recession Near? Making the Call Is Trickier Than Ever
Does America Have Too Much Debt?
Private Equity’s Loved Assets Turn Problem Children in Downturn
Bank of America Employees to Share in Restricted Stock Award
Hindenburg Targets Asia’s Richest Man, Triggering Adani Selloff
Murdoch Backtracks on Plan to Merge His Media Empire
DOJ Sues Google, Seeking to Break Up Online Advertising Business
Microsoft Earnings Fall Amid Economic Concerns
The Unknown Hedge Fund That Got $400 Million From Sam Bankman-Fried
Walmart Raises Starting Wages for Store Workers
How Tesla’s Price Cuts Could Spur an EV Pricing War
Tesla Eyes $3.6 Billion Factory Expansion
Five Stars, Zero Clue: Fighting the ‘Scourge’ of Fake Online Reviews
How to Be 18 Years Old Again for Only $2 Million a Year
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CWS Market Review – January 24, 2023
Eddy Elfenbein, January 24th, 2023 at 7:38 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 S&P 500 Closes Above 4,000
Yesterday, the S&P 500 closed above 4,000 for the first time in six weeks. Previously, the index had popped its head above 4,000 a few times, but yesterday was the first time it had closed above 4,000 since December 13.
The stock market looked like it was going to close much lower today, but thanks to some strength in the afternoon, the S&P 500 only lost 0.07% and is still above 4,000.
We’re in earnings season and it’s still early but the numbers are looking favorable. On our Buy List, Danaher and Silgan solidly beat earnings (I’ll have more details later this week in the premium letter.)
So far, just 11% of the companies in the S&P 500 have reported results but 67% have reported an earnings surprise and 64% have reported a sales surprise.
One hitch is that prior to earnings season, Wall Street analysts dramatically cut back on their estimates. This means that while many companies are beating estimates, those are much-lowered forecasts.
According to FactSet, the market’s overall net profit margin is down for the sixth quarter in a row. In other words, sales are growing faster than earnings. That’s not necessarily a problem for the market, but it’s indicative of where we are in the economic cycle. When companies see growing inventories, that often leads to more generous pricing which leads to lower profit margins. This is what usually happens later in an economic cycle.
The Federal Reserve meets again next week, and it seems very likely that the Fed will raise short-term interest rates by another 0.25%. The central bank has all but admitted its plans. This is an admission that the inflation news has been encouraging, but I want to stress that the job isn’t done yet.
The Fed is entering a difficult spot because the economy appears to be weakening and inflation hasn’t completely faded. This is a problem because the Fed wants to appear vigilant against inflation, but at some point, the economy will need to lower interest rates. In fact, futures traders think that the Fed will start cutting interest rates before the end of this year.
The current outlook from the futures market is for two more 0.25% hikes. The first one will be next week. Another 0.25% will follow in March. That will bring the target for the Fed funds rate to 4.75% to 5%. After that, the futures market sees the Fed pausing for several months. Note that this is noticeably more lenient than the rhetoric coming from the Fed. By no means is the futures market accurate, but it shows you how people are betting.
Parts of the economy are starting to show some cracks. The housing sector has been weak for several months. Friday’s report on existing home sales showed the 11th monthly decline in a row. That’s the longest losing streak in the data’s history. For December, existing home sales were down by 1.5%. For the year, existing home sales fell by 34%. That was a worse calendar year drop than in 2007, 2008 or 2009—the key years of the housing bust. Except for the pandemic, this was the lowest sales rate since 2010.
While the overall labor market is still healthy, we’re seeing many layoff announcements, especially in the tech sector. This has even led some people to speak of a “Techcession.” Spotify just said that it’s laying off 6% of its workforce. Microsoft said it’s cutting 10,000 jobs. Amazon is letting 18,000 jobs go. Google said it’s getting rid of 12,000 jobs.
Speaking of Google, the Justice Department said it’s seeking to break up Google’s online ad business, claiming it has a monopoly-like hold over the industry. I should note that the government doesn’t have a great track record in going after high-tech companies.
The most infamous case may be when the government went after IBM in the 1970s. The case was filed in January 1969 in the closing days of the Johnson Administration. It dragged on in the courts for years. By 1982, the government saw little chance of winning. After realizing it had already spent so much, the government threw in the towel and gave up the case.
Even though nothing came of the anti-trust case, it had a big impact on Corporate America. A few years later, when Microsoft came along, any modern investor would have wondered why IBM didn’t simply buy out Bill Gates’s little company. Nowadays, that would be the easy way to take care of the problem, but back then, big companies were too scared of getting any attention from the DOJ.
What gets DOJ’s ire is if a company uses its strength in one market to gain an advantage in another market. There can be Acme Car Company. That’s fine, but Acme can’t say that it only runs on Acme Gasoline. The Justice Department said, “Google would no longer have to compete on the merits; it could simply set the rules of the game to exclude rivals.” For its part, Google says that the government is doubling down on the types of cases it has already lost. This is the fifth case the government has brought against Google since 2020.
Outside of any Techsession, big layoffs are hitting other industries as well. In finance, Goldman Sachs said it’s cutting 3,200 jobs. Both Bank of New York Mellon and BlackRock are cutting 3% of their respective workforces. In the crypto world, Coinbase said it’s cutting 20% of its workforce.
One interesting dynamic in the stock market this year has been the resurgence of riskier stocks. From December 28 through yesterday, the S&P 500 High Beta Index has gained over 17.4% while the S&P 500 Low Volatility Index is down 1.3%. That’s a huge gap for such a short time span.
Coming out of the pandemic, High Beta outperformed Low Vol by a substantial margin. Last year, Low Vol did much better, but so far this year, High Beta is out in front.
Part of this is related to Fed policy. When interest rates were near 0%, taking on a lot of risk was a no-brainer. Now that interest rates are going higher, risk is suddenly a lot more important. I think some traders assume that High Beta will soar out in front if the Fed starts cutting again. That might be a mistake. If the Fed does cut, it won’t be for several months, and I’m not sure if they’ll cut by a lot.
The next big economic report will be the Q4 GDP report which will be out on Thursday morning. This will be the first report on Q4 GDP growth. The report will be revised again in late February and again in late March.
You may recall that the GDP reports for Q1 and Q2 both showed declines. While that’s not technically a recession, it was cause for concern. The numbers for Q3 were much better. The U.S. economy grew in real annualized terms by 3.2% for the third three months of the year.
What should we expect for Q4? The consensus on Wall Street is for real annualized growth of 2.8%. That may be too low. I don’t think we’ll see recession-type numbers in the Q4 report, except for housing. However, I do believe that the economy will get weaker as the year goes on.
I checked which outstanding Treasury security has the highest current yield. The answer is the Treasury due in October of this year, roughly an eight-month bill. The current yield is 4.749%. Out of the trillions in Treasury debt, that’s the highest. It reiterates the idea that the Fed may start cutting rates later this year. The strong rhetoric coming from the Fed simply isn’t credible.
Stock Focus: U.S. Lime and Minerals
This morning, AmerisourceBergen announced that it’s changing its name to Cencora later this year. This is a reminder of how much I hate modern corporate names. Companies tend to spend tons of money coming up with names that sound like nothing. Verizon? Prologis? Yuck! As bad as Cencora is, at least it’s better than AmerisourceBergen.
In 1927, the Dow Jones Industrial Average had 20 stocks. Seven of them began with American, three with United and two with General. How I miss those names.
This leads me to this week’s stock in focus which is United States Lime & Minerals (USLM). Now that’s a name!
Twenty years ago, you could have picked up one share of USLM for $2.82. A few days ago, it was going for $154 per share. That works out to an average annualized gain of more than 22%.
Plus, that return doesn’t include any dividends. A dividend increase may be coming soon. One year ago this week, USLM increased its payout by 20%.
You might think that with a track record like that, USLM would have tons of analysts who follow it. Well, that’s not the case. Actually, not a single Wall Street analyst follows USLM. That’s a 54-fold gain in 20 years, and no one saw it. When earnings come out, we can’t say if it beat or not because there is no consensus.
So what does United Lime do? As the name suggests, lime. Lots of it. The company “is a manufacturer of lime and limestone products, supplying primarily the construction (including highway, road and building contractors), industrial (including paper and glass manufacturers), metals (including steel producers), environmental (including municipal sanitation and water treatment facilities and flue gas treatment processes), roof shingle manufacturers, agriculture (including poultry and cattle feed producers), and oil and gas services industries.”
The company has been doing well lately. The Q4 earnings report should be out within the next week or so. For Q3, Lime’s revenues increased 27% to $66.5 million. Net income increased 39% to $2.77 per share. For the first three quarters of 2022, Lime earned $6.10 per share. That’s up from $5.19 per share in 2021.
President and CEO Timothy W. Byrne, said, “We continue to see strong demand from our construction customers and have benefited from long stretches of dry weather in our Texas markets.”
My rough estimate is that USLM will report earnings of $1.60 per share for Q4 which would bring the full-year results to $7.70 per share. That would mean the company is going for about 19 times trailing earnings. That’s not bad.
USLM currently had a market value of $830 million. The company is based in Dallas and it has 308 full-time employees. I recently updated my Watch List and USLM continues to be among my favorites.
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.
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Morning News: January 24, 2023
Eddy Elfenbein, January 24th, 2023 at 7:05 amDavos Is a Swiss ‘Miss’ at Solving World Problems
US Confronts China Over Companies’ Ties to Russian War Effort
EU Lawmakers Back ‘Prohibitive’ Capital Rules for Cryptoassets
Britain’s NHS Black Hole Is Devouring the Whole Country
Janet Yellen Pushes China on Debt Relief for Zambia
Nuclear Power Plants Are Pushed to the Limit as Demand Surges
Biden May Have to Act Unilaterally to Avoid Default, Khanna Says
The Constitution Has a 155-Year-Old Answer to the Debt Ceiling
Don’t Get Disoriented by Recession-Talk Fatigue
How to Cure a Holiday Debt Hangover
Companies Cut Temp Workers in Warning Sign for Labor Market
Activist Investors Are Circling Salesforce
Crypto’s Wormhole Hacker Moves $150 Million to Tap Popular Trade
The Unknown Hedge Fund That Got $400 Million From Sam Bankman-Fried
Binance Acknowledges Storing User Funds With Collateral in Error
How TikTok Could Become a U.S. Company
Live Nation CEO to Face Senate About Taylor Swift Ticket Fiasco
How M&M’s Found Itself in the Culture Wars
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My Watch List
Eddy Elfenbein, January 23rd, 2023 at 3:27 pmHere’s my latest Watch List. This is my unofficial list of high-quality stocks I like to follow. If a stock is on this list, then there’s a very good chance that it’s in the upper 5% of well-run companies on Wall Street. This is the elite.
I’m often asked how I go about selecting the stocks for my Buy List. It’s actually very simple. I have this Watch List of stocks and if one of them falls down to a very attractive price, then it becomes a contender for the new Buy List. I like to think of the Watch List as the minor leagues for the Buy List. Strong prospects earn their way up the ladder.
The Watch List is very informal. Unlike the Buy List, I’m constantly adding and deleting names. In fact, I have a bad habit of letting the Watch List grow too large. I often find myself adding three names for every one I delete. To be honest, the current list is too large. Ideally, I like to keep the Watch List below 100 names.
Eddy Elfenbein is a Washington, DC-based speaker, portfolio manager and editor of the blog Crossing Wall Street. His