Archive for July, 2023

• Morning News: July 18, 2023
  Eddy Elfenbein, July 18th, 2023 at 7:04 am

  The Man Charged With Steering the Yuan Through China’s Economic Turmoil

  US, China Seek Detente on Climate as Extreme Heat Bakes World

  Wheat Prices Seesaw After Russia Pulls Out of the Black Sea Grain Deal

  Euro Set for Longest Rally in Almost Two Decades as Dollar Sinks

  The $236 Billion Enigma Dominating Abu Dhabi’s Stock Market

  Jerome Powell’s Prized Labor Market Is Back. Can He Keep It?

  Yellen Sees Disinflation Pressures at Work as Hiring Surge Fades

  Goldman Sachs Cuts Odds of a U.S. Recession in the Next Year

  BofA’s Wall Street Beat Drives Second-Quarter Earnings Gain

  PNC Financial’s Interest Income Forecast Trim Clouds Upbeat Quarter

  It’s Official: Silicon Valley’s Entire Business Model is a Scam

  Tesla Directors Will Return $735 Million to Company to Settle Shareholder Suit

  Tesla Investor Rode a 14,800% Gain Thanks to 27-Year-Old Analyst

  Wall Street Banks’ Residential Mortgages Face US Mandates Exceeding Global Standards

  More Americans Are Getting Turned Down for Loans, Fed Data Shows

  Big Four Accounting Firms Pare Their Consultant Ranks in Postpandemic Reversal

  Lead Cables Will Be a Dead Weight for Telecom Carriers

  A Blessing and a Boogeyman: Advertisers Warily Embrace A.I.

  Chipotle Signs First-Ever Franchise Partner to Open Locations in the Middle East

  In Manchester United Bidding War, Ratcliffe’s $16 Billion Fortune Might Not Be Enough

  What Benjamin Franklin Learned While Fighting Counterfeiters

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• Morning News: July 17, 2023
  Eddy Elfenbein, July 17th, 2023 at 7:05 am

  Russia Pulls the Plug on Ukraine Grain Export Agreement

  Why Deep-Sea Mining Is the Next Battleground in the Energy Transition

  Massive US Oil Caverns Sit Empty in Threat to Energy Security

  Can Solar Power Save the Crumbling Electric Grid During Heatwaves?

  Europeans Are Becoming Poorer. ‘Yes, We’re All Worse Off.’

  ‘We Must Go Faster’: Yellen Says Rich Nations Must Speed Debt Relief

  One Reason China Is Willing to Engage Again: Its Troubled Economy

  Wall Street Cuts China Growth Forecasts as Economy Disappoints

  Tight Credit Doesn’t Slow Economic Growth, It’s a Consequence of It

  UniCredit to Deepen Cuts as Inflation Costs Run Over $1 Billion

  Vanguard Struggles to Win Over the World

  Dollar’s Busted Bull Run Has Bears Calling End of an Era

  Regional Banks Battle for Deposits With Tougher US Rules Ahead

  How Whistleblower Andrew Left Became the Short-Selling Villain of the Meme Stock Market Craze

  Pay Raises Are Finally Beating Inflation After Two Years of Falling Behind

  US Homeowners Are Tapping $9 Trillion in Real Estate Wealth

  America’s Foreign Vacations Tell Us Something About the U.S. Economy

  What Threads Needs to Beat Twitter

  Drugs Like Ozempic Created a Gold Rush. These Drugmakers Want In.

  How Allbirds Lost Its Way

  We Are All Background Actors

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• Morning News: July 14, 2023
  Eddy Elfenbein, July 14th, 2023 at 7:03 am

  Surging Food Prices Spur Nigeria to Declare a State of Emergency

  Uruguay Saw Opportunity in China. It Got Schooled in the Hazards of Trade

  China’s Central Bank Signals More Policy Support for Economy

  The Real Fed Debate This Month: What Would Prompt a Rate Hike This Fall

  Investors Look for Reasons the Market Could ‘Grind Higher’

  As Inflation Goes Down, Soft Landing Odds Improve

  St. Louis Fed President James Bullard Steps Down

  JPMorgan Notches Record Revenue on Rates, First Republic Deal

  An Arrest, a Ruling, a Rally: Crypto’s Wild Day in the Courts

  F.T.C. Opens Investigation Into ChatGPT Maker Over Technology’s Potential Harms

  Microsoft, Activision Eye UK Rights Sale to Get Merger Done

  BlackRock Beats Second-Quarter Profit Estimates on Robust Inflows

  Wells Fargo Profit Surges 57% as Interest Payments Climb

  For Many Small-Business Owners, a Necessary Shift to Digital Payments

  Insurer’s Retreat in Florida Signals Crisis With No Easy Fix

  Bob Iger Isn’t Having Much Fun

  Actors Go on Strike in New Blow to Struggling Hollywood Studios

  The Wealthy New York Enclave Fighting Against ‘Ugly’ 5G Towers

  Aspartame Is a Possible Cause of Cancer in Humans, a W.H.O. Agency Says

  Tucker Carlson Is Creating a New Media Company

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• Morning News: July 13, 2023
  Eddy Elfenbein, July 13th, 2023 at 7:05 am

  Looming U.S. Investment Restrictions on China Threaten Diplomatic Outreach

  China’s Exports Fall Most in Three Years as Global Economy Falters

  Xi Gets Serious About Boosting Private Sector as Economy Slumps

  This Part of Bidenomics Needs More Economics

  Inflation Cools Sharply in June, Good News for Consumers and the Fed

  Small Business Distress Index Hits Mid-2020 High

  U.S. Takes Third Shot at Shoring Up Money-Market Funds

  Wall Street Results Expected to Take a Hit From Cost Pressures, Rate Struggle

  Fund Titans Are Betting on Everything Gaining Against the Dollar

  Lina Khan Is Taking on the World’s Biggest Tech Companies—and Losing

  China Takes Friendlier Approach to AI in Finalized Guidelines

  The A.I. Wars Heat Up as Elon Musk and Meta Enter the Ring

  Relics of the Last Property Crash Are Starting to Wobble Again

  The Luxury Tower Built for New York’s Elite Still Sits Half Empty

  Ultra-Rich Are Betting the Next Big American Sport Is Cricket

  How Netflix Plans Total Global Domination, One Korean Drama at a Time

  Bob Iger to Remain as Head of Disney Through 2026

  Hollywood Actors Set to Join Writers on Strike After Contract Expires

  Delta Says Travel Boom Drove Record Revenue

  Anchor Brewing, the Oldest Craft Brewer in the U.S., Will Close After 127 Years

  Corporations Aren’t Your Friends. Yield at Your Peril

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• Morning News: July 12, 2023
  Eddy Elfenbein, July 12th, 2023 at 7:10 am

  Saudi Arabia’s Wealth Fund Takes $11 Billion Investment Hit

  Wall Street’s Recession Warning Is Flashing. Some Wonder if it’s Wrong

  ‘Pivotal’ US CPI Report to Show Lowest Core Inflation Since 2021

  Measure It Differently, and Inflation Is Behind Us

  Detroit Marks 10th Anniversary of Bankruptcy With a Bond Sale

  Why Private Equity Is Chasing Plumbers and Lumber Yards

  Goldman Breaks Its Own Rule to Flag Results Much Worse Than Rivals

  Bank of America Fined $150 Million Over ‘Junk Fees’ and Fake Accounts

  Wall Street Is Fighting New York’s Ban on Non-Compete Agreements

  Negotiators See Global Deal on Taxing Big Tech Companies Within Reach

  What the Microsoft-Activision Ruling Means for the Future of Deal-Making

  ‘An Act of War’: Inside America’s Silicon Blockade Against China

  Why the Early Success of Threads May Crash Into Reality

  Illumina Hit With €432 Million EU Fine for Hasty Grail Deal

  The Energy Transition Is Underway. Fossil Fuel Workers Could Be Left Behind

  Shopify Fuels Meeting Purge By Shaming Employees With Cost Calculator

  Broadcom’s $61 Billion VMware Deal Wins Conditional EU Antitrust OK

  Disney Explores Strategic Options for India Business

  The Barbie-Oppenheimer Double Feature Is Really Happening, Data Shows

  AT&T and Verizon Knew About Toxic Lead Cables—and Did Little

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• CWS Market Review – July 11, 2023
  Eddy Elfenbein, July 11th, 2023 at 6:53 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 U.S. Economy Added 209,000 Jobs in June

  On Friday, the government released the big June jobs report. According to the Labor Department, the U.S. economy created 209,000 net new jobs last month. That was a little below Wall Street’s estimate for a gain of 240,000. June was the slowest month for job creation since December 2020.

  The figure for May was revised downward by 33,000. April’s was reduced by 77,000.

  

  The unemployment rate dropped by 0.1% to 3.6% but that’s still close to a multi-decade low. The broader U-6 rate fell to 6.9%. Importantly, the labor force participation rate for prime working age people (ages 25 to 54) increased to 83.5%. That’s a 21-year high. This suggests that people have largely returned to the workforce, undoing the mass exodus we saw during Covid.

  The weak spot continues to be wage growth, although that’s improved a little. Last month, average hourly earnings increased by 0.4%. Over the last year, average hourly earnings are up by 4.4%, but there are some key details in the jobs report.

  Job growth would have been even lighter without a boost in government jobs, which increased by 60,000, almost all of which came from the state and local levels.

  Other sectors showing strong gains were health care (41,000), social assistance (24,000) and construction (23,000).

  Leisure and hospitality, which had been the strongest job growth engine over the past three years, added just 21,000 jobs for the month. The sector has cooled off considerably, showing only muted gains for the past three months.

  The retail sector lost 11,000 jobs in June, while transportation and warehousing saw a decline of 7,000.

  Friday’s report was a mild disappointment especially after the very strong ADP payroll report from last Wednesday. Still, the overall signs look quite good.

  The next test for the economy and markets comes tomorrow when the government releases the CPI data for June. Inflation has consistently trended lower for the last year. We’ll find out if that trend continued.

  The consensus for Wednesday’s report is that inflation increased by 0.3% in June and prices are up by 5% over the last year. This could be the first report in several months where inflation accelerated.

  Fed officials think that getting inflation below the current rate could prove to be a very difficult job. Chairman Powell has consistently stated his intention to get inflation down to the Fed’s goal of 2% per share.

  So far, the Fed’s hawkish stance seems to be justified. The central bank won’t meet for another two more weeks, but it appears that another 0.25% is virtually a certainty. As of Tuesday, traders said there’s a 92% chance that the Fed will hike. This would bring the target range for the Fed funds rate up to 5.25% to 5.50%. After that, traders think the Fed will be on pause for the next eight months. The CPI might change that outlook.

  The fact is that the forecast for the economy has improved. Not that long ago, Wall Street fully expected the economy to be off the rails by now. That hasn’t happened. Actually, the stock market has been signaling a stronger economy for a few weeks, for those willing to pay attention. For example, the S&P 500 Industrials Index has rallied quite nicely since early June.

  It’s interesting to bring this up because Industrials are a key component in the cyclical sector. In our issue from June 6, I told you about the then-recent downturn in cyclicals. I even said that cyclicals would regain their leadership before the end of the year.

  Apparently, I was too pessimistic because cyclicals have been acting much better, basically since the day I mentioned it to you. It’s not just Industrials, but Energy and Materials stocks have also rebounded quite well.

  The chart below shows that Industrials, Materials and Energy stocks have all been leading the S&P 500 (black line) since early June. Financials have as well.

  

  Take this as a signal that Wall Street is growing skeptical of the recession hypothesis. If pricing pressures remain in the economy, the Fed’s job may not be done. It’s as if everyone was prepared for a recession except the economy.

  The Nasdaq 100 Is Due for a Rebalance

  The Nasdaq 100 is a stock index of the 100 largest nonfinancial companies on the Nasdaq. It’s basically become a good proxy index for the large-cap tech sector. The ETF for the Nasdaq 100 (QQQ) became one of the first breakout stars in the ETF universe. It now has $200 billion in assets under management.

  The problem the index has is that it’s grown too far too fast. The three largest stocks now make up 30% of the index. The index has largely become an index of Amazon, Apple, Nvidia, Microsoft and Tesla.

  Earlier this month, Nasdaq said it will do a special rebalance to address this. They already rebalance the index once a quarter just for mechanics, but this will be a special rebalance. In other words, they’re actively tinkering with a passive strategy.

  The top five stocks make up more than 40% of the index, and the top 10 make up 59% of the index. QQQ has been crushing it lately.

  

  This brings up an important issue that I think many investors don’t realize which is how distorted by size Wall Street is. A small group of stocks comprises a very large part of the market while many hundreds of stocks barely make a peep.

  To be sure, I’m not advocating for a different kind of distribution. After all, we have to deal with the market we have, not the one we wish to have. But there are a few important lessons to be drawn.

  For example, it’s fairly easy to build a “good enough” index fund by yourself. I’ve run the numbers and you can track the S&P 500 reasonably well with as few as 10 stocks. You’ll need to rebalance every six months or so to be close.

  Conversely, you can build a large portfolio of stocks that have little to no correlation with the rest of the market. On the Nasdaq in particular, there are hundreds of little banks that are barely noticed. If these banks theoretically all merged together, they still wouldn’t be as powerful as JPM.

  Stock Focus: Farmer Mac

  This week, we’re going to look at a stock known officially as the Federal Agricultural Mortgage Corporation (AGM) but it is better known as Farmer Mac. Farmer Mac was chartered by Congress in 1988, and five of the 15 members of the Board of Directors are appointed by the President.

  The idea of Farmer Mac was to create a secondary market for agricultural loans like mortgages in rural areas. The company has a close working relationship with the Department of Agriculture. AGM was founded after the farm bust of the 1980s. The idea was to build an alternative source of credit for farmers, and it would be in the mold of Fannie Mae.

  While Farmer Mac’s debts are not guaranteed by the federal government, much of the farm sector is protected by the government. In fact, farming may be one of the most state-protected industries in America.

  Fannie Mae, of course, was thrashed by the big Financial Crisis of 2007-08. Farmer Mac got hit hard as well. The company owned a lot of shares of Fannie Mae before Fannie was taken over by the Feds.

  In a 15-month span, shares of AGM fell from $37 to $2.28. Since then, AGM has been a huge winner. Last month, the stock reached a new high of $153 per share.

  

  One side note: I don’t like to cherry-pick numbers, which is easy to do in finance, but I’ll note that AGM has grown at a steady clip since its low. The chart above begins after AGM plunged in 2007. I didn’t think including it added much. A steady chart often a good sign of a strong underlying business. Thanks to its close relationship to the government, Farmer Mac is able to have far lower interest-rate-risk than many major banks.

  Farmer Mac’s quarterly dividend has steadily increased from a nickel per share in 2011 to $1.10 per share in 2023. The stock currently yields 3.1%.

  This is a cool little stock to watch. Only two Wall Street analysts follow AGM and it has a market cap of just $1.5 billion. That’s tiny in Wall Street’s eyes. JPM is about 300 times the size of AGM. Still, you can’t argue with success.

  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 more info on our ETF, you can check out the ETF’s website.

• Morning News: July 11, 2023
  Eddy Elfenbein, July 11th, 2023 at 7:08 am

  China Signals More Economic Aid After Property Debt Relief

  UK Mortgage Rates Surge to 15-Year High After Surpassing ‘Mini-Budget’ Peak

  Italian Banks See Deposits Plunge, Credit to Firms at 8-Yr Low

  America’s Biggest Banks Are Going to Need More Capital

  Gensler Asserts SEC Authority Over Crypto as Opponents Waver

  CLO Market Set for $20 Billion Reset Spree in Sign of Thawing

  Short Seller Andrew Left Is Living in Fear of the Feds

  Americans Prepare for Tighter Budgets as Student Loan Payments Resume

  No, ‘Socialism’ Isn’t Making Americans Lazy

  Berkshire Buys Bigger Stake in LNG Facility. It Doesn’t Fear Fossil Fuels

  Jeff Bezos and Bob Iger Top Sun Valley List, With AI and Streaming in Focus

  The Next Challengers Joining Nvidia in the AI Chip Revolution

  China Gallium Curbs Raise Chip Questions for Future EV Models

  Foxconn Pulls Out of $19 Billion Chipmaking Project in India

  The Rapid Rise of Threads Appears to Be Hurting Twitter

  iQuit: My Hellish Attempt to Leave Apple’s Walled Garden

  A Tiny Fish That Fuels an Atlantic Ecosystem Now Fuels Industry Debates

  Facing a Battle for Armored Steel, This Tank Maker Bought the Factory

  At Auction, American Cars Are Often Not Valued as Highly as their European Counterparts

  PGA Tour Will Tout Minimal Saudi Influence in Golf Merger at Congressional Hearing

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• Morning News: July 10, 2023
  Eddy Elfenbein, July 10th, 2023 at 7:07 am

  How a Distant War Is Threatening Livelihoods in the Arctic Circle

  China and the U.S., Still Adversaries, Are Talking. That’s a Start

  China Slides to Brink of Deflation, Adding Stimulus Urgency

  Jack Ma’s Clash With Beijing Costs $850 Billion

  Why China’s Young People Are Not Getting Married

  Deutsche Bank’s DWS and Allegations of ‘Greenwashing’

  Why Are Free-Market Thinkers So Fearful of CBDCs?

  Powell Haunted by Repo Crisis as Fed Aims to Cut Balance Sheet

  Banks’ Newest Fed Headache: Nonstop Instant Payments

  Last Mile of the Inflation Fight Will Be the Hardest

  Wave of Rental Resets to Further Deplete Affordable Housing

  Morningstar Makes a Bold Call That Housing Market Affordability Will Be Restored by 2025. Here’s How

  There’s More Pain Ahead for S&P 500 as Profit Warnings Loom, Investors Say

  A Soft Corporate-Earnings Season Poses Next Test for Stock Market Rally

  The Math Problem Stymieing Small Businesses in Rural America

  Will Threads Kill Twitter?

  Carl Icahn Gets Breathing Room From Lenders Following Short-Seller Attack

  Move Over Dubai. This Tiny Emirate Wants to Be the Next Haven for Billionaires

  The Super Rich Are Snapping Up Tokyo’s New Ultra-Luxury Homes

  A PGA Tour Director’s Exit Casts a Pall Over Proposed Saudi Deal

  Disney World Hasn’t Felt This Empty in Years

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• Morning News: July 7, 2023
  Eddy Elfenbein, July 7th, 2023 at 7:04 am

  The Contentious U.S.-China Relationship, by the Numbers

  U.S. Oil Boom Blunts OPEC’s Pricing Power

  Oil is Hard to Quit, Even in Norway Where Electric Cars Rule the Road

  Why a Strong Jobs Report Could Rattle the Markets

  Traders Brace for US Payrolls With Global Yields at 15-Year High

  Blackstone Sees Openings for Private Credit as Tech Growth Slows

  Everyone Wants Interest on Their Deposits. That’s Bad for Main Street Banks

  Binance Executives Exit as the Regulatory Heat on the Largest Crypto Exchange Intensifies

  Alibaba Surges on Report China to Unshackle Ant With Fine

  Character.AI Is Ridiculous. Its Founders Are Not

  The AI Boom Isn’t Breaking the Memory-Chip Slump—Yet

  Google, Meta Take on Trudeau in Proxy Fight Over Digital News Content

  Meta’s New Threads App Is Terrible. It Just Might Bury Twitter

  Apple Plans a Slow, Appointment-Only Rollout of Its $3,500 Vision Pro

  Elon Musk’s SpaceX Now Has a ‘De Facto’ Monopoly on Rocket Launches

  New York State Built Elon Musk a $1 Billion Factory. ‘It Was a Bad Deal.’

  The ‘Whisper Listing’ Gets Louder

  Gen X Is in Charge. Don’t Make a Big Deal About It.

  Barbie Movie Is About More Than Selling Dolls for Mattel

  Ex-Amazon Manager Sentenced to 16 Years in Prison in $9 Million Theft Scheme

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• Morning News: July 6, 2023
  Eddy Elfenbein, July 6th, 2023 at 7:03 am

  Indian State-Run Banks to Be Cautious Buyers of Government Bonds as Yields Rise, Treasurers Say

  Yellen Faces a Diplomatic Test in Her High-Stakes Visit to China

  African Governments Step Up Demands for Share of Carbon Profits

  Oil Below $80 a Barrel ‘Not a Problem’ for Oman, Minister Says

  Jefferies Sees Turnaround in Deals After Prolonged Drought

  America Is Living on Borrowed Money

  As Greedflation Starts to Fade, Wageflation Creeps In

  The US Is Building Factories Again, But Who Will Work There?

  Americans Are Working Fewer Hours and That Holds Clues for Job Market

  Americans Have Quit Quitting Their Jobs

  The Average American Feels They’d Need Over $200K a Year to be Financially Comfortable

  FTX Lawyer Who Made Problems Disappear Is Caught Up in Crypto Firm’s Fallout

  How Tom Brady’s Crypto Ambitions Collided With Reality

  From Banks to BBQ, Brands Targeting Conservatives Fuel a Parallel Economy

  JetBlue, Turning Focus to Spirit Deal, Won’t Try to Save American Partnership

  New Car Sales Jumped in the Second Quarter

  Tesla and Chinese Rivals Signal Truce in Brutal EV Price War

  Instagram Snags 10 Million Users Within Hours for Threads App, a Threat to Twitter

  As Businesses Clamor for Workplace A.I., Tech Companies Rush to Provide It

  In the Age of A.I., Tech’s Little Guys Need Big Friends

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