Morning News: March 30, 2021
Posted by Eddy Elfenbein on March 30th, 2021 at 7:18 am

Banks Face Billions in Losses as a Bet on ViacomCBS and Other Stocks Goes Awry

Japan’s Biggest Bank Warns of $300 Million Loss Tied to Bill Hwang’s Fund

The Suez Crisis Is Over. Now Time to Add Up the Damages

Giant Next-Gen Container Ships Will Make Ever Given Look Like A Toy

Big Oil’s Secret World of Trading

Biden Seeks to Reverse Decades of Disparity in Next Economy Move

Supreme Court Looks for Narrow Path in Investors’ Suit Against Goldman Sachs

Amazon Union Vote Enters Final Stretch in Watershed Moment for U.S. Labor

PayPal Launches Crypto Checkout Service

German Aviation Startup Lilium to Float In U.S. Via $3.3 Billion SPAC Deal

JPMorgan, Salesforce Join Growing List of Firms Dumping Office Space

Family Travel Gets Complicated Without a Covid Vaccine for Kids

Volkswagen Is Really Serious About EV Foray. To Make That Clear, It’s Renaming US Entity To…Voltswagen

Inside Nissan’s Battle With Ghosn: A Whistle-Blower Speaks Out

Howard Lindzon: Momentum Monday – Let Me Introduce You To Some Blockchains and A New Weekly SPAC Update

Ben Carlson: How Recessions Change the Winners in the Stock Market

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Hedge Fund Wreck Rattles the Market
Posted by Eddy Elfenbein on March 29th, 2021 at 10:30 am

This is the final week of the first quarter. The quarter officially ends on Wednesday and the stock market will be closed on Friday for Good Friday.

First, the good news. That ship has finally been freed in the Suez Canal. The bad news is that a big hedge fund went kablooey last week, and we’re dealing with the aftermath. The hedge fund faced massive margin calls.

One of my first jobs in the investment industry was making margin calls. I literally called clients on the phone. Fun, eh…not so much. This happens when a client’s position has deteriorated so much that they have to do one of two things. They can either put up more cash (this is the less-preferred option) or, Plan B, they can sell the stock.

Plan B is what usually happens and that’s what happened to Bill Hwang’s Archegos fund. With the forced selling, we soon found out what stocks the fund was holding. For example, ViacomCBS was not having a good morning. Also, some of the banks that lent to Archegos were also feeling the heat. Credit Suisse was down over 10% this morning.

One of the issues in these types of events it that you don’t know who is exposed to what and the market can quickly act like a set of dominos. So far, that doesn’t appear to be happening.

The final few minutes of trading on Friday was an all-out assault by the bulls. The stock market is down a bit this morning. Industrials and staples are in the green while other sectors are mostly down.

Morning News: March 29, 2021
Posted by Eddy Elfenbein on March 29th, 2021 at 7:02 am

Billions in Secretive Derivatives at Center of Hedge Fund Blowup

What Investors Need to Know About Those Huge Block Trades

Bond Investor Revolt Brews Over Bogus Green Debt Flooding Market

The Start-Up Enemies of Wall Street Are Booming

What is Going on with China, Cotton and All of These Clothing Brands?

Fake Meat Startup Raises $335 Million to Fund Global Ambitions

The Swift Collapse of a Company Built on Debt

Visa Becomes First Major Payments Network to Settle Transactions in USD Coin (USDC)

Deliveroo Shaves $1.3 Billion Off Valuation as Investors Revolt

Adam Neumann’s Final WeWork Act – Helping SoftBank’s SPAC Deal

Howard Lindzon: Sunday Reads ….WTF Is Bitcoin Anyway and The Excess of Everything

Cullen Roche: Understanding Government Liabilities

Jeff Carter: Provenance of Art & Catching the Second or Third Train

Ben Carlson: Owning the Best Stocks is Hard & How To Make Up Lost Ground If You Got a Late Start Saving For Retirement

Michael Batnick: The State of the Stock Market, Have Investors Lost their Minds With Growth Stocks? & Everyone is an Investor

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CWS Market Review – March 26, 2021
Posted by Eddy Elfenbein on March 26th, 2021 at 7:08 am

“The great fortunes in stocks have not usually been made by people who give stop orders.” – Charles Dow

The stock market ran into some minor turbulence this week. The S&P 500 fell four times in five days before an impressive rebound and reversal on Thursday. Once again, the index’s 50-day moving average proved to be the key support level. This isn’t the first time. Over the last two months, the S&P 500 has dipped below its 50-DMA a few times, but not for long. Each time, stocks have rallied back.

I fear that investors are becoming overly reliant on minor drops quickly reversing themselves. On Wall Street, easy patterns work right until the moment they stop. The stock market has rallied fairly consistently over the last five months. We may be due for a dust up soon. I’m not predicting anything scary, but I am urging caution and patience.

Honestly, this is a fairly quiet time for Wall Street. The Fed just had its meeting, and the Q1 earnings season is still a few weeks away. Volatility is low, and the VIX is back below 20. This week, Federal Reserve Chairman Jay Powell and Treasury Secretary Janet Yellen testified on Capitol Hill about the economy. Both reiterated the position we’ve been making for a few weeks, which is that the economy is doing pretty well, and the higher bond yields are a reflection of that.

In this week’s issue I want to cover some of the recent economic news. It’s been a bit soggy, but nothing to worry about. I also want to preview what to expect when Q1 earnings season starts. Wall Street has a lot riding on this. I’ll also preview FactSet’s earnings report, which is due out on Tuesday. I also have some Buy List updates for you. But first, let’s take a closer look at some recent economic news.

February Was Tough, but the Economy Is Getting Better

On Thursday, the government said that jobless claims fell to 684,000. It’s odd saying that’s good news, but in the Age of the Coronavirus, that’s good news. That’s a post-pandemic low, yet it’s still higher than the highest claims number from 12 years ago. Context is everything.

This week, we got reports on new- and existing-home sales. Both reports were fairly weak, but harsh February weather probably held back those numbers. Overall, the housing market remains fairly strong. In fact, housing inventory is at very low levels. The CEO at Redfin said that lack of inventory was like a Soviet-era supermarket. Housing inventory usually runs around six months’ supply. Now it’s close to one or two months. This is happening in housing markets all across the country.

The durable-goods report was also below expectations. During the initial lockdown, the durable-goods numbers took a big hit, but they had been improving since then. That is, until February. Expectations were for an increase of 0.4%. Instead, durable goods declined by 1.1%.

Economists also like to look at “core” durable goods, which excludes aircraft. Core durable goods fell 0.8% last month. Again, weather was clearly a factor. But I think it points at the broader view that while the economy is improving, it’s not happening at an even pace.

On Thursday, the government revised the Q4 GDP growth report up to 4.3%. That’s an annualized number, and it’s adjusted for inflation. The previous estimate was for growth of 4.1%. The economy is going through something like a V-shaped recovery, but we’re still well below the level we reached one year ago. Financial markets have improved, and that’s good for us, but for a lasting recovery, we need to see improvements in the real economy.

As I’ve said before, Covid news is now economic news. As soon as the economy can fully reopen, we will see much broader improvement. You can’t install drywall over Zoom.

In a few weeks we’ll get our first look at the Q1 GDP, and it could be very strong. Goldman Sachs is expecting growth of 8%. There’s talk of 10% growth. Even the Fed is optimistic, and they hate everything. Now let’s look at some numbers for Q1 earnings season.

Looking at the Numbers for Q1 Earnings Season

The Q1 earnings season will start in early- to mid-April. This is a crucial time for Wall Street. The economy has improved, and investors will want to see improved profits as well.

This is also important because Wall Street has gambled that things are getting better and will continue to get better. Right now, you may see a lot of scare items in the news media about how expensive the overall market is. Well, those valuation ratios are correct, but they’re missing the point in how unusual the current market is.

Investors are looking past the dismal numbers we’ve had. That’s why we have skyward valuations. Stock prices are forward-looking and earnings are backward looking. With such a gap between today and tomorrow, of course the valuation metrics look scary.

Actually, the Q4 earnings season was pretty good. In the S&P 500, 384 stocks beat guidance, 18 met expectations and 98 missed estimates. (No, it doesn’t add up to 500.) Regarding sales, 368 of 498 stocks beat on sales.

For Q4, the S&P 500 made $38.18 per share. That’s the index-adjusted figure. Before the pandemic hit, analysts had been expecting something close to $50 per share. Then everyone got scared. At one point, expectations fell all the way to $35 per share.

For Q1, Wall Street expects the S&P 500 to earn $38.99 per share. That’s almost exactly double last year’s Q1. If you recall, it was really the second half of Q1 (or the second eighth, if you prefer) that was impacted by the lockdowns.

The analyst community currently expects the S&P 500 to have full-year earnings of $172.43 per share. Going by today’s level, that means the S&P 500 is trading at 22.67 times this year’s expected earnings. That’s high, but it also needs to be put in context. The earnings yield (the inverse of the P/E Ratio) is 4.41%. That compares pretty favorably with the 10-year yield at 1.61%.

Going out even further, Wall Street analysts expect 2022 earnings of $200 per share. I’m leery of forecasts going out that far. Still, if a robust recovery is coming our way, I don’t believe equity prices are unreasonably high.

FactSet Earnings Preview

FactSet (FDS) is due to report its fiscal Q2 earnings report on Tuesday, March 30. The stock hasn’t done particularly well over the last several months. Shares of FDS reached their peak of $363 in August. Since then, they’ve gradually drifted lower.

For Q1, FactSet earned $2.88 per share. That beat Wall Street’s estimate of $2.75 per share. That was an improvement of 11.6% over last year’s Q1.

I was impressed with the details. Adjusted operating margin improved 0.4% to 34.3%. The key stat for FactSet is Annual Subscription Value or ASV. For its fiscal Q1, ASV plus professional services rose 5% to $1.56 billion. The company’s user count increased by 5,187 to 138,238. Annual ASV retention was greater than 95%. When expressed as a percentage of clients, annual retention was 90%.

For this year, FactSet expects earnings to range between $10.75 and $11.15 per share. (Their fiscal year ends on August 31.) That’s probably too low. The company also sees revenue coming in between $1.57 billion and $1.585 billion. FactSet expects operating margin between 32% and 33%. That’s very good, and it’s one of the key reasons why I like this stock.

Unfortunately, the company didn’t provide quarterly guidance, but Wall Street expects Q2 earnings of $2.74 per share. That sounds about right to me. There’s a decent chance the company will raise its full-year guidance.

FactSet is not a cheap stock, but it’s cheaper than it was, and its business has improved. I’m a big fan of FactSet.

Buy List Updates

Here are some updates on a few of our Buy List stocks.

First off, I had a typo in last week’s issue. Thanks to the many readers who caught this. The correct Buy Below for Danaher (DHR) is $230 per share. My apologies for the error. The shares have firmed up some recently.

Shares of Moody’s (MCO) have also been improving lately. The stock came close to touching a six-month high. I expect another solid earnings report in a few weeks. This week, I’m raising our Buy Below on Moody’s to $320 per share.

Sherwin-Williams (SHW) is due to split next week. If you own SHW, you’ll get two more shares for each one you currently own. Unfortunately, the share price will drop by two-thirds. Our Buy Below price will fall to $250 per share. The split will take effect on April 1.

I don’t write about Hershey (HSY) as much as I should, but what is there to say? They have a simple business model that works. The stock has perked up in the last few weeks, and it’s close to a new all-time high. Hershey remains a buy up to $160 per share.

That’s all for now. The stock market will be closed next Friday, April 2 for Good Friday. This is a rare day when the market is closed and most government offices are open. Despite the holiday, Friday will be jobs day. That’s when we’ll get the unemployment rate and nonfarm payrolls for March. For February, the U.S. economy created 379,000 jobs and the unemployment rate fell to 6.2%. As usual, the ADP payroll report will be due out on Wednesday. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

Morning News: March 26, 2021
Posted by Eddy Elfenbein on March 26th, 2021 at 7:03 am

Suez Blockage Sets Shipping Rates Racing, Oil and Gas Tankers Diverted Away

In Suez Canal, Stuck Ship Is a Warning About Excessive Globalization

Using Shame, Lending Apps in India Squeeze Billions Out of the Desperate

BOE Says Artificial Sterling Libor Could Continue for a Decade

Money No Object As Governments Race to Build Chip Arsenals

One Ultra-Rare Metal Is Doing Much Better Than Bitcoin This Year

Larry Summers Warned About Inflation. Fed Officials Push Back.

Athletes Pitch Wall Street’s Hot New Toy, but Not Just to Their Fans

Robinhood Mulls Platform for Buying Into IPOs

Burberry Becomes First Luxury Brand to Suffer Chinese Backlash Over Xinjiang

WeWork Agrees to SPAC Deal That Would Take Startup Public

Pepsi’s Newest Flavor Has Peeps In It

Joshua Brown: Non-compete

Howard Lindzon: The State Of Venture Capital

Cullen Roche: Stocks Don’t “Only Go Up”

Ben Carlson: How Much Money Do You Need To Make To Be Considered Rich?

Michael Batnick: Investing in the Gig Economy

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Jobless Claims Hit Post-Pandemic Low
Posted by Eddy Elfenbein on March 25th, 2021 at 12:13 pm

The stock market is down again today. If we close lower, this will be our third daily loss in a row, and four down days in the last five. Energy, in particular, has been weak lately.

The S&P 500 also broke below its 50 day-moving average. If you recall, the index had toyed with the 50-day moving average a few days ago. We bounced off the 50-DMA and had a five-day winning streak. We’ve now given that back.

We had two key economic reports this morning. First up, Q4 GDP growth was revised up to 4.3%. GDP is still down 2.4% from a year ago.

The other news is that the jobless-claims report came in at 684,000. As odd as it sounds, that’s a post-pandemic low. Even though it’s a new low, it’s still higher than the highest peak from 12 years ago.

Morning News: March 25, 2021
Posted by Eddy Elfenbein on March 25th, 2021 at 7:06 am

Suez Canal Choked for Third Day as Elite Team Tackles Stuck Ship

A Vaccine Passport Is the New Golden Ticket as the World Reopens

Chinese Tech Stocks Slump as U.S. SEC Begins Rollout of Law Aimed at Delisting

Bitcoin Slips in Another Sign That Retail Trader Mania Is Fading

Top Belgian Soccer Team Said to Mull Shelving IPO on Weak Demand

If the Economy Overheats, How Will We Know?

Don’t Panic When the Market Hits New Highs

Small Businesses Can Now Borrow Up to $500,000 Through A Government Disaster Loan Program

Yellen Supports Banks’ Share Buybacks. Sen. Warren Wants BlackRock Designated Too Big to Fail

Biden May Be the Most Pro-Labor President Ever; That May Not Save Unions

Amazon Walks a Political Tightrope in Its Union Fight

After H&M, Nike Feels Chinese Social Media Heat Over Xinjiang

Buy This Column on the Blockchain!

In 2020 the Ultra-Rich Got Richer. Now They’re Bracing for the Backlash

Michael Batnick: The Worst Type of Sell-Off

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Video on Amazon’s Rise
Posted by Eddy Elfenbein on March 24th, 2021 at 1:57 pm

Morning News: March 24, 2021
Posted by Eddy Elfenbein on March 24th, 2021 at 7:07 am

Suez Canal Blocked After Container Ship Gets Stuck

U.S. Thirst for Russian Oil Hits Record High Despite Tough Talk

Unusual Leap in Gas Prices Puts $3 a Gallon in Sight

Powell and Yellen’s Game Plan is Evocative of the World War II Playbook. Here’s What Happened Then

Biden’s Likely Tax Wins Are Personal-Rate Hikes, Audits of Rich

Organizing Gravediggers, Cereal Makers and, Maybe, Amazon Employees

Tesla Can Now Be Bought for Bitcoin, Elon Musk Says

The End of Tesla’s Dominance May Be Closer Than It Appears

China’s Didi Leans Towards New York for IPO, Eyes Valuation of at Least $100 Billion

Disney Delays ‘Black Widow’ Debut, Adds Streaming Option in Summer Movie Shuffle

With Fewer Ads on Streaming, Brands Make More Movies

Joshua Brown: The Easy Money Has Already Been Made

Ben Carlson: A Look Back at the Corona Crash One Year Later

Nick Maggiulli: Started From the Bottom

Howard Lindzon: Sam Jones, Co-Founder of OOOOO, Joins Me on Panic with Friends to Discuss His Radical Social Commerce App and the Business of Live Streaming (EP.140)

Michael Batnick: The Agony & The Ecstasy, The Easy Money Was Never Made & Animal Spirits: An Affordability Crisis

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Powell Warns
Posted by Eddy Elfenbein on March 23rd, 2021 at 11:05 am

Fed Chair Jerome Powell Warns Of Long Road Ahead To Recover Millions Of Lost Jobs

Powell Warns of Dire Consequences of Doing ‘Too Little’ To Boost Economy

Fed’s Powell Warns U.S. Economy ‘Long Way From A Full Recovery’

Fed Chair Powell Warns Pandemic Downturn Could Widen Inequalities

Powell Warns of U.S. Economy Risk With Pandemic at Deadliest Yet

Bitcoin Price Drops After Jerome Powell Warns Public of Volatile Crypto

Powell Warns of Weak Recovery Without Enough Government Aid

Jay Powell Warns on US Economy Despite Good News On A Vaccine

Jay Powell Warns Recovery Will Suffer Without Stimulus

Powell Warns of ‘Significant Uncertainty’ About the Recovery and Says Small Businesses Are at Risk

Powell Warns That Long Downturn Would Mean Severe Damage

Fed’s Powell Warns of ‘Very Challenging’ Few Months Ahead

Fed Chair Powell Warns Of ‘Exuberant’ Spending And Price Spikes After Pandemic But Isn’t Worried About Long-Term Inflation

Fed Chair Powell Warns of Prolonged U.S. Recession After Coronavirus

Powell Warns of Severe, Ongoing Risks to the Economy Hours Before Trump Ends Stimulus Negotiations Until After Election

Fed Chair Powell Warns of Economic Recovery “Slog”

Fed’s Powell Warns of a ‘Weak’ US Economic Recovery if More Stimulus Isn’t Enacted

Powell Warns of a Possible Sustained Recession from Pandemic