Archive for September, 2023

• Morning News: September 29, 2023
  Eddy Elfenbein, September 29th, 2023 at 7:03 am

  Oil Prices Near $100 per Barrel Raise Questions Over Demand Destruction

  Evergrande Tycoon Crossed a Red Line When Wealth Funds Ran Dry

  Japan’s 30-Year Bond Yield Reaches Highest Level Since 2013

  Eurozone Inflation Rate Drops to 4.3 Percent

  Europe Is Trying to ‘Trump Proof’ the Transatlantic Relationship

  Turmoil Over Migrants at U.S.-Mexico Border Is Straining Trade Flows

  The Threat of an American Debt Crisis

  BlackRock CEO Larry Fink Sees 10-Year Yields Heading Above 5%

  Quirk of Bond Futures Threatens to Accelerate Surge in US Yields

  A Silver Lining From the Pandemic: A Surge in Start-Ups

  Huawei Takes Revenge as China Catches Up on Semiconductors

  Biden’s $100 Billion Chip Bet Caught Up in Arizona Union Showdown

  UAW Expected to Expand Auto Strikes Friday

  EVs Will Hit Detroit Harder Than a UAW Raise

  Billionaire Agarwal Shakes Up Vedanta Empire as Debt Bill Looms

  VW Scraps Plan for New €2 Billion EV Factory in Germany

  How West Africa Can Reap More Profit From the Global Chocolate Market

  Meal-Kit Maker Blue Apron to Be Sold (Ending Disastrous Six-Year Experiment with Public Ownership)

  Nike Clears a Low Bar With Investors

  Henry Kravis, Endeavor, Fenway Eye PGA Tour Deal to Rival Saudi Arabia’s

  The U.S. Tried to Pitch Peanuts at Japanese Baseball Games. It’s a Tough Nut to Crack

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• Morning News: September 28, 2023
  Eddy Elfenbein, September 28th, 2023 at 7:06 am

  Evergrande Halts Trading After Founder Put Under Police Control

  Saudi Arabia and Russia Win Big in Gamble on Oil Cuts

  Oil Touches $95 With Shrinking Inventories Fanning Fresh Rally

  Feeding the World Once Brought the US Untold Influence—No More

  Want to Spur Green Energy in Wyoming? Aim for the Billionaires

  Standoff in Congress Brings Government to Brink of Shutdown

  Missing ‘Gold Standard’ Economic Data Will Test Alternatives in US Shutdown

  Bond Selloff Pushes Treasury Yield to New ‘07 Peak

  What’s Driving the September Stock Swoon

  In Suing Amazon, FTC’s Lina Khan Turns Her Earlier Pricing Argument on Its Head

  US SEC Nearing Settlement with Wall Street Firms Over WhatsApp Probe

  GameStop’s Billionaire Backer Cohen Replaces Ousted CEO

  Elon Musk Wins US Space Force Contract for Starshield

  Meet the A.I. Jane Austen: Meta Weaves A.I. Throughout Its Apps

  To Bring Socializing Back to Social Networks, Apps Try A.I. Imagery

  Google User Data Has Become a Favorite Police Shortcut

  The Magic Number: 32 Hours a Week

  What Worries UAW’s Striking Workers, in Their Own Words

  Car Sales Are Slowing. Car-Listing Websites Are Just Getting Started

  Peloton Soars After Deal With Lululemon to Share Fitness Content

  Logistics Companies Grow Cautious on Holiday Hiring

  When Corporate Confessions Make Companies Look Good—and When They Don’t

  Delta CEO: Airline ‘Probably Went Too Far’ with SkyMiles Changes

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• Morning News: September 27, 2023
  Eddy Elfenbein, September 27th, 2023 at 7:06 am

  China Has Second Thoughts About Controlling Prices in Its Multi Trillion-Dollar Housing Market

  China Puts Evergrande’s Billionaire Founder Under Police Control

  What the U.S.-China Chip War Means for a Critical American Ally

  US Investors Want Clarity on Biden’s Vague Curbs on China Tech

  ECB’s Holzmann Floats Tenfold Hike in Minimum Reserves

  IPO Optimism Grows, Fueling Hope for Global Recovery

  US Government Shutdown’s Economic Risks Grow the Longer It Lasts

  DOJ Steps Up Probe Against Credit Suisse, UBS Over Alleged Russian Sanctions Evasion

  Crypto’s Wild D.C. Ride: From FTX at the Fed to a Scramble for Access

  A $12 Million Request to Cover a Crypto Scam Sank a Bank CEO

  Why Now Is a Horrible Time to Refinance Student Loans

  Britain Approves Huge, Controversial Oil and Gas Field in the North Sea

  E.U. Law Sets the Stage for a Clash Over Disinformation

  Lina Khan vs. Jeff Bezos: This Is Big Tech’s Real Cage Match

  How Elon Musk Came to Influence the Fates of Nations

  A Futuristic Plan to Make Steel With Nuclear Fusion

  This Ford vs. GM Feud Could Shape the Future of EVs in America

  Auto Workers Aren’t Striking Only For Higher Wages. They Want Their Pensions Back, Too

  Las Vegas and Its Big, Big Ambitions

  Las Vegas Hospitality Workers Authorize Strike at Major Resorts

  Costco Keeps Members and Investors Guessing

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• CWS Market Review – September 26, 2023
  Eddy Elfenbein, September 26th, 2023 at 5:40 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 Drops to a Three-Month Low

  Wall Street has been in a sour mood lately. As I’ve discussed before, early fall has historically been a tough time for Wall Street. It’s happening again this year. On Tuesday, the Dow had its worst day since March. The S&P 500 closed at its lowest level since June 7.

  It’s as if everyone got back from the Labor Day weekend in a lousy mood. This time, investors are worried about a sluggish economy and (another) potential government shutdown. Mind you, the market hasn’t experienced a sudden drop. Instead, it’s been a slow and gradual decline. Nor has the damage been severe — at least not yet.

  

  Since the end of July, the S&P 500 has pulled back by 6.9%. The S&P 500 had already dropped below its 50-day moving average, which can be a sign of continued weakness. The index isn’t far from its 200-day moving average (the green line in the chart above). The S&P 500 has traded above its 200-DMA without stop for more than nine months.

  Counting Thursday, the S&P 500 has now had six daily drops of more than 1% in August and September. In July and August, there were zero 1% drops.

  Of course, we should remember that the market had a very nice run from mid-March until late July. The S&P 500 gained 19% in 20 weeks.

  As impressive as the July peak was, it was still well short of the all-time peak from early 2022. This means the stock market has gone 21 months without making a new high. And I’m not adjusting that for an unpleasant bout of inflation which isn’t fading as quickly as we hoped.

  Here’s an odd stat for you. The S&P 500 has closed higher for the last 12 Mondays in a row. That’s an all-time record (via Callie Cox).

  The market may be sensing a growing unease among consumers. On Tuesday, the Conference Board reported that consumer confidence fell to a four-month low. I like to keep a close eye on the report because so much of the economy comes down to how optimistic people are.

  For September, the Conference Board’s Consumer Confidence Index fell to 103. That’s down from 108.7 for August. It’s the second-lowest reading for this year. In fact, this month’s number came close to dipping below May’s number of 102.5 which would have been the lowest number this year.

  Interestingly, the drop in consumer confidence was felt most strongly among folks who make more than $50,000 per year.

  Within the Consumer Confidence report, the Conference Board also tracks its Expectations Index. For September, that fell to 73.7. Unofficially, a reading below 80 often tells us that a recession is near. I don’t want to sound alarmist, but we should note that consumers are feeling anxious.

  What’s driving all this negative sentiment? That’s not much of a secret. Consumers are worried about higher interest rates, higher mortgage rates and rising gasoline prices. America’s credit card debt recently hit $1 trillion. Overall household debt is now more than $17 trillion.

  Folks are feeling the strain. Bank of America recently said that the number of people tapping their 401(k) accounts due to financial stress jumped 36% from a year ago.

  Look at the bond market where we see rising yields. The 10-year Treasury yield recently hit a 16-year high while the two-year yield touched a 17-year high. In fact, the two-year yield came within 17 basis points of making a 23-year high. Two years ago, the two-year yield was going for 0.3%. Now it’s going for 5.1%.

  The housing market is also feeling the squeeze of higher rates. On Tuesday, the Census Bureau said that sales of new homes fell 8.7% from July to August (that’s seasonally-adjusted and annualized). That’s the slowest pace since March.

  

  Guess what happens when there’s more supply than demand? That’s right. Prices drop. The median price of a new home sale in August was $430,300. That’s down 2% from last year. Housing affordability is at a three-decade low.

  Homebuilders are cutting prices to get rid of their homes. Interestingly, the supply of new homes was already fairly tight. The problem is that higher mortgage rates are holding back demand.

  Expect 10% Earnings Growth for Q3

  This week is the final week of trading for Q3. In a few weeks. the Q3 earnings season will start up. The overall earnings results should be pretty good, but that’s largely because earnings one year ago were weak.

  Right now, analysts expect earnings to be up nearly 10% compared with last year’s Q3. Wall Street sees the S&P 500 reporting earnings of $55.27 per share. (That’s the index-adjusted number. Every one point in the S&P 500 works out to about $8.35 billion.)

  This is a big downward shift in expectations. In the middle of 2022, Wall Street had been expecting Q3 2023 earnings of more than $63 per share. Over the course of the last year, analysts gradually pared back their Q3 estimates by more than 13%. Recently, however, earnings estimates have increased a little bit. The first reports will start coming in in about two weeks.

  As important as earnings are, we also want to see the kind of guidance that companies are willing to offer for the rest of this year and into 2024.

  Last year was tough for earnings. For all of 2022, earnings were down just over 5% from 2021. That means earnings growth this year will be helped by favorable comparisons. For Q4, Wall Street currently expects earnings growth of close to 14%. If that’s right, it means the S&P 500 will deliver full-year earnings growth of 11.7%.

  That would place full-year earnings at $220 per share and next year’s earnings at $245 per share. That means the S&P 500 is going for 17.5 times next year’s estimate. That’s a little pricey, but I don’t think it’s unreasonable. Right now, the worry isn’t valuations but rather that earnings growth is falling off.

  Here’s the S&P 500 along with its earnings. The two lines are scaled at a ratio of 20 to 1. That means that whenever the lines cross, the S&P 500’s P/E ratio is 20.

  The S&P 500 is the black line. Earnings are the red line. The green line is Wall Street’s earnings forecast.

  

  The largest tech stocks are looking very stretched. Charlie Bilello points out that the 10 stocks in the S&P 500 now account for 30.5% of the index’s value. The other 490 stocks comprise the other 70%. The Russell 2000 index is down for this year.

  There’s more news to come this week. Tomorrow, we’ll get the durable goods report. Wall Street is expecting a drop of 0.5%.

  On Thursday, we’ll get the latest report on initial jobless claims. These reports have been quite good recently. We’ll also get the final revision to Q2 GDP. I’m not too concerned about this report since it covers a time period that began six months ago and ended three months ago. We’ll also get the report on pending home sales.

  On Friday, we’ll get reports on personal income and spending. Along with this report, the government will include the PCE price data which is the Fed’s preferred measure of inflation.

  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: September 26, 2023
  Eddy Elfenbein, September 26th, 2023 at 7:05 am

  Who’s Afraid of $100 Oil?

  Can the U.S. Make Solar Panels? This Company Thinks So.

  Slowing, Graying and in Debt, Can China’s Industrial Heartland Be Revived?

  Ford Tried to Sell the Electric Mustang to China the Tesla Way—It Didn’t Work

  Teetering China Property Giants Undercut Xi’s Revival Push

  World’s Mega-Rich Are Betting on US Renters to Grow Their Billions

  The Very Rich Are Often Bad Investors. Here’s Why

  Only Richest 20% of Americans Still Have Excess Pandemic Savings

  Banks in EU Largely Comply with ‘Basel Endgame’, Says Watchdog

  Bond Traders Roiled by Fed See US Shutdown as Next Big Wild Card

  Shutdown Would Blindfold Fed in Piloting Course on Rates

  Dimon Warns World Not Ready for 7% Fed Rate

  Wall Street Echoes Fed’s View on Growth, Higher-for-Longer Rates

  UAW Fight Against Billions in Buybacks Forces Investor Rethink

  Why Biden and Trump Are Courting Striking Autoworkers

  Auto CEOs Make 300 Times What Workers Make. How That Stacks Up

  Why Ford Has Been More Willing to Work With the UAW Than GM or Stellantis

  Corporate America Promised to Hire a Lot More People of Color. It Actually Did

  Cisco’s $28 Billion Splunk Deal May Ignite Software Deal Frenzy

  As Its U.S. Shop Opens, TikTok’s Chinese Merchants Struggle to Sell Their Mops and Soap Dispensers

  Sam Bankman-Fried’s Trial to Test Dueling Explanations for FTX’s Collapse

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• Morning News: September 25, 2023
  Eddy Elfenbein, September 25th, 2023 at 7:05 am

  Greece, Battered a Decade Ago, Is Booming

  China Developers Drop Most in 9 Months on Evergrande Woes

  Hedge Fund Boom Turns Into Hangover on Brazil Rate Surge

  Britain Grapples for Agreement Over Listing Rules Overhaul

  Private Equity’s Slow Carnage Unleashes a Wave of Zombies

  Ermotti Sees Good Momentum in Recovering Credit Suisse Funds

  Why Traders Aren’t Buying the Fed’s ‘Higher-for-Longer’ Vision

  Wall Street Is Hoping $100 Oil Ain’t What It Used to Be

  Shutdowns Cost Billions as US Federal Workers Paid to Stay Home

  Railroads to Receive $1.4 Billion for Fixes and Upgrades

  Ex-Wall Streeters Help Washington Divvy Up $100 Billion to Win the Global Chip Race

  Broadcom’s AI Business Won’t Be Easy to Chip Away

  Amazon to Invest Up to $4 Billion in AI Startup Anthropic

  Apple’s Cheapest iPhone 15 Is Winning Buyers After Upgrades

  Booking’s €1.6 Billion Etraveli Deal Blocked by EU

  Tata Steel Raised to Investment Grade by Moody’s

  Lego’s Latest Effort to Avoid Oil-Based Plastic Hits Brick Wall

  Where Did All the Dark-Suited Japanese Businessmen Go?

  Why America Has a Long-Term Labor Crisis in Six Charts

  Hollywood Screenwriters Reach Tentative Deal to End Strike

  How a Storied National Airline Became Reviled in Its Own Country

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• Morning News: September 22, 2023
  Eddy Elfenbein, September 22nd, 2023 at 7:03 am

  Higher Rates Are Supercharging Japan’s Banks

  Real Estate Crisis Triggers New Alarms Over China’s Shadow Banks

  China’s Ultra-Rich Gen Zs Flock Home as Global Tensions Rise

  Shein Shifts Shipping Strategy to Bring China-Made Goods Closer to US Shoppers

  To Beat Starbucks in China, Homegrown Chains Open a New Cafe Every Hour

  The Hidden Threat to US Energy Security

  Supply Chain Hurdles Complicate Food Companies’ Climate Pledges

  UAW Expected to Announce More Auto-Plant Strikes on Friday

  Auto Industry Finance Chiefs Watch for Ripple Effects From UAW Strike

  Did Poverty Soar Last Year? It Depends How You Measure It

  When Rates Drop, They Usually Plunge. The Fed Thinks Different

  Fed Is Cutting Staff After More than a Decade of Payroll Growth

  Wall Street Strategists Turn Ever Bullish Just as Stocks Slump

  What C.E.O.s Mean When They Talk About ‘Moats’

  Apple’s iPhone 15 Goes on Sale in Test of Holiday Resurgence

  Microsoft’s Activision Deal Set to Clear Final UK Hurdle

  Once Silicon Valley’s Star, Cisco Looks to Splunk for Fresh Mojo

  Lachlan Murdoch Inherits Media Empire and Daunting Task as Rupert Retires

  Amazon Prime Video Content to Include Ads Starting Next Year

  Holy Fish and Chips, Batman! DC Studios Moves Hub to England

  Deion Sanders Is Writing College Football’s New Playbook

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• Morning News: September 21, 2023
  Eddy Elfenbein, September 21st, 2023 at 7:04 am

  Russia Temporarily Limits Diesel and Gasoline Exports

  Trudeau’s Mega Pipeline Promises to Redraw Global Oil Flows

  Chevron Agrees to Regulator’s Plan to End Australia LNG Strikes

  Hong Kong Says It Calls the Shots, Not Beijing. Investors Are Wary

  Naira Plunges Toward 1,000 on Street Amid ‘Stampede’ for Dollars

  Pound Slides to Six Month Low as BOE Rate Hikes Grind to Halt

  Sweden’s Central Bank Raises Rates to 4%, In Line with Expectations

  Higher Interest Rates Not Just for Longer, but Maybe Forever

  Fed Signals Higher-for-Longer Rates With Hikes Almost Finished

  What Fed Rate Moves Mean for Mortgages, Credit Cards and More

  Klaviyo Shares Soar in Debut, Pointing to IPO Resurgence

  Ex-Goldman Bankers Make a Fortune With Controversial Bet on Coal

  BlackRock, State Street Among Money Managers Closing ESG Funds

  Corporate America Brings Its New Skinny Look to Stock Market

  Defense Department Awards Chip Funding to Fuel Domestic Research

  GPUs Transformed AI. Now They’re Here for Quantum

  Cisco to Buy Splunk for $157-a-Share in $28 Billion Deal

  Toshiba Shareholders Approve $13.5 Billion Deal to Take Company Private

  FedEx Earnings Rise Despite Weakened Demand

  The United Auto Workers Is Overplaying Its Hand, Risking Our Economy and the Election

  The Newest Addition to the Office Wardrobe? Serious Athletic Sneakers

  The Lawyers Sam Bankman-Fried Once Trusted Are Drawing Criticism

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• Morning News: September 20, 2023
  Eddy Elfenbein, September 20th, 2023 at 7:05 am

  German Industry Defies Rising Pressure to Limit China Exposure

  U.K. Inflation Rate Slips Lower for Third Straight Month

  Naira Crashes to Record Low on Street as Dollar Supply Dries Up

  Dollar Rally Is Crushing One of the Most Popular Trades of 2023

  Fed Set to Pause Rate Hikes, But Don’t Count Out Another Increase

  Gas Prices Have Crept Higher This Summer, a Challenge for the Fed

  How $100 Oil Could Scramble the Fed’s Fight Against Inflation

  Instacart Rally Set to Fade on Second Day After $660 Million IPO

  Instacart Founder Exits With $1.1 Billion Fortune After IPO

  JIP Says $14 Billion Tender Offer for Toshiba Set to Succeed

  FedEx Wins Over Wall Street With $6 Billion Cuts, Gains on UPS

  California’s Zero-Emissions Rule Triggers a Run on Diesel Rigs

  Unions Fight in the States to Make Biden’s Climate Agenda Work for Workers

  UAW Eyes Next Strike Targets as Parts Shortages Begin to Hit

  Ford Averts Second Strike, Secures New Labor Contract in Canada

  American Labor’s Real Problem: It Isn’t Productive Enough

  Why US Hotels Are Missing More Than 238,000 Employees

  Nearly Half of All Young Adults Live With Mom and Dad — and They Like It

  Weekly Mortgage Demand Increases, Driven by a Strange Surge in Refinancing

  Fed-Up Consumers Are Increasingly Going After Food Companies for Misleading Claims

  Marlboro Maker Hits Reset on $2 Billion Bet on Medicine

  ‘Million Dollar Listing’ Star Co-Founds Media Business About Real Estate

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• CWS Market Review – September 19, 2023
  Eddy Elfenbein, September 19th, 2023 at 10:19 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.”)

  Expect the Fed to Pause

  The Federal Reserve began its two-day meeting today. The policy statement will be out tomorrow afternoon at 2 p.m. ET. Don’t expect any hikes from the Fed tomorrow. They’ll almost certainly keep their target range for interest rates at 5.25% to 5.50%.

  For November, I suspect that the Fed is leaning towards another pause, but that’s far from certain. There’s a lot of data due out between now and then. The financial world will be paying close attention to what Jerome Powell says tomorrow.

  

  The Fed will also update its Summary of Economic Projections (SEP). In the last batch, a majority of the Fed saw the need for a rate hike before the end of the year, but futures traders aren’t so sure. In fact, the futures market doesn’t see the Fed making any moves for the next 10 months. There’s a very real chance that this is the highest the Fed will go.

  While there’s been encouraging news on inflation, there are still some trouble spots. In particular, energy prices have been rising rapidly in recent weeks. Later on, I’ll discuss the dizzying rally in orange juice.

  The bond market is sensing some pressure. Earlier today, the yield on the two-year Treasury reached its highest close in 17 years. The 10-year touched its highest close in 16 years.

  There’s some talk on Wall Street that tomorrow, the Fed will offer a “hawkish hold,” meaning that the Fed will try to sound tough even though its actions may not back that up.

  At one point today, the S&P 500 dropped as low as 4,416. That was the index’s lowest intra-day level since August 28. For the third day in a row, the S&P 500 closed below its 50-day moving average.

  Instacart Goes Public

  Shares of Instacart (CART) went public today. Today’s offering has received a lot of attention on Wall Street. The ticker symbol is CART.

  For the first time in two years, there’s some buzz in the IPO market. The target range for CART was originally $26 to $28 per share. The underwriters then raised it to $28 to $30 per share. Last night, the shares were priced at $30, and the stock started trading today at $42 per share.

  Investors are finally interested again in new issues. I’m not surprised that it’s taken some time. Many of the companies that went to the market two or three years ago were complete duds. There are few things as scary as a market hungry for anything new. To give you an example, in 2021, there was even talk of Instacart being worth $40 billion. At its height, DoorDash was worth $72 billion. (!!!)

  Instacart’s underwriters sold 22 million shares for $30 a pop. That raised $660 million for Instacart. Instacart now has a market value of $10 billion.

  

  You might think that’s a lot of money for a company that delivers groceries, and I would agree. The issue, however, is that Instacart isn’t in the business of delivering groceries.

  Instead, it’s in the data business, and there are a lot of numbers to be gleaned from tracking how CART’s customers shop.

  So technically, yes, Instacart will deliver groceries, but that’s merely a front for getting data which is hugely important to advertisers.

  Advertising now makes up 30% of Instacart’s revenue. The company had sales of $740 million that didn’t come from shopping.

  Making a service that’s a front for advertiser dollars isn’t something new. That’s largely the idea behind companies like Google and Facebook (sorry, Alphabet and Meta). Another company that’s worked to profit off data is our very own Intercontinental Exchange. The company has expanded into mortgage analytics, which is a field ripe for disruption. They want to own all the numbers.

  Instacart was a big hit during the pandemic, but I’m not sure how long-lasting its success will be. According to the company, online shopping only makes up about one-eighth of grocery sales. The industry still has some problems it needs to work out.

  Instacart had wanted to IPO several months ago, but a soggy IPO market and an active Fed helped put that on hold.

  In its filings, Instacart said its revenues were up 31% to $1.5 billion during the first half of this year. CART had a new profit of $242 million compared with a net loss of $74 million last year. In my opinion, CART’s valuation is pricey but not outrageous.

  Buying groceries online may prove to be different from shopping via Amazon. I suspect that there’s something people simply prefer about going to a store and seeing the items on display, especially something they’re going to eat.

  There are more IPOs on the way. Birkenstock is looking to go public next month. Next year could be a big year for IPOs.

  The Great Orange Juice Rally

  While the stock market’s been fairly calm lately, the real action is going on in the commodity pits, especially orange juice futures. The price for OJ just hit a new all-time high.

  On Wall Street, they trade just about anything, and that includes frozen concentrated orange juice, and in recent months, the price for OJ futures has soared.

  Orange is apparently no longer the new black – it’s the new gold.

  

  In the last year, OJ futures are up about 60%. The rally’s been spurred on by a combination of lousy weather and a nasty citrus disease. I hate to use the cliché “a perfect storm,” but that’s what’s happening. There’s simply not enough supply to go around.

  Florida is the heartland of America’s citrus crop, and the Sunshine State was hit hard last year by Hurricanes Ian and Nicole. The Department of Agriculture said that Florida has its smallest orange harvest in over 100 years. Some farmers are selling their land, believing that they can get more for it than by growing oranges.

  Originally, the USDA said that Florida was expected to produce 20 million boxes of oranges. That’s less than half the amount of the year before. Now they say it will be closer to 16 million boxes. Twenty years ago, they did 240 million boxes.

  To meet demand, America has been turning to oranges from Brazil and Mexico, but the orange crops in those countries have been suffering as well. The free market has a nice little tool that it uses when supply forecasts fall short of demands — prices rise.

  Shoppers are already seeing the effect in the supermarket. This could lead to long-term lower demand for OJ especially since consumers have been sensitive to higher prices thanks to the recent bout of inflation.

  The orange juice rally is interesting to me because that’s the backdrop of Trading Places, which is probably the best movie about trading and financial markets.

  In the film, the Duke brothers crookedly get early access to the government’s crop report. That leads them to corner the market for orange juice. Instead, Louis Winthorpe (Dan Aykroyd) and Reggie Valentine (Eddie Murphy) have switched the report with a phony version.

  During the famous trading scene, once the market opens, the Dukes frantically buy orange juice. Other brokers see what’s happening and they start buying. The price for OJ skyrockets.

  As the price soars, Winthorpe and Valentine start massively shorting. The trading floor becomes a frenzy. Then trading comes to a halt as the crop report is read on the air. The report says that the year’s crop will be normal. The Dukes realize they’ve been double-crossed.

  The frantic selling continues and the price for orange juice plunges. In one trading day, the Duke brothers are wiped out and Winthorpe and Valentine have made a fortune.

  The Duke brothers are loosely based on the Hunt brothers. These were two Texas brothers, Herbert and Nelson Bunker Hunt, who tried to corner the market for silver.

  When they started their plan, silver was around $6 per ounce. By early 1980, it rose to $50 per ounce. Time Magazine estimated they made between $2 billion and $4 billion in just nine months. At one point, it was estimated that they held one-third of the world’s silver. Tiffany took out a full-page article to denounce them.

  The Hunts were convinced that the Establishment was out to crush them, and they were pretty much right. The exchange changed the margin requirement which forced the brothers to put up much more collateral. One of my first jobs in this industry was making margin calls. That’s not a metaphor. I had to actually call people to tell them they had to sell or put up more money.

  On March 27, 1980, the bottom fell out of the silver market. This is now known as “Silver Thursday.” The Hunts had to put up more money, but they couldn’t reach their margin requirement. The government was worried that Wall Street banks were so much in debt to the Hunts that if the Hunts went under, so would the banks. In other words, a silver panic could start a banking panic.

  The Hunts had finally been broken, and even today, silver is still less than half its peak from 1980.

  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.