Morning News: August 12, 2021
Posted by Eddy Elfenbein on August 12th, 2021 at 7:00 am

Poland Defies U.S. and EU by Passing Contentious Media Law

Joe Biden Wants OPEC to Drill

Biden’s OPEC Plea Is Really Directed at Anxious Drivers

Consumer Prices Keep Climbing as Fed and White House Await a Cool-Down

Liquidity Is Evaporating Even Before the Fed Taper Hits Markets

One Number to Gauge Where the Economy Is Headed

Fed Framework Gives Rise to Mash-Up of Views, Averaging Strategies

U.S. Employers Get Religion With Vaccine Mandates

Your $4.39 Latte From the Local Roaster Could Soon Cost More

MacKenzie Scott’s Money Bombs Are Single Handedly Reshaping America

The New Rich Are Overtaking Old Money in Korea’s Billionaire Rankings

Apple’s Hot Antitrust Autumn: Storm Clouds Are Forming from Multiple Directions

NIO Earnings Beat Estimates — and Its Stock Is Doing Something It Usually Doesn’t Do

Let’s Make A Deal: Who’s For Sale In Hollywood And For How Much?

We Need to Build Our Way Out of This Mess

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The Next Fed Chairman
Posted by Eddy Elfenbein on August 11th, 2021 at 2:31 pm

Jerome Powell’s term as Fed Chairman expires in six months. It gets a little confusing because there are actually two separate appointments.

One nomination is to be a Fed governor. That’s a 14-year term, but members rarely fill out a full term. Powell was appointed in 2012 to fill out a term that expired in 2014. He was then nominated for a full term that expires in 2028.

To be Fed Chairman is a separate nomination and that’s for four years. Powell was already a governor when President Trump appointed him to be Fed Chairman in 2018. The Senate confirmed him as Fed Chair by a vote of 84-13.

President Biden has the option to reappoint him. It’s not uncommon for presidents to reappoint Fed chairs even if they didn’t originally nominate them. Bernanke was appointed by President Bush and President Obama. Greenspan was appointed by Reagan, Bush-41, Clinton and Bush-43.

One name that’s discussed as a possible successor is Lael Brainard. PredictIt has a betting contract for the next Fed Chair.

I don’t place much stock in these online betting markets. In my view, they’re just for fun. However, this look at the current possible replacements seems about right.

Hetty Green: The Witch of Wall Street
Posted by Eddy Elfenbein on August 11th, 2021 at 12:41 pm

Inflation Cooled Slightly in July
Posted by Eddy Elfenbein on August 11th, 2021 at 10:56 am

The government released the inflation report for July this morning. According to the number-crunchers, inflation rose 0.47% last month. That’s the lowest reading since February. It’s nearly half the rate we saw in June. Over the past year, inflation is up by 5.28%. That’s just slightly below the 12-month number we had last month.

Core inflation rose by 0.33% last month. That’s also the slowest rate since February. Wall Street had been expecting an increase of 0.4%. In the past year, core inflation is running at 4.23%.

Used car and truck prices, which rose rapidly between April and June as Americans looked to vacation, gained just 0.2% in July after a climb of more than 10% in the prior month.

Apparel prices were flat after a 0.7% increase in June, and transportation services prices actually declined after a pop of more than 1% at the end of the second quarter.

The Federal Reserve has been keeping a close eye on inflation reports since it’s the central bank’s job to maximize employment and keep prices stable.

Chairman Jerome Powell and other officials acknowledge the recent acceleration in prices but believe that the inflation is “transitory” and that prices won’t continue to increase at their current pace for too long.

“Today’s CPI data should help assuage investor fears that the Fed is too laid-back about inflation pressures,” wrote Seema Shah, chief strategist at Principal Global Investors. “The details of the data release suggest some easing in the reopening and supply-shortage driven boost to prices, and tentatively suggests that inflation may have peaked. Investors in the transitory camp will feel slightly vindicated.”

Here’s the 12-month inflation rate. Headline is in black and the core rate is in red.

By the way, this chart also shows you how much more stable core prices are which is why economists like to track it.

Here’s an interesting chart. This is simply the CPI, but notice the big notch in the early part of last year. That’s behind much, but not all, of the increase in inflation.

Stats folks call this the base effect. Whenever you hear someone claim that “X is up so much percent,” you need to ask, up since when? If we measure the inflation rate since January 2020, then inflation isn’t so bad.

Morning News: August 11, 2021
Posted by Eddy Elfenbein on August 11th, 2021 at 7:14 am

The Global Economy Is Shrugging Off the Delta Variant, For Now

How Sweden Became the Silicon Valley of Europe

China’s New Carbon Market Is Crippled by Low Turnover, Prices

Shoots of Greenflation Spring New Challenges on Portfolio Managers

How to Sell ‘Carbon Neutral’ Fossil Fuel That Doesn’t Exist

Investors Look Under the Radar for Winners from U.S. Infrastructure Bill

Workers Are Getting Pay Raises And It Could End Up Contributing To High Inflation

Coinbase Rides Cryptomania to a $1.6 Billion Quarterly Profit

Coinbase Drops Promise of Token’s Cash Backing That Wasn’t True

U.S. Postal Service Proposes Holiday Surcharges for Businesses and Individuals

Masa Son Pours Money Into New Fund as Softbank Scales Back China Bets

Norton and Avast Are Merging into an $8 Billion Antivirus Empire

Mountain Dew Goes Hard as PepsiCo, Boston Beer Partner on a Boozy Version

What Cuomo’s Resignation Means for Business

‘Revenge Travel,’ Family Edition

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CWS Market Review – August 10, 2021
Posted by Eddy Elfenbein on August 10th, 2021 at 7:24 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.)

I’m often asked how investors can go about finding good investing opportunities. Last week, I mentioned one of my favorite strategies, and it’s one of the easiest. That is, find a superior company and wait for its stock to crash and burn.

In last week’s issue, I used Clorox (CLX) as an example. The bleach company has been a powerhouse for many years, but its stock hasn’t done much lately, and it got clocked after its last earnings report. That gets my attention.

Of course, that’s only the first step. We still need to discern if the problem the company is experiencing is temporary and fixable or if it’s more serious. As we know, the market likes to panic first and ask questions later. But better companies are usually better at fixing their problems.

The Trade Desk Soars 70% in Two Months

Clorox isn’t the only company like this that I’ve highlighted. In our issue from May 11, I told you about The Trade Desk (TTD). The day before, the stock got a super-atomic wedgie from traders and it plunged 26% in one day.

As I wrote, “Thanks to yesterday’s train wreck, this sounds like a good opportunity to take a closer look at this stock that’s still not very well-known.”

Nice timing. The Trade Desk is up 70% since then, including a blow-out earnings report yesterday. To be fair, I never said to expect a rally like that. Instead, I talked about the company and said that its stock is worth a look.

So what do they do? The Trade Desk markets a software platform that’s used by digital ad buyers to build data-driven advertising campaigns. In other words, they help companies get the most bang for their buck on the web.

The Trade Desk offers a real-time bidding technology platform that allows media buyers to target specific audiences with customized ads. Users can manage their digital ad campaigns in real time. They can even use third-party data to optimize their strategies. This saves a lot of time and money for companies’ media strategies.

Business has been very good. Three months ago, when the stock tanked, The Trade Desk reported an 80% earnings beat. Revenues beat as well, and the company announced a 10-for-1 stock split.

There’s been some misunderstanding about The Trade Desk’s business. That’s because some investors seem to think that it can easily be blown out by giants like Google or Facebook. That’s not true and this highlights the key difference that The Trade Desk offers. If a company wants to advertise with, say, Google, then they go to Google. If a company wants to advertise with Facebook, then they go to Facebook.

But if a company wants to use The Trade Desk, then it can tell them that the best and most cost-effective place for them is The New York Times or The Wall Street Journal or Hulu or any number of places.

The Trade Desk isn’t a direct competitor to Google or Facebook. The company can and has partnered with just about anybody. I’m amazed by how enormously profitable this business is. The Trade Desk’s gross margins are close to 80%.

That brings us up to yesterday when the Trade Desk announced earnings, and it was another massive beat. For Q2, TTD made 18 cents per share. That was nearly 40% higher than expectations. The stock jumped 7.6% today.

Sadly, the big rally means the stock isn’t quite so attractive as it was but shares of Clorox haven’t moved much after the stock’s recent tumble. Good companies fix their problems.

There Are Now 10 Million Job Openings

On Friday, the Bureau of Labor Statistics released the jobs report for July, and it was a strong one. According to report, the U.S. economy created 943,000 net new jobs last month. That’s huge. The consensus was for a gain of 870,000 jobs.

Not only that, but the numbers for May and June were revised higher. Over the last six months, the economy has added more than four million new jobs. In July, private sector payrolls rose by 703,000 while the government added 240,000 new jobs.

Among sectors, the big winner last month was leisure and hospitality which added 380,000 jobs. Of that, 253,000 came in bars and restaurants.

The unemployment rate ticked down to 5.4%. The labor force participation rate increased to 61.7%, and average hourly earnings rose by 0.4%. A key stat I like to watch is the unemployment rate for discouraged workers. Last month, that fell to 9.2% from 9.8%.

As good as these numbers are (and they are good), the larger story is the same. We have a long way to go to get back to normal. In two months last year, the economy lost 22.4 million jobs. In the 15 months since then, the economy has added 16.7 million jobs. We’re digging ourselves out of a giant hole.

We’re at an odd point in the economy. There are tons of places looking to hire yet there are still millions of people out of work. Yesterday, the government released its monthly JOLTS report. That stands for Job Openings and Labor Turnover Summary. It said that in June, there were 10.1 million job openings. That’s an all-time record.

Wall Street was expecting 9.28 million. This was the sixth-straight monthly increase for job openings. There are now more job openings than available workers. Quits rose to 3.9 million from 3.6 million. According to Tuesday’s report on small businesses, 57% of small businesses “said they had few or no qualified applicants for open jobs in July, up one point from June.”

One stat I like to track is quits as a percentage of total separations. That includes firings, layoffs and retirements. This is known as the “take this job and shove it” indicator. In June, it got to an all-time high.

So why is there a big gap between jobs and workers? One factor is simple mismatch. The kinds of jobs being offered aren’t the kinds that people are looking for. One good factor is that more Americans were looking for work. Last April, the labor force participation rate dropped to 60.2%. For July, it’s up to 61.7%. Again, it has a long way to go. Government benefits may have also played a role in dampening hiring. Of course, many people may still be too afraid to return to the office due to Covid.

One benefit of this demand for labor is that wages have started to rise. Unfortunately, inflation has been eating up much of that increase. In fact, according to one Harvard economist, inflation has taken up all the gains for workers. (Have you noticed that the price for coffee has been rising?)

Jason Furman says that adjusting wages for the employment cost index, workers are being paid less than they were in December 2019. According to Furman, “The hot economy is heating prices more than it is heating wages.” We’ll learn more tomorrow morning when the monthly CPI report comes out. In the last four months, the CPI has increased by 3%. We’ll soon find out how transitory “transitory” truly is.

The Dow Breeches 20 Times Gold

On Monday, the Dow Jones Industrial Average crossed an important threshold. The index passed 20 times the price for an ounce of gold.

This is noteworthy for a few reasons. One is that the Dow/Gold Ratio reached its low almost exactly 10 years ago. On August 20, 2011, the Dow was going for just 5.7 times the price for gold. That means that over the last decade, the Dow has lapped gold almost four times. One prominent analyst said that the Dow and gold would eventually reach parity!

The Dow/Gold Ratio actually understates how well stocks have done because it doesn’t include dividends. Some people scoff at this, but not me. Dividends make a huge difference to long-term returns.

Over the last 30 years, the S&P 500 is up 1,040%. But the S&P 500 Total Return Index, which includes dividends, is up 1,991% over the same time. All those little payouts each quarter really do add up, especially if they’re reinvested.

Speaking of gold, next week we’ll celebrate (or commiserate, depending on your view) the 50th anniversary of President Nixon severing any link between the U.S. dollar and gold. On August 15, 1971, Nixon ditched the gold standard, boosted tariffs and announced a 90-day freeze on wages and price. We’ve been in a world of free-floating currencies for half a century. (If you’re interested, my friend Gary Alexander, has more on this episode.)

Nixon’s plan was very popular among voters and on Wall Street. Stocks rallied the next day. Using gold’s official price of $35 per ounce, that means that 50 years ago, the Dow/Gold Ratio was 24. In less than eight years, that ratio fell to 1.0.

I’m often asked my opinion on gold and I’m not much of a fan. I have nothing against it, but gold is highly volatile. The price of the gold tends to move in dramatic spikes. I’d rather own productive assets with revenue streams. Here’s more of what I’ve written on gold.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

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Productivity Growth Slowed in Q2
Posted by Eddy Elfenbein on August 10th, 2021 at 10:54 am

The market is fairly quiet this morning. The S&P 500 had been at an all-time intra-day high earlier today, but now it’s only up a small bit. I’m looking forward to Thursday when the last of our three earnings reports comes out for this earnings season.

In fact, the next cycle is going to begin soon. Ross Stores (ROST) is due to report next Thursday. The last earnings report for the deep-discounter was a huge beat. I can’t wait for next week’s report.

This morning’s report on productivity said that growth in productivity increased by 2.3% in Q2. That’s down from 4.3% in Q1. That Q1 figure was revised lower from the original 5.4%.

Compared to the second quarter of 2020, productivity rose at a 1.9% pace. Hours worked increased at a 5.5% rate last quarter, accelerating from a revised 4.0% growth pace in the January-March period.

Overall output is now 1.2% above pre-pandemic levels but hours worked remain 2.8% below it, the report also showed. The resurgence in economic activity has not been matched by people flooding back into the workforce. On Monday, U.S. job openings jumped to a fresh record high in June, Labor Department data showed.

Small business owners across the United States grew less confident in the economic recovery in July as labor shortages remained an issue, according to a National Federation of Independent Business survey released on Tuesday.

(…)

Unit labor costs – the price of labor per single unit of output – rose at a 1.0% rate. They contracted at a revised 2.8% pace in the first quarter. Unit labor costs increased at a 0.1% rate from a year ago. They have also been distorted by the pandemic’s disproportionate impact on lower-wage industries.

Hourly compensation rose at a 3.3% rate last quarter. That followed a revised 1.4% growth pace in the first quarter. Compensation increased at a 2.0% rate compared to the first quarter of 2020.

Morning News: August 10, 2021
Posted by Eddy Elfenbein on August 10th, 2021 at 7:03 am

Electric Cars for Everyone? Not Unless They Get Cheaper.

China’s New Oil Giants Flourish in Xi’s Clean Energy Wave

Why Xi Jinping Waited Years to Launch His Crackdown on Tycoons

Outgunned Crypto Lobbyists Falter in Bid to Fix Broad Tax Rules

Biden’s Expansive Economic Agenda Teed Up for Senate Endorsement

Consumers Are On the Lookout for Higher Prices, a Federal Reserve Survey Shows

Millions of Americans Are Unemployed Despite Record Job Openings

U.S. Small Business Optimism Drops As Labor Shortages Persist

SoftBank Posts Lower Profit as Tech Rally Cools

Evergrande Went From China’s Biggest Developer to One of Its Worst Debtors

Canadian Pacific Sweetens Offer for Kansas City Southern to $27.3 Billion

Marlboro Owner Wants To Buy A Company That Makes Asthma Inhalers. Health Charities Say It Must Be Stopped

AMC Reaches Deal with Warner Bros. for 45 Days Theatrical Exclusivity in 2022

AMC Theaters to Accept Bitcoin by End of 2021 but Plenty of Questions Remain

Tokyo Olympics Draw Smallest Summer Games TV Audience Since 1988

Why A Secretive Chinese Billionaire Bought 140,000 Acres Of Land In Texas

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The Are 10 Million Job Openings
Posted by Eddy Elfenbein on August 9th, 2021 at 11:02 am

The stock market is down a bit today, but not too much. As I write this, the Dow is off by about 100 points. Many of the old “reopening” stocks like Ross Stores (ROST) and Disney (DIS) are lagging today.

Bitcoin is above $46,000. That’s its highest price in nearly three months. Gold is moving higher after its sudden “flash crash” overnight. Gold dropped $60 per ounce in a few minutes earlier today. Robert Kaplan, top guy at the Dallas Fed, said they should start tapering soon.

This morning we got the latest JOLTS report. That stands for Job Openings and Labor Turnover Summary. It said that in June, there were 10.1 million job openings. That’s an all-time record.

Wall Street was expecting 9.28 million. This was the sixth-straight monthly increase. There are now more job openings than available workers. Quits rose to 3.9 million from 3.6 million.

Morning News: August 9, 2021
Posted by Eddy Elfenbein on August 9th, 2021 at 7:01 am

Oil Slides 4% on China Virus Curbs and Climate Warning

How China’s Ping Pong Prowess Explains Its Economy

China’s Covid-Zero Strategy Risks Leaving It Isolated for Years

They Wait Hours to Withdraw Cash, but Most A.T.M.s Are Empty

Markets Are Running Hot on an Economic Enigma Machine

This Is a Terrible Time for Savers

Infrastructure Bill’s Boost to Economy Is Likely to Be Limited

Malls Are Back. But for How Long?

They Don’t Want the Shot. They Don’t Want Colleagues to Know.

Amazon Lures Advertisers From Facebook After Apple Privacy Shift

Saudi Aramco Posts $25 Billion Profit

Brookfield Reinsurance Unit to Buy American National for $5.1 Billion

Billionaire-Backed Mining Firm to Seek Electric Vehicle Metals in Greenland

Jay Y. Lee, Samsung’s De Facto Leader, Wins Parole From Prison

The Man Who Lost $20 Billion in Two Days Is Lying Low in New Jersey

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