Morning News: July 5, 2021
Posted by Eddy Elfenbein on July 5th, 2021 at 7:09 am

OPEC+ Crisis Deepens as Saudi Arabia Refuses to Budge

Credit Suisse Strategist Sees $1 Trillion Problem for Money Markets

Why Is China Cracking Down on Didi After U.S. IPO?

Chinese Antitrust Regulator to Block Tencent’s Videogaming Merger

The Tech Cold War’s ‘Most Complicated Machine’ That’s Out of China’s Reach

Britain Proposes Tech Company Listing Reforms to Catch Up with New York

Stocks Are Expensive but that Doesn’t Mean the Bull Run is Ending

Hacking Wall Street

Pandemic Wave of Automation May Be Bad News for Workers

Investigating Amazon, the Employer

‘Absolutely a Sprint’: How Andy Jassy Raced to the Top of Amazon

After Pressuring Telecom Firms, Myanmar’s Junta Bans Executives from Leaving

The Charges Against the Trump Organization Are a Master Class in Tax Evasion

The US is a First-World Nation With a Third-World Rail System

Sun Valley’s Billionaire ‘Summer Camp’ Is Back After A Virus-Induced Break

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June Jobs Report
Posted by Eddy Elfenbein on July 2nd, 2021 at 8:33 am

The jobs report is out. Last month, the U.S. economy created 850,000 new jobs. The consensus was for 706,000.

The private sector added 762,000 jobs. The unemployment ticked up to 5.9%.

Average hourly earnings rose 0.3%. In the last year, average hourly earnings are up 3.6%.

Underemployment is 9.8% and the labor force participation rate was 61.6%. The latter figure has barely budged.

Hospitality continued to be the prime beneficiary of the reopening as workers returned to jobs at bars, restaurants, hotels and the like.

The industry notched a gain of 340,000 amid easing restrictions across the country. That total included 194,000 in bars and restaurants, but still left the sector 2.2 million shy of where it was in February 2020 before the pandemic began.

Other notable gains came in education, which totaled 269,000 across state, local and private hiring, while professional and business services increased by 72,000 and retail added 67,000.

The other services industry added 56,000 jobs, including a gain of 29,000 in personal and laundry services, a subsector that has been seen as a proxy for the resumption of normal business activity. Social assistance added 32,000, while wholesale trade contributed 21,000 to the total and mining grew by 10,000.

Manufacturing edged up 15,000 for the month, though construction lost 7,000 positions despite a sizzling housing industry where new building has been held back by supply shortages and what had been soaring lumber prices before the recent plunge.

Here’s the updated chart of nonfarm payrolls.

We’ve created a lot of jobs but we still have a long way to go.

Morning News: July 2, 2021
Posted by Eddy Elfenbein on July 2nd, 2021 at 7:01 am

Oil Holds Near $75 as Brinkmanship at OPEC+ Threatens Deal

U.S. Proposal for 15% Global Minimum Tax Wins Support From 130 Countries

Budget Deficit Projected to Hit $3 Trillion as Pandemic Spending Buoys Economy

Halfway Through 2021, the Hot Stocks Are Old-Fashioned

World’s Top Pension Fund Books ‘Historic’ $339 Billion Gain

China and Hong Kong Stocks Tumble After ‘Broken Heads and Bloodshed’ Speech from Xi

U.S. Toymaker Doubles Down in China Despite Rising Costs, Political Tensions

Didi Opens Door for More Tech IPOs Beyond China. Where Emerging Market Investors Should Look.

Dogecoin Whale? Robinhood IPO Filing Reveals Dogecoin as One of its Biggest Risk Factors

Rumors of the Demise of Cars Have Been Greatly Exaggerated

‘Shocked’ Mitsubishi Electric CEO to Quit Over Data Deceit

New Saudi Airline Plan Takes Aim at Emirates, Qatar Airways

The FTC Just Took a Step That Could Make It Easier to Go After Amazon

Amazon Revises Corporate Values Days Before Bezos Steps Down

Bezos’ Exit Is One of Many Among Amazon’s Top Ranks

Jeff Bezos Is Headed To Space. Richard Branson Decided To Beat Him There

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Jobless Claims Drop to 364,000
Posted by Eddy Elfenbein on July 1st, 2021 at 1:44 pm

I like the initial jobless claims report, but it tends to be “noisy.” It can bounce around a lot. Two weeks ago, it rose from 374,000 to 418,000. Then last week, it edged down to 415,000. Today’s report was 364,000. That’s another pandemic low.

This morning’s ISM Manufacturing report came in at 60.6. That was just below expectations of 61. That’s the lowest since January. That’s still a solid number. Any number above 50 means the factory sector is expanding.

The expectation for tomorrow’s jobs report is that the unemployment rate fell to 5.6% and that the U.S. economy created 704,000 net new jobs. The report is due out tomorrow morning.

Morning News: July 1, 2021
Posted by Eddy Elfenbein on July 1st, 2021 at 7:04 am

European Factories Racing As Asian Manufacturers See Momentum Weaken

Ghosts of Crises Past Haunt Policymakers and Markets

A Housing Frenzy Is Sparking Bidding Wars From New York to Shenzhen

Averting Inflation Crisis Turns on Something Fed Doesn’t Control

Amazon Says the New F.T.C. Chair, Lina Khan, Should Recuse Herself from Investigations

Biden’s Big Business Crackdown Bad for Wall Street Behemoths

An NFT of the World Wide Web Sells for $5.4 Million

At Monterey Car Week, the Sheet Metal Shines

Car Market Is Expected to Cool Amid Dearth of Vehicles on Lots

Nissan Bets on UK ‘Renaissance’ With Battery Plant and New Vehicle

Lockheed Wins $5.5 Billion Swiss Warplane Deal

Robbing the Xbox Vault: Inside a $10 Million Gift Card Cheat

Robinhood Is Fined $70 Million Over Misleading Customers and System Outages

Robinhood Looks Beyond Its Big Fine

Shortage of Truck Drivers is Behind Fuel Delivery Delays, Says GasBuddy Analyst

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ADP Jobs Report = 692,000
Posted by Eddy Elfenbein on June 30th, 2021 at 12:28 pm

This morning we got the ADP private payroll report. According to ADP, the U.S. economy created 692,000 private sector jobs last month. That’s a big number. Wall Street had been expecting 600,000.

From an industry standpoint, the biggest hiring gain came from the 332,000 pickup in leisure and hospitality. The sector, which includes bars, restaurants, hotels and other related businesses, took the hardest hit from the Covid-19 pandemic but has shown strong gains during the economic reopening.

Education and health services also indicated strong gains, increasing by 123,000, while trade, transportation and utilities rose by 62,000 and professional and business services saw 53,000 hires.

On the goods-producing side, construction payrolls increased by 47,000 while manufacturing was up 19,000.

Overall, services provided the bulk of the job gains with 624,000, while goods producers added 68,000.

The official jobs report from the government is due out on Friday. I should caution you that the ADP report is not always a good predictor of what the government report will say. The consensus is for the government report to say that 675,000 jobs were created in June.

Here’s a chart with the ADP data in red and the government in black:

Tomorrow we’ll get the ISM Manufacturing report along with the jobless claims report.

Bloomberg on Danaher
Posted by Eddy Elfenbein on June 30th, 2021 at 11:42 am

As many of you know, I’m a big fan of Danaher. The company is quiet and prefers to stay out of the limelight. At Bloomberg, Devon Pendleton and Tom Maloney discuss the Rales brothers’ charitable donations.

Steven and Mitchell formed Danaher in the early 1980s, converting a real estate investment trust into a shell for scooping up struggling, little-known manufacturing businesses.

They were among the first in North America to adopt the Japanese management philosophy of kaizen, which emphasizes efficiency and continuous improvement.

That’s led to a shift in focus to life sciences, illustrated by Danaher’s acquisition last year of the biopharma unit of General Electric Co., whose chief executive officer, Larry Culp, previously headed Danaher for 14 years.

The kaizen-inspired operating system has been credited for the company’s consistent returns. Its stock has outperformed Warren Buffett’s Berkshire Hathaway Inc. by almost 7% over the past 30 years.

Along with efficiency, another of the brothers’ hallmarks is a reliance on credit. The Rales built up Danaher through a slew of debt-financed takeovers, leading Forbes to dub them “raiders in short pants” in a 1985 profile.

Morning News: June 30, 2021
Posted by Eddy Elfenbein on June 30th, 2021 at 7:07 am

Global Regulators Try Again to Eliminate Money-Market Hazards

Treasury Yields Signal Investors’ Waning Economic Exuberance

Fed Unity Cracks as Inflation Rises and Officials Debate Future

Congress Faces Renewed Pressure to ‘Modernize Our Antitrust Laws’

CFPB Beefs Up Protections for Struggling Homeowners, But Will Not Ban Foreclosures

Solar Stocks Rally To Two-Month High As Restriction Fears Ease

Why Cathie Wood’s Ark Invest is Launching a Bitcoin ETF

China’s Didi Raises $4.4 Billion in Upsized U.S. IPO

Deutsche Bank’s License to Sponsor Hong Kong IPOs Suspended

Husband-and-Wife Team Worth $2.2 Billion After Bubble Tea IPO

Tech Company 2U Will Pay $800 Million to Buy EdX, Online Education Platform MIT and Harvard Created

Facebook Unveils ‘Bulletin,’ A Newsletter Subscription Service

Berkshire’s Munger Says China Right to Clip Ma’s Wings

Americans Lost $29.8 Billion to Phone Scams over Past Year, Tripled from 2019

The Fall of the Billionaire Gucci Master

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CWS Market Review – June 29, 2021
Posted by Eddy Elfenbein on June 29th, 2021 at 8:04 pm

This is the free version of CWS Market Review. If you have a chance, please sign up for the premium newsletter for $20 per month or $200 for the whole year.

The premium version contains more detailed analysis and I cover our Buy List stocks in greater depth.

One more thing. I’ve added a new special report that’s only for premium subscribers, “How Not to Get Screwed on Your Mortgage.” This is a great report and it has my five pointers on never getting taken advantage of. Join us today! Now, let’s look at this amazing market.

The S&P 500 closed a little bit higher today marking its 33rd new high of the year. That’s about one in every four trading days this year. Since its low 15 months ago, the stock market has nearly doubled. Charlie Bilello, one of my favorite market stats guys, notes that going back to the beginning of 2013, the index has now made 309 new all-time highs.

I used to call this the Honey Badger market for its ability not to care. Now I may call it the Rita Coolidge market. Nothing but all-time highs.

How much further can it run? Eh, that’s hard to say but there’s no obvious reason we’re due for a plunge. Tomorrow is the final trading day of Q2 and the first half of 2021. So far, it’s been a great year for stock investors. What’s interesting is that a strong first half of the year has often been a good omen for a strong second half of the year. You might think it would revert to the mean, but that’s not necessarily the case.

Ryan Detrick of LPL Financial points out that when the S&P 500 gains more than 12.5% in the first half of the year, the median gain for the second half is close to 10%. That’s nearly doubled the other years. In other words, strong gains often lead to more strong gains. Rallies build on themselves. Of course, that will eventually lead to a breaking point.

The Bull Market for Crap

While I doubt we’re at a breaking point just yet, there’s been a disturbing trend of a lot of terrible companies turning to the public market to raise tons of cash. I suppose that’s how markets are designed to work, but it’s a little unsettling that’s so many unsound companies can effortlessly rake in so much from investors.

Bloomberg notes that since March, almost 100 money-losing companies have raised money via secondary offerings. That’s twice the number of profitable companies.

According to Sundial Research, over the past 12 months, 750 unprofitable companies have turned to the secondary market. That’s the widest margin between money-making and money-losing firms in nearly 40 years.

There may be a few factors driving this phenomenon. For one, the higher-quality companies may already be flush with cash thanks to a strong market, a recovering economy and low interest rates. As the pandemic broke, many companies were quick to raise cash so they had enough protection to ride out the storm. Now that rates are still low, it’s probably not worth it to pay off those credit lines. That could be leading to a wave of buyouts.

Also, the booming market for lower-quality stocks adds extra incentive for these companies to raise money. That’s just natural supply and demand. I can’t blame low-quality companies for taking advantage of a good market for them. Several of the meme stocks already have raised money.

This isn’t just happening in the stock market. Junk bonds are now yielding just over 4%. That’s an all-time low. In fact, the spread between junk debt and investment-grade is the narrowest it’s been in over a decade. Crap is in, and the crappier the better.

Here’s a long term chart of junk bonds. Sorry, I mean “high yield” bonds.

Of course, it’s important that low-quality sectors have their day in the sun. That’s how marginal areas can thrive. However, our concern is when it overshoots any reasonable expectations. Some low-quality companies will improve even though the odds are against them.

This raises some interesting questions about investment analysis. So much of valuation analysis works on a disconnect between price and value. But what’s interesting is how price can impact value.

Let me explain what I mean. Is AMC a good company? Not at all. But that didn’t stop them from raising a ton of cash thanks to an inflated stock price. Heck, if folks are going to throw money your way, why not take it? All that new cash is a big help to AMC’s business. As a result, the business is truly more valuable. AMC’s finances are better. A change in price caused a real increase in value. In fact, thanks to the new cash, AMC got a credit-rating upgrade.

Investor George Soros wrote about this process in his book, The Alchemy of Finance. Soros calls the interplay between price and value the General Theory of Reflexivity. (I tried to read the book a few times and didn’t get far.)

I suspect that the run for low-quality may be nearing an end. At the Financial Times, Michael Mackenzie writes:

Other strategists are looking at the merits of shifting towards “quality” companies that are well managed with strong balance sheets and steadily increasing dividends. After the stirring rebound of lower quality companies that populate the value stock universe, these are looking more attractive on a relative basis.

BlackRock’s benchmark of high-quality companies is currently trading at its largest discount to the Russell 1000 index in more than two decades. That reflects how investors have sought recovery stories in companies that were hit hard by lockdowns in the leisure, travel and retail industries.

“We are still very value tilted, but we are starting to dial that back and look at the quality trade,” says Tony DeSpirito, chief investment officer of US fundamental active equity at BlackRock. While he expects that value and cyclical shares have not fully exhausted their run, the clock is ticking.

Once the economy shifts into a mid-cycle phase, history shows that quality shares start outperforming.

I wouldn’t be surprise to see a turn to quality sometime soon.

Facebook Becomes a Trillionaire

Yesterday, shares of Facebook (FB) rallied after a judge dismissed two anti-trust complaints. The stock gained more than 4% and FB’s market cap broke the $1 trillion barrier.

Facebook becomes the fifth member of the “four comma” club. The others are Apple, Amazon, Google and Microsoft. What’s most interesting about Facebook is that it made the journey in the fastest time. The company was founded, famously, in Mark Zuckerberg’s dorm room 17 years ago.

I’m reminded of the scene in The Social Network when Sean Parker says, “one million dollars isn’t cool. You know what’s cool? A billion dollars.” Now Facebook is at one thousand times that.

I found an interesting tidbit at Bloomberg. There are currently 58 Wall Street analysts who follow Facebook. Among those, 49 have it rated as a buy. I can’t imagine what the 49th buy opinion has to say that hasn’t been covered by any of the other 48. What’s the point of analysis if everyone agrees with each other? Just three analysts rate Facebook a sell.

Speaking of the ultra-wealth, Morgan Housel tweets that Steve Ballmer’s net wealth is about $100 billion. That’s especially impressive because he wasn’t a founder of Microsoft. He was employee #30. Also, Ballmer hasn’t sold as much stock as Bill Gates has. I’m pretty sure that Gates would be the richest person in the world if he had held onto all his shares.

But I find Ballmer’s enormous wealth fascinating because so much of it came after he left Microsoft. Here’s a chart of MSFT since Ballmer left:

Wow! Shares of MSFT didn’t perform terribly well when Ballmer was CEO. He came in for a lot of criticism and some prominent folks on Wall Street urged him to step down. It’s a tough job, so I’m not going to pile on.

Since Satya Nadella took over as CEO seven years ago, the stock has been a big winner. No one has benefitted as much as Steve Ballmer. That’s an impressive achievement to profit off of getting replaced. He’s now one of the wealthiest people who has ever lived. In any event, Ballmer’s Clippers are trailing the Suns 3-2.

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

– Eddy

Home Prices Are Soaring
Posted by Eddy Elfenbein on June 29th, 2021 at 10:06 am

The housing market is hot. Today’s Case-Shiller report shows that home prices rose at an annualized rate of 14.6% in the 12 months end in April. That’s fastest in 30 years of data. It’s an increase from 13.3% for the 12 months ending in March.

Phoenix, San Diego, and Seattle reported the highest year-over-year gains. All were up over 20% from the year before.

“April’s performance was truly extraordinary. The 14.6% gain in the National Composite is literally the highest reading in more than 30 years of S&P CoreLogic Case-Shiller data,” said Craig Lazzara, managing director and global head of index investment strategy at S&P DJI.

Not only did home prices rise in all 20 cities, but the price gains accelerated in all as well and were in the top quartile of performance historically.

Five cities – Charlotte, Cleveland, Dallas, Denver and Seattle – saw their largest annual gains ever.