Morning News: August 23, 2024
Posted by Eddy Elfenbein on August 23rd, 2024 at 7:03 am

China Bond Trading Collapses Amid PBOC Crackdown on Record Rally

In a Likely Overture to China, Nepal Lifts Ban on TikTok

Nepal Asks China to Wipe Away a Loan It Can’t Afford to Pay Back

What a Prolonged Rail Shutdown in Canada Would Mean for Trade

Japan Overall Consumer Prices Stay Above Central Bank’s Target in July

Ueda Keeps Rate Hikes in Play, Talks Down BOJ’s Part in Meltdown

Jackson Hole History Points to Powell Sidestepping Market Shocks

Why Jackson Hole Is the Fed’s Biggest Shindig

A Turbulent Month Shows Markets Are Fickle. So Be Patient

Price-Gouging Crusade Electrifies Democratic Rank and File

The Year Politicians Turned Their Backs on Economics

EY Sheds U.S. Audit Clients in Response to Shortfalls

‘It’s Just Atrocious’: Jobs Data Snafu Stirs Fury on Wall Street

U.S. Plans to Accuse Software Maker of Enabling Collusion on Rents

Easier AP Exams Offer College Students a Path to $30,000 Savings

Wamco Investigation Examining 17,000 Trades Over Three Years

Location Tracking Turns Up the Trust Among Friends

Tesla Finance VP Departs in Latest Executive Exit at Automaker

Tesla’s Steep Price Cuts Help Get the Used EV Market Humming

Zambia Rejects 156% Power-Price Rise as Drought Deepens Cuts

A Small Mining Firm Just Saw Its Stock Surge 91% After It Discovered the World’s 2nd-Largest Diamond

Halliburton Hit by Cyberattack

Starbucks’ New CEO Gets Bigger Mandate as Schultz’s Control Ebbs

Chipotle’s Next Boss Has One Job: Don’t Change Too Much

Nestle CEO Departure Seen as ‘Not Such a Bad Thing’ for Investors, Analyst Says

Private Equity Tycoon Looks to ABBA Toolbox to Reboot the Music Industry

Warner Gave Up on New TNT Dramas. Now It’s Trying to Revive Them

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Morning News: August 22, 2024
Posted by Eddy Elfenbein on August 22nd, 2024 at 7:01 am

Turkey’s Next Minimum Wage Rise to Show If Inflation Fight Real

Eurozone Gets Olympics Boost While U.K. Economy Gathers Pace

Eurozone Wages Slow Sharply, Paving Way for ECB Rate Cut

Powell Faces Economic Crossroads as He Prepares to Speak at Jackson Hole

Quantitative Tightening Goes Global for the First Time, in Test for Markets

Trump May Claim Credit for Stock Surges, but the Reality Is Far More Complicated

While the Public Awaited Jobs Data, Wall Street Firms Got a Look

What Kalamazoo (Yes, Kalamazoo) Reveals About the Nation’s Housing Crisis

Wamco’s Longtime Bond King Is Thrust Into Spotlight He Shunned

Hedge Fund Tribeca Says Weak Bank Research Fueled Its 19% Gain

Deutsche Bank Shares Rise 3% After Settlement of Bulk of Claims in Long-Running Postbank Suit

Is Elon Musk the Bankers’ Moby Dick? Not Yet

Dream or Disaster, Flying Cars Face Multibillion Dollar Moment

Tycoons Behind Taiwan’s ‘Silicon Shield’ Build a $50 Billion Fortune

Baidu’s AI Push Powers Profit Beat

Free Whopper? Walmart+ Offers Cheap Burger King as It Chases Amazon Prime

TD Misses Estimates on Wealth Unit After Hit From US Probe

Canada Railways Lock Out Workers as Talks Fail, Snarling Trade

The Wind Power Industry Isn’t Over Its Gloom Loop Yet

Engine Shortages Have Grounded Airlines. This Company Has the Formula to Fix That

Advance Auto Parts to Sell Worldpac to Carlyle for $1.5 Billion

Bavarian Nordic Shares Continue Higher After New Mpox Vaccine Order, Earnings Beat

Sugar Industry Faces Pressure Over Coerced Hysterectomies and Labor Abuses

Peloton Revenue, Profit Beat Estimates Amid Turnaround Effort

Urban Outfitters Shares Sink on Disappointing Sales Growth

Here’s How One Retailer Is Finding Profits in Borrowed Clothing

Why a Dior Bag Given to the First Lady Caused a Stir in South Korean Politics

Crayola Trademarks the Smell of Its Crayons

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Morning News: August 21, 2024
Posted by Eddy Elfenbein on August 21st, 2024 at 7:08 am

A $2 Trillion Reckoning Looms as Ports Become Pawns in Geopolitics

The New Consensus on Trade Is Wrong and Dangerous

Japan Trade Slips into Deficit, Yen’s Rise Clouds Export Outlook

Italy’s Panetta Says EU Needs Immigration to Grow the Economy

Global Stocks Set for Modest Gains, Hinging on Series of Rate Cuts

Indonesia’s Central Bank Holds Rates Steady, as Expected

Bank of Thailand Holds Rates Steady Amid Economic Uncertainty

Powell Confronts Policy Crossroads With All Eyes on Jackson Hole

It’s Not Just Stocks — There’s Another Market Climbing to Thin Air, This Banking Giant Says

Tether to Launch Stablecoin Pegged to UAE’s Dirham

B. Riley’s Money Machine Ensnared Retail Investors $25 at a Time

As the Rich Snap Up Gold Bars, Storage Vaults Brace for Business

Judge Blocks F.T.C.’s Noncompete Rule

Nvidia Eyes Return to Record as AI Spending Bonanza Continues

Texas Instruments Tries to Ease Its Capital Pain

How Big Tech Is Obscuring AI’s Climate Impact

China’s Huge Piles of Coal Are a Climate Success Story

US Coal Miner Consol to Buy Arch Resources for $2.3 Billion

Ford Pulls Back Further From EVs With $1.9 Billion SUV Pivot

Walmart Dumps Entire Stake in China’s JD.com

Target Swings to Sales Growth as Price Cuts Lure Shoppers

Macy’s Reports Lower Sales as Shoppers Cut Back

Edgar Bronfman Jr.’s Long, Tortuous Path to Paramount Offer

America’s Love Affair With Investing in the Premier League Fades

JT Group to Buy US Cigarette Maker Vector for $2.4 Billion

Beyoncé Partners With Moët Hennessy on a New American Whisky

Luxury Brands Have a Strict Hierarchy. Burberry Found Out the Hard Way

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CWS Market Review – August 20, 2024
Posted by Eddy Elfenbein on August 20th, 2024 at 6:16 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.”)

“All money is a matter of belief.” – Adam Smith

Today, the stock market snapped its eight-day winning streak. Frankly, the loss was small potatoes, just 0.20%, but I was hoping for another up day, and not just for wealth’s sake, but because the S&P 500 hasn’t rattled off a nine-day streak in nearly 20 years.

Honestly, Wall Street is pretty quiet right now. The volatility index has settled back to the complacent zone, and much of the financial world has zoomed off to the Hamptons or Martha’s Vineyard. At least, the fat cats have. The last two weeks before Labor Day are usually sedate on Wall Street.

The big event on everyone’s mind right now is the Fed’s annual conference in Jackson Hole, WY. In previous years, the Fed has used the Jackson Hole conference to announce major policy changes. In fact, it was at Jackson Hole two years ago that Fed Chairman Jerome Powell made it clear that he intended to crush inflation.

I doubt we’ll see anything so dramatic this time. This year’s conference is titled “Reassessing the Effectiveness and Transmission of Monetary Policy.” (Yawn!)

Chairman Powell is scheduled to speak on Friday morning. I assume he’ll preemptively justify the case for a 0.25% rate cut at the September FOMC meeting. I’m imagine he’ll be vague about plans after that.

Traders see the Fed lowering rates by 100 basis points before the end of the year. That’s a bold outlook. It implies that the Fed will cut by 50 basis points at the November or December meeting. Traders see the Fed cutting by another 100 points within the first seven months of 2025.

The stock market has rebounded impressively from its downdraft last month. In retrospect, the August swoon appears to be quite silly. Traders were panicking over mostly sideshow issues like the carry trade. The Q2 earnings season was mostly good for corporate America.

The S&P 500 is getting close to a new all-time high. In fact, if we were to exclude the Magnificent 7, then the index —the S&P 493— would already be at an all-time high. The hitch is that the losses in the Mag 7 reflect the tremendous sector rotation we’ve seen.

I want to discuss that in a little more depth because in my mind, that’s been the big story. What happened is that growth stocks were crushing value stocks until early July. Once the stock market peaked in mid-July, investors rushed out of growth stocks while value stocks largely sidestepped the damage. That’s the role of value stocks: provide a safe haven when everyone else gets rattled. All told, the selloff wiped off $6.4 trillion in market value.

The rotation was relentless but brief. In a few days, the market unwound the pro-growth undercurrent of the previous three months. The S&P 500 eventually hit bottom on August 5. Since then, the stock market has regained a lot of lost ground.

Here’s where it gets interesting. Growth has indeed led value in this latest rally but it’s nowhere close to the degree of the previous sector rotation.

Think of the rotation this way. The stock market has gone from Trend X to very strongly anti-X and now back to a watered-down X. I suspect that many investors are conflating this watered down X with the original trend. It’s not. It’s not even close.

Here’s a chart showing the S&P 500 Growth ETF (SPYG) divided by the S&P 500 Value ETF (SPYV). That’s the black line. I’ve also included the S&P 500 ETF (SPY) in green so you can see what the overall market was doing.

You can see that growth is leading value, but that’s after growth was demolished in July and August.

In this case, I’ve used growth and value, but you can use one of several different charts like Nasdaq versus Russell 2000 or S&P 500 equal weight versus not equal weight. They all show the same effect, Wall Street’s changing tolerance for risk. In turn, that’s related to the Fed’s outlook for interest rates. To quote from Lester Freamon, “all the pieces matter.”

I think the move to value stocks is far from over, but it may not be as dramatic as it was earlier this summer. There’s still a lot of uncertainty in this market.

Lowe’s Cuts Guidance

Speaking of which, I like to watch what big retailers have to say because that can often be a good bellwether for the overall economy.

On Tuesday, Lowe’s (LOW) said that it beat its Q2 earnings estimate ($4.10 vs. $3.97), but that was about the only good news. The home improvement company missed on sales expectations ($23.59 billion vs. $23.91 billion), and it lowered its full-year outlook. Lowe’s is not alone. Last week, Home Depot (HD) lowered its outlook for the second half of this year.

Previously, Lowe’s said it was expecting full-year revenues of $84 billion to $85 billion. Now it dropped that to a range of $82.7 billion to $83.2 billion. The company expects comparable store sales to fall by 3.5 to 4%. That’s down from the prior forecast for a decline of 2% to 3%. Lowe’s made $4.56 per share for the same quarter one year ago.

What’s going on? The CEO said shoppers are waiting for the Fed to lower rates. While that may be true, I’m always a bit skeptical when management says outside forces are to blame. Comparable sales fell by 5.1% last quarter.

There are some key differences between the business models of Home Depot and Lowe’s. For example, HD gets a larger share of professionals. About half of HD’s sales are to home professionals while it’s only 25% for Lowe’s.

Lowe’s is just one data point. Last week, Walmart posted good earnings and raised guidance. Goldman Sachs recently raised its odds for a recession from 15% to 25%, and now it’s lowered the odds to 20%.

Tomorrow Is Benchmark Revision Day!

Let me warn you. Tomorrow morning, about one million American jobs will disappear in an instant. Well, let me be a little more accurate—the government’s official count of American jobs will be lowered by a lot.

This is the time of year when the government bean-counters issue their preliminary benchmark jobs revision. This is real technical stuff, but this year, the revision will likely show that job growth has been weaker than originally reported. It could be by a lot.

There’s no need to panic because the time period has long since passed. The revision covers the 12 months through March. The BLS originally said that nearly three million jobs were created in those 12 months. Even after a big revision, jobs growth was going well.

Wall Street has no idea what the revision will be. Goldman and Wells Fargo said the revision will be by 600,000 jobs. It’s all just a guess. JPMorgan said it will be by 360,000. Goldman said it could be as high as one million.

Here’s how Bloomberg describes the revision:

Once a year, the BLS benchmarks the March payrolls level to a more accurate but less timely data source called the Quarterly Census of Employment and Wages, which is based on state unemployment insurance tax records and covers nearly all US jobs. The release of the latest QCEW report in June already hinted at weaker payroll gains last year.

The revision will tell us how robust the jobs recovery was. Since this is an election year, it will certainly get some attention. (And no. No one “cooked the books.”) As to what the Fed is planning, the revision is largely irrelevant.

There’s more to look forward to this week. Of course, Jerome Powell will be speaking at 10 am ET on Friday morning. Tomorrow, the Fed will release the minutes of its most recent meeting. On Thursday, we’ll get the last initial claims report and the report on existing-home sales. That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Morning News: August 20, 2024
Posted by Eddy Elfenbein on August 20th, 2024 at 7:04 am

Global Trade Needs a China Alternative. India Needs Better Ports.

A Criminals’ Paradise Is Emerging in the Heart of Southeast Asia

China Unleashes Rapid Drop in New-Home Prices With Relaxed Curbs

Turkey Extends Rate Pause, Shifts Emphasis to Price Expectations

PwC Loses Major Client Bank of China Amid Regulatory Probe

Central Banks Sound Uncertain Ahead of Jackson Hole

Fed Confronts Up to a Million US Jobs Vanishing in Revision

Recession Guesswork Is Just as Reliable as It Sounds

Markets Rebound Like They’re on a Mission From…

Icahn’s Margin Loan Deal With SEC Caps $19 Billion Wealth Plunge

Citadel Nabs Goldman Tech Chief in Latest Poach From Wall Street

Kamala Harris Wants to Ban Price Gouging. What Do Economists Say?

It Hasn’t Been the Summer Oil Bulls Were Hoping For

EU Plans 9% Tariff on Tesla Cars as China EV Probe Advances

The Next Challenge for the US Charging Network: Congestion

XPeng Narrows Quarterly Loss as Revenue, Margins Grow

Malaysia’s Heritage Island Goes Big on Chips

A Nation of Workaholics Has a New Fixation: Working Less

Lowe’s Cuts Guidance on Soft DIY Spending, Housing Market

Alaska Airlines’ Acquisition of Hawaiian Clears Key Antitrust Review

Mpox Surge Raises Fear of Spread Before Patients Show Symptoms

Lilly’s Zepbound Cut Risk of Diabetes by 94% in Obese People

Here’s Why This Jar of Weed Costs $60 at a Legal N.Y.C. Dispensary

Bronfman Makes $4.3 Billion Bid for Control of Paramount Global

Hit Chinese Video Game Seeks to Curb ‘Negative Discourse’

‘The Demand Is Unstoppable’: Can Barcelona Survive Mass Tourism?

Families Are Going Into Debt for Disney Vacations

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Morning News: August 19, 2024
Posted by Eddy Elfenbein on August 19th, 2024 at 7:10 am

Europe Faces Diesel Deluge as Giant Supertankers Bring Fuel

Coal Power Defined This Minnesota Town. Can Solar Win It Over?

U.K. Rate Cut Invigorates Property Market

Imports Are Surging Again at US Ports, But Without the Logjams

Lula Is Running Huge Budget Deficits and Scaring Off Investors

Businesses Are Already Girding for Next Phase of the U.S.-China Trade War

Asia Central Banks in Focus as Stage Set for More Rate Cuts

Specter of Trump Tariffs Hangs Over Markets

The Stakes Are High for Powell at Jackson Hole

Traders Need Fed’s Rate-Cut Signal to Keep Stocks Rallying

Big Banks Watched as Con Men Wiped Out a Widow’s Life Savings

US Regional Bank Deals Rise as Lenders Aim to Bolster Balance Sheets

Hedge Funds Sell Planes, Trains, Automobiles; Buy Energy Stocks, Says Goldman

Warren Buffett’s Friendship with Bill Gates Has Soured. What That Means for the $77 Billion Gates Foundation

How Buyers and Sellers Are Navigating Real Estate’s Seismic Shakeup

First-Ever Tokenized Church? Colorado Group Turns $2.5M Chapel into Digital Asset

Tech’s Infatuation With AI Spending Comes at Cost of People’s Jobs

AMD to Make $4.9 Billion AI Acquisition as It Steps Up Race Against Nvidia

Tesla Trails Rivals in Offering Driver-Assistance Features in China

Couche-Tard Seeks to Buy $31 Billion Owner of 7-Eleven Stores

How the World Sleepwalked Into the Global Mpox Emergency

Starbucks’s New Boss Gets an Unusual Perk: Remote Work

Starbucks’ New CEO Faces ‘Achilles Heel’ of Mobile Ordering

The Hotelification of Offices, With Signature Scents and Saltwater Spas

Estée Lauder Sees Annual Sales Below Estimates on China Weakness

Estée Lauder’s Longtime CEO Fabrizio Freda to Retire

What NFL Players Really Think About Sports Gambling

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Morning News: August 16, 2024
Posted by Eddy Elfenbein on August 16th, 2024 at 7:02 am

“The Chainsaw Never Stops.” Milei’s Support Survives His Economic Experiment

China’s Steel Titans Are Finally Bending to Reality

China Manages to Halt Bond Bulls In Their Tracks, for Now

The War on Prices Hits the Campaign Trail

Must-Win Michigan’s Angst Over Inflation, EVs Shapes 2024 Election

Ultra-Luxury Home Sales in US Are On Pace to Set a New Record

The End of Fabulous Money Market Rates Is Near

Five Big Questions for the Fed at Jackson Hole

With US Economy Humming, a Quarter Point Will Do

Carry Trade That Blew Up Markets Is Attracting Hedge Funds Again

Man Group Quants Are Riding Private Boom for Public Stock Trades

BlackRock Says Blended Finance at ‘Turning Point’ as Deals Grow

Cash Sweep Scrutiny Threatens Wealth Managers’ Credit Ratings, Moody’s Says

The Hottest Club in Town Is… Run by Your Credit-Card Company?

Can You Solve This Insider-Trading Puzzle in Seven Clues or Less?

Buying or Selling a Home? The Rules Are Changing.

Revenues Down and Stock Battered as Data Firm Faces Scrutiny

Sports Betting Is Legal, and Sportswriting Might Never Recover

Hey Google, Time to Add China ‘Koreafication’ to Your Search Engine

U.S. Awards $1.6 Billion to Texas Instruments to Build Semiconductor Plants

How Booming Electricity Demand Is Stalling Efforts to Retire Coal and Gas, in Charts

Cheniere Energy, Enriched By a Recent Spike in Gas Prices, Boosts Spending on Buybacks

Carbon-Removal Firms Have One Very Big Backer. That’s a Problem.

JetBlue’s Third-Largest Shareholder Has One Ask: A Status Upgrade

Rivian Pauses Output of Amazon’s Electric Delivery Van Due to Parts Shortage

No Joke: The Onion Thinks Print Is the Future of Media

Olipop Breaks Into the Exclusive World of Stadium Soda

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Morning News: August 15, 2024
Posted by Eddy Elfenbein on August 15th, 2024 at 7:04 am

Migrant Workers Lured to Canada Are Being Scammed Out of Their Life Savings

Nigeria Is Turning Itself Into an Oil Market Juggernaut

America’s Promised Hydrogen-Fueled Future Is Stalled Over Tax Credits

China’s Economy Fails to Pick Up After Worst Stretch in Five Quarters

U.K. Economy Buoyed by Reports on Growth, Inflation and Jobs

Why Ethiopia Ended Half a Century of Currency Control

Philippines Central Bank Cuts Rates First Time in Nearly Four Years to Support Economy

Trump and Harris Should Focus on the Minimum Wage, Not Tips

Why Inflation Might Not Win the Election for Trump

Why Falling Mortgage Rates Aren’t a Quick Fix for Frustrated Homebuyers

What’s a Minsky Moment and Why Are There Worries About One?

Jamie Dimon Wants to Hit Millionaires With the ‘Buffett Rule’ to Tackle National Debt

Alphabet Shares Face Months of Uncertainty on New Breakup Risk

Buffett’s Apple Sale Brings Value Back to Quality Investing

Apple Pushes Ahead With Tabletop Robot in Search of New Revenue

Coming to ‘iPhone City’: An Electric Car Factory From Foxconn

Cisco Systems to Cut About 7% of Staff in Second Round of Layoffs

A Chinese Self-Driving Start-Up Is About to Go Public in the U.S.

Alibaba’s Profit, Revenue Miss Expectations Despite Growth Drive

JD.com’s Second-Quarter Profit Nearly Doubled as Revenue Edged Higher

Walmart Lifts Full-Year Outlook on Bargain-Hunting Shoppers

What is Mpox, How Does It Spread and Is There a Vaccine? All You Need to Know

U.S. Announces Prices for First Drugs Picked for Medicare Negotiations

J&J Eyes Texas as Venue for Next Round of Baby Powder Fight

Starbucks’ $113 Million Payday Makes Niccol Among Most-Paid CEOs

Brian Niccol’s Journey From Doritos Locos Tacos to Running Starbucks

Record Heat Is Testing Kraft Heinz’s Efforts to Climate-Proof Its Ketchup

The British Have Finally Learned to Love Peanut Butter

Tapestry Gains as Quarterly Profit Beats Wall Street’s View

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Morning News: August 14, 2024
Posted by Eddy Elfenbein on August 14th, 2024 at 7:02 am

To Save the Panama Canal From Drought, a Disruptive Fix

Rooftop Solar Has a Fraud Problem. The Industry Is Working to Build Back Trust

No Respite for Chinese Officials as Economy Shows New Signs of Weakness

Kishida’s Resignation Opens the Door to a Chaotic Era

Global Immigration Crackdown Ensnares Students Abroad

ECB Calls Probe of Riskiest Bank Loans of ‘Fundamental’ Import

U.K. Services Inflation Eases, Keeping Door Open for More Rate Cuts

US Inflation Data to Show Another Modest Increase, Cementing Fed Cut

The Fed Is Setting the Mood, Not Trump or Selloff

Inflation Data Is the Next Hurdle for Investors Weary From Volatility

What Is Momentum Trading and What Just Went Wrong?

US Junk Debt Investors Cautious of Leveraged Loans as Economy Slows

There’s Something Fishy About Insiders’ ‘Other’ Trades

Secretive Dynasty Missed Out on Billions While Advisers Got Rich

UBS to Sell Credit Suisse’s U.S. Mortgage Servicing Business

There’s a Gender Split in How US College Grads Are Tackling a More Difficult Job Market

Global Trade Shows Resilience Amid Recession Talk

US Considers a Rare Antitrust Move: Breaking Up Google

Google’s Stock Falls as the Government Weighs Breaking Up the Company

The Little Streamer That Could

Tencent Profit Surges as Domestic Games Revenue Resumes Growth

Texas Sues G.M. Over Collection and Selling of Driver Data

Elliott to Launch Proxy Fight at Southwest Airlines

Mars to Purchase Snack Maker Kellanova in $36 Billion Deal

‘Stress on Shelves’—the Battle for Space in Store Aisles

Narasimhan’s Ouster at Starbucks Adds Fuel to Record Firing Pace

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CWS Market Review – August 13, 2024
Posted by Eddy Elfenbein on August 13th, 2024 at 5:14 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 Stock Market Continues to Rebound

Last week, the stock market fell for the fourth week in a row. Over the course of 14 trading days (July 16 to August 5), the S&P 500 lost 8.5%.

While that’s certainly unpleasant to live through, drops like that are pretty routine for the market. In fact, it’s probably on the light side. Investors should expect to see a 10% drawdown once every two years, give or take.

The shrewd investor keeps his or her head during a market downturn. After all, that’s where the bargains are. Two years ago, at the height of the inflation scare, shares of Moody’s (MCO), one of our Buy List favorites, were trading for $230 per share. Since then, inflation has faded, and shares of Moody’s have doubled.

Thanks to today’s rally, the market has now closed higher for four days in a row. The S&P 500 is currently 4.8% above its closing low from last week. We’re not at a new high yet, but we’ve gained back just over half of what we lost.

Is our summer selloff over? I can’t say, but I wouldn’t mind seeing more of my favorite stocks go for a discount. There are still a lot of threats out there. The Federal Reserve looks ready to cut rates by 0.25% in five weeks. More than a few observers think the Fed will go for a 0.5% cut.

The next test for the market will come tomorrow morning when the government releases the CPI report for July. The consensus on Wall Street is to expect a 0.2% increase for both the headline rate and the core rate. Today’s PPI report increased by 0.1%, which was less than expected.

The last CPI report showed that prices actually fell by 0.1% during June. That had not happened in four years. The drop was largely due to a big slide in energy prices.

The core rate of inflation, which excludes food and energy, increased by only 0.1%. in June. Wall Street had been expecting an increase of 0.2%. The annual increase for the core rate is at its slowest since April 2021.

I should add that one of the key inputs in the CPI is shelter costs, and those tend to lag other costs. As a result, shelter costs are probably helping to weigh down the overall CPI. We’ll get more details tomorrow.

One of the problems of this recent bout with inflation is that more visible prices are increasing. For example, since 2022, electricity costs are up more than 10%. Car insurance is up significantly. As the WSJ points out, shoppers can easily trade down with some items like food, but you really can’t do that with your water bill. Inflation is up 6% since the rate of inflation peaked.

While these numbers are moving in the right direction, the job is not quite done. If tomorrow’s numbers come in hot, that could throw a wet blanket on the Fed’s rate-cutting plans, and traders would not be pleased.

Older investors will recall just how devastating inflation can be to the stock market. Yesterday was the 42nd anniversary of the 1982 low. The Dow closed at 776.92 which is lower than it had been 18 years before; meanwhile, inflation tripled. The 10-year Treasury was going for 13.5%. For context, “Fast Times at Ridgemont High” opened the next day.

With the help of some time passing, we can see that last Monday’s panic was extreme. The carry trade fizzled, Japanese stocks plunged, and the Volatility Index soared to some of its highest levels ever recorded. Still, the hectic times didn’t last very long.

We can also see that the big drop happened a few weeks after the stock market’s peak. That’s also fairly common. Stocks don’t often crash at the peak. Instead, a gradual drop slowly turns into a mad dash for the exits. I call this the “Wile E. Coyote Effect” where the market dashes off the cliff and will hang in mid-air before realizing it’s too late.

When the Bank of Japan decided to raise rates, it was by a puny amount, but that was enough to spook investors. A positive loop can easily become a negative one. No one wants to be last, so they sell, and that causes more folks to sell.

This also raises an uncomfortable question which is, how much money is tied up in the carry trade? The answer is, we don’t know. There are estimates. Some say it’s over $1 trillion, but that’s just a guess. JPMorgan Chase said that three-fourths of the carry trades have already been busted.

The yen carry trade still lives, but it’s not quite the layup it used to be. Last year, being short the yen and long the peso was easy money. The yen will probably continue to rally from here.

Starbucks Jumps 25%

Shares of Starbucks (SBUX) soared 25% in today’s trading. I wish I could say the reason for the move is that the coffee giant is selling lots more coffee. Instead, it’s that they fired their CEO.

I have to admit that if I were CEO of a company and it gained $21 billion on the news of my firing, I’d take it personally. This looks to be SBUX’s best day since its IPO in 1992.

Starbucks has appointed Brian Niccol, the current top banana at Chipotle (CMG) to take over the reins at Starbucks. He will replace Laxman Narasimhan who’s been in charge for the last 16 months. Niccol officially takes over on September 9. Shares of CMG closed lower by 7.5% today.

This is a bold move. To be honest, things were not going well at Starbucks. In April, the coffee people cut their guidance for the second time this year. The problem Starbucks faces is tougher competition in China.

Howard Schultz, the founder and guiding light of Starbucks, was publicly critical of Narasimhan. According to the WSJ, since Narasimhan took over, shares of SBUX are down 22% while the S&P 500 is up more than 36%.

Not surprisingly, activist investors had been pushing Starbucks to make some big changes. These are firms that take a position in a struggling business and urge it to change course. In its last report, Starbucks said that same-store sales are down 3%.

Niccol has been at Chipotle since 2018 and, going by the share price, he’s done a very good job. In March 2018, the stock was going for about $6.50 per share. Yesterday, Chipotle closed at $55.87 per share.

While a lot of restaurants have been feeling the squeeze, Chipotle has prospered. About Niccol, Howard Schultz said, “I believe he is the leader Starbucks needs at a pivotal moment in its history. He has my respect and full support.”

One of the mistakes of investment analysis is to give a CEO too much credit. It’s not that there aren’t better and worse CEOs – there certainly are. However, what you often see is a successful CEO at the right place and right time. Perhaps the business climate turned in their favor or a competitor has made some major mistake. It’s only natural that investors will see that as the magic of the CEO.

The great baseball manager Casey Stengel won seven World Series with the Yankees and had some of the worst records in the modern era with the Mets. Why? Well, the Yankees were a lot better than the Mets. Stengel wasn’t responsible for all of that.

In fact, the successful CEO is often the one who realizes that a big opportunity has come along. I’d love to own Starbucks – it’s a great business – but I want to see proof of a turnaround before I see it as a buy.

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

– Eddy