Morning News: October 19, 2018
Posted by Eddy Elfenbein on October 19th, 2018 at 7:07 am

Oil Prices Could Fall Further on Rising U.S. Supplies, OPEC Report Says

Suddenly Toxic, Saudi Prince Is Shunned by Investors He Courted

China’s Economy Slows Amid Darker Outlook at Home and Abroad

Top Chinese Officials Have Staged an Extraordinary Intervention to Stem the Stock Market Bleeding

Musk’s Tweets Aside, The $35,000 Tesla Model 3 Remains As Elusive As Ever

PayPal Quarterly Profit Beats Estimates, Shares Rise

Coca-Cola Shuffles Executives; CEO Names a No. 2

Sears’s Edward Lampert Was a Wizard. Now He’s Coming to Terms with Failure.

Novartis to Buy Cancer-Drug Maker Endocyte for $2.1 Billion

U.S. Recession Chances in Next Two Years Top 60%, JPMorgan Says

Bill Gates: How Paul Allen Changed My Life

StarKist Pleads Guilty To Price Fixing In Alleged Collusion In Canned Tuna Industry

Ben Carlson: How To Stay in the Game

Cullen Roche: Funding in an Endogenous Money System (Nerdy)

Jeff Carter: Return On Investment

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Four Earnings Reports
Posted by Eddy Elfenbein on October 18th, 2018 at 8:26 am

This morning, Danaher (DHR) reported Q3 earnings of $1.10 per share. That’s a 10% increase over last year. Core revenues rose 6.5%. For Q4, Danaher expected earnings between $1.25 and $1.28 per share. The company again increased its full-year guidance. The old range was $4.43 to $4.50 per share. The new range is $4.49 to $4.52 per share.

Thomas P. Joyce, Jr., President and Chief Executive Officer, stated, “We are very pleased with our performance in the third quarter, as the team maintained strong momentum and delivered outstanding results. We achieved 6.5% core revenue growth, solid operating margin expansion and double-digit adjusted earnings per share growth. Four of our five platforms delivered mid-single digit or better core revenue growth, and we believe our investments in innovation and commercial execution are driving market share gains in many of our businesses.”

Joyce continued, “Our recent performance is a testament to the team’s execution and drive for continuous improvement. We believe the strength and differentiation of our portfolio – combined with the power of the Danaher Business System – provides us with the foundation to deliver sustainable, long-term shareholder value.”

Alliance Data Systems (ADS) reported Q3 core earnings of $6.26 per share. That’s five cents above expectations. Core earnings are up 20% this year to $15.70 per share. That puts ADS on track to hit its full-year target of $22.50 to $23.00 per share.

“There were three significant achievements during the third quarter. First, we are now seeing the benefits from shifting to in-house recovery of charged-off accounts in our Card Services segment as recovery rates moved from a multi-quarter drag toward a growing benefit. Second, also in the Card Services segment, we are trending to a record level of new client signings, which will add as much as $4 billion in card receivables growth over time. And third, our LoyaltyOne® segment had another solid quarter of pro forma revenue growth, coupled with momentum in our AIR MILES® Reward Program as evidenced by a nice step-up in AIR MILES issued.

“Shifting to our strategic direction, we have spent the better part of this year reviewing the portfolio of businesses that constitute Alliance Data. We are nearing the end of this process and feel it’s appropriate to share our current thinking.”

Heffernan continued: “Stated simply, we firmly believe that our current stock price does not reflect the intrinsic value of our portfolio of businesses across the enterprise. We are evaluating which assets would likely thrive under a different steward, while also unlocking value for our stockholders. We know that the right answer could involve significant realignment of our businesses and we are actively evaluating that optimal strategy. We expect to crystallize a game plan of precisely − what and how − before year end, and will continue to communicate our path forward when appropriate.”

Snap-On (SNA) earned $2.88 per share which beat estimates by thee cents per share. Sales fell to $898.1 million from $903.8 million in the year-earlier period. Wall Street had been expecting $931 million according to FactSet.

Chairman and Chief Executive Nick Pinchuk said: “While we experienced sales turbulence in our Repair Systems & Information Group this quarter, we believe the vehicle repair markets in which we operate remain robust and afford ongoing opportunity.”

The company said it expects capital expenditures in 2018 will be in the range of $90 million to $100 million, of which $68.5 million was incurred in the first nine months of the year.

Signature Bank (SBNY) reported Q3 earnings of $2.84 per share. That’s up from $2.29 per share from last year. It also beat Wall Street’s estimate by one penny per share.

Total Deposits increased by $1.10 billion to $36.09 billion. Loans increased by $979.7 million, or 2.9%, to $35.13 billion. Net Interest Margin was 2.88% compared with 2.94% for Q2.

Morning News: October 18, 2018
Posted by Eddy Elfenbein on October 18th, 2018 at 7:05 am

Treasury Opts Against Labeling China A Currency Manipulator

Trump Opens New Front in His Battle With China: International Shipping

Are Jumpy U.S. Equities Hiding a Nasty Surprise?

Trump Attacks the Weak Link Powell Can’t Ignore in Fed Rate Plan

Invesco to Buy OppenheimerFunds, Adding $246 Billion in Assets

Who’s Ahead in the Battery Race?

Powerful Executives Have Stepped Away From the Saudis. Not Softbank’s.

Netflix’s Cash-Fueled Road to Streaming Dominance

Tesla: A Tough Time To Chase Profits

Trump Administration Releases Prudential From Strict Post-Crisis Oversight

Takeda Gets Japanese Approval for $62 Billion Shire Purchase

Dividend Windfall: Santander Latest Target in Germany’s Giant Fraud Probe

Roger Nusbaum: Are Alternatives Working?

Michael Batnick: Animal Spirits: The Healthy Correction

Howard Lindzon: The Common Knowledge Game and Too Small to Fail

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Fed Minutes Show Hawkish Plan
Posted by Eddy Elfenbein on October 17th, 2018 at 4:26 pm

This afternoon, the Federal Reserve released the minutes of their last meeting. These minutes always take a bit of deciphering to figure exactly what’s going on. Here’s how I see it.

The Fed appears to be on a firm path to continue to raise interest rates. This is despite President Trump’s seeming displeasure with their plans. The market currently expects a rate increase in December, plus three more next year. I should add that the last Fed meeting happened before the stock market started to get antsy.

In the last Fed policy statement, they removed the word “accommodative.” Jay Powell, the Fed chair, downplayed any concerns that it was a change of pace for the Fed. The minutes made it clear that removing the word was not a signal that the rate hikes were coming to an end.

I still think the Fed is being needlessly aggressive with interest rates. Inflation just doesn’t seem to be a problem. I wouldn’t be surprised if the Fed has to ditch its plans for three rate increases in 2019.

“Buy American. I Am.” Ten Years Later
Posted by Eddy Elfenbein on October 17th, 2018 at 10:20 am

Ten years ago yesterday, the New York Times ran an op-ed “Buy American. I Am.” by Warren Buffett. Buffett said that he’s been buying American stocks in his personal account (not Berkshire).

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

(…)

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Ten years on and the S&P 500 has more than tripled.

The Total Return Index is up 280%.

And what about his call that stocks would beat cash? He was correct. Cash has paid almost nothing. In fact, stocks have creamed bonds as well.

Here’s the Vanguard S&P 500 Index Fund divided by their Long-Term Corporate Bond Index Fund.

Morning News: October 17, 2018
Posted by Eddy Elfenbein on October 17th, 2018 at 7:05 am

Don’t Mention the Oil Price – U.S. Legal Threat Prompts Change at OPEC

No, Trump’s Tax Cut Isn’t Paying for Itself (At Least Not Yet)

Trump Economy Needs California, Which Scorns Trump Economics

Trump Says The Federal Reserve Is the “Biggest Threat” to His Presidency. So Why Hasn’t He Done Anything About It?

Bond Traders Are Paid Big to Dump U.S. Treasuries and Go Abroad

America Is Drowning in Milk Nobody Wants

Disney Bets $20 Million to Ensure Florida Isn’t the Next Vegas

Netflix Keeps Adding Subscribers, and Market Investors Could Profit

Tesla Secures Shanghai Site for $2 Billion China Gigafactory

Uber and Lyft Charge Toward Potential IPOs Next Year

Express Scripts Covers Amgen, Lilly Migraine Therapies, Excludes Teva Drug

Clueless on What to Save for Retirement? You’re in Good Company

Ben Carlson: The Worst Kind of Bear Market

Howard Lindzon: Momentum Monday – Weed and Gold?

Jeff Carter: Different Strokes For Different Exchanges

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Another Close Above the 200-DMA
Posted by Eddy Elfenbein on October 16th, 2018 at 4:09 pm

Thanks to a strong rally today, the S&P 500 closed above its 200-day moving average.

On Thursday, we closed below the 200-DMA but rallied above it on Friday. We repeated that this week, closing below the 200-DMA yesterday and above today.

We still haven’t had back-to-back closes below the 200-DMA in more than two years.

Industrial Production Rose 0.3%
Posted by Eddy Elfenbein on October 16th, 2018 at 9:52 am

More good news for the economy.

U.S. industrial production increased for a fourth straight month in September, boosted by gains in manufacturing and mining output, but momentum slowed sharply in the third quarter.

The Federal Reserve said on Tuesday industrial production rose 0.3 percent last month after an unrevised 0.4 percent increase in August. Industrial output grew at a 3.3 percent annualized rate in the third quarter after accelerating at a 5.3 percent pace in the second quarter.

The Fed said industrial output in September had been held down “slightly” by Hurricane Florence, which drenched South and North Carolina in mid-September. The U.S. central bank estimated the impact of the storm on industrial production as “less than 0.1 percentage point.”

Manufacturing output increased 0.2 percent in September after rising 0.3 percent in August.

A 1.7 percent increase in motor vehicle production helped to lift manufacturing output last month. Motor vehicle production surged 4.3 percent in August.

This bodes well for the GDP report which is due out next Thursday.

Morning News: October 16, 2018
Posted by Eddy Elfenbein on October 16th, 2018 at 6:58 am

China May Have $5.8 Trillion in Hidden Debt With ‘Titanic’ Risks

Currency Manipulation Isn’t Among China’s Trade Sins

The Fed’s 1 Million Lost Jobs

U.S. Credit Card Giants Flout India’s New Law on Personal Data

Google’s CEO Defends Potential Return to China

Landlords Across America Are Cheering Sears’ Bankruptcy

Fidelity Says It Will Trade Bitcoin for Hedge Funds

Jeff Bezos Chides Rivals, Says Amazon Will Continue to Work With Pentagon

Bank of America Profit Jumps 32%

Can 18 Hours in the Air Be Bearable? Airlines Bet on Ultra-Long-Haul Flights

Paul Allen, Billionaire Who Co-Founded Microsoft, Dies at 65

Climate Chnge to Cause Global Beer Shortage, Study Says

Nick Maggiulli: What is Your Financial Tipping Point?

Jeff Carter: Different Strokes For Different Exchanges

Joshua Brown: The Company That Saves Portfolio Managers From Themselves

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Some Stability Returns
Posted by Eddy Elfenbein on October 15th, 2018 at 11:51 am

The market is a lot calmer today after last week’s drama, but we’re not in the clear just yet. I expect more volatility soon.

As expected, Signature Bank (SBNY) confirmed that their earnings report will be on Thursday. I don’t know why it takes them so long. We have four Buy List reports on Thursday.

This morning’s retail sales report showed an increase of 0.1%. Economists were expecting an increase of 0.6%. We also saw the biggest drop in spending at bars and restaurants in nearly two years.

Excluding automobiles, gasoline, building materials and food services, retail sales jumped 0.5 percent last month. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Data for August was revised down to show core retail sales were unchanged instead of the previously reported 0.1 percent gain. Consumer spending is being driven by a robust labor market, with the unemployment rate near a 49-year low of 3.7 percent. Tight labor market conditions are gradually pushing up wage growth.

The solid core retail sales increase in September pointed to strong consumer spending that should offset anticipated drags on economic growth from a widening trade deficit and persistent weakness in the housing market. Growth estimates for the third quarter are above a 3.0 percent annualized rate. The economy grew at a 4.2 percent pace in the second quarter.

Now I’m curious about next week’s GDP report. This will be our first look at Q3 growth. The Q2 number was pretty good: +4.2%. The problem with this expansion is that it’s been very hard to string together more than a few quarters of decent growth.