Morning News: July 12, 2017
Posted by Eddy Elfenbein on July 12th, 2017 at 7:03 am

Asian Refiners Tweak Their Qatar Oil Loadings to Side-Step Gulf Spat

China’s $800 Billion Sovereign Wealth Fund Seeks More U.S. Access

For Europe’s Central Bank, Better to Be Flexible Than Sorry

U.K. Pay Falls Despite Lowest Unemployment Since 1975

Kaspersky Lab Complains It Has Been Drawn Into U.S.-Russia Geopolitical Game

BlackRock’s Top Economist Thinks Bitcoin and Ethereum Look Like a Bubble

Amazon.com on Pace to Break Sales Record for ‘Prime Day’

Apple Opens Data Center in China to Comply With Cybersecurity Law

Twitter Names Former Goldman Sachs Banker Ned Segal as CFO

Snap and Blue Apron Continue to Plunge

Takata Expands Recall Again, Citing New Airbag Hazard

After Dieselgate, Volkswagen Loosens Reins on Empire

Ben Carlson: 4 Signs of a Bubble

Cullen Roche: 3 Things I’ve Learned Since The Financial Crisis

Howard Lindzon: Morgan Stanley…Pathetic

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Near the High Point of the Election Cycle
Posted by Eddy Elfenbein on July 11th, 2017 at 1:01 pm

We’re very close to the traditional high point in the Presidential Election Cycle. I’ve crunched 120 years of data from the Dow Jones Industrial Average and found that in the average four-year cycle, the Dow historically peaks on August 4th of the post-election year.

From there, the Dow loses an average of 3.6% until it hits its low on September 30th of the mid-term year.

There’s another lull for the market from the middle of the pre-election year until the middle of the election year. Outside that, the stock market does pretty well. The market has done especially well from just before the mid-term election until the middle of the pre-election year.

Please bear in mind that these are very general market tendencies. I would never act on any of this data, but it’s interesting to see how the stock market has historically behaved.

The Wisdom of Smart Beta Funds
Posted by Eddy Elfenbein on July 11th, 2017 at 12:38 pm

Bloomberg ran an interesting piece a few days ago focusing on Maneesh Shanbhag who questions the wisdom of many Smart Beta funds, and I think he’s right. Smart Beta funds focus on strategies that have historically beaten the market.

One problem is that these strategies are better at pinpointing losers than at selecting the winners. Also, since the funds focus on particular characteristics like value or momentum, the individual funds can be very volatile.

“What’s promised by some of these ETFs is a certain consistency to their returns,” Shanbhag said. “But if you’re selecting a smaller segment from the universe, you aren’t ginning the benefits from a larger segment that just eliminates the really bad ones.”

For example, according to one study, if you sort stocks by volatility, the most volatile stocks have historically performed the worst. But after that, there’s not much difference. The same effect can be seen with other factors such as momentum, quality, value and size. The best and the middle of the pack are basically the same.

Some researchers believe that factors like low volatility and quality may just be another version of value, albeit one that’s less effective for investors. Others think that gains in some factors may be due to a completely separate and unsustainable phenomena, like low-vol being overweight in defensive sectors that benefited from falling interest rates, Shanbhag said.

“If you take volatility and quality and agree there’s no premium, you’re playing a game with low odds. With that type of diversification, you’ll never be concentrated in the best,” Shanbhag said. “They’re over-promising and under-delivering.”

Morning News: July 11, 2017
Posted by Eddy Elfenbein on July 11th, 2017 at 7:07 am

Remember Peak Oil? Demand May Top Out Before Supply Does

Goldman Was Vilified in Venezuela for Something Big Oil Does Every Day

Trump Nominates Randal K. Quarles to Oversee Wall Street Banks

CFPB’s Long-Awaited Arbitration Rule May Be a Short-Lived Victory For Consumers

Seattle Approves New Income Tax for Wealthy Residents

To Close Digital Divide, Microsoft to Harness Unused Television Channels

Elliott Hedge Fund Seeks to Challenge Buffett’s Bid for Energy Company

Snap Slips Below IPO Price Amid Doubts Over Future Growth

Intel, While Pivoting to Artificial Intelligence, Tries to Protect Lead

Abercrombie & Fitch’s Failed Deal Is the Latest Problem for Teen Retailers

Pearson To Sell 22% Stake in Penguin Random House to Bertelsmann

Tesla’s New Vehicle Inventory Skyrockets

Jeff Carter: How Can a Pit Be Controversial?

Joshua Brown: Superficiality

Roger Nusbaum: Do Investors Want More Correlation?

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Ingersoll-Rand (IR)
Posted by Eddy Elfenbein on July 10th, 2017 at 1:31 pm

Check out the long-term chart of Ingersoll-Rand (IR):

The blue line is the S&P 500 Total Return Index. I’m curious how many people passed on this because it looked boring.

Morning News: July 10, 2017
Posted by Eddy Elfenbein on July 10th, 2017 at 7:10 am

Africa Defeats World’s Biggest Mobile Carriers

Aramco CEO Sees Oil Supply Shortage as Investments and Discoveries Drop

Trump’s Massive Tax-Cut Plan Faces ‘Train Wreck’ of a Calendar

Treasury Secretary Mnuchin Rejects Speculation of Tax Hike on Wealthier Americans

Rooftop Solar Dims Under Pressure From Utility Lobbyists

Mt Gox CEO Facing Trial in Japan as Bitcoin Gains Traction

Karma and Comfort for Orient Overseas

Tesla Sales Fall to Zero in Hong Kong After Tax Break Is Slashed

Dalian Wanda to Sell $9.3 Billion in Hotels and Tourism Stakes

ClubCorp Agrees to Be Bought by Apollo for $1.1 Billion

AT&T’s Blockbuster Deal For Time Warner Hangs in Limbo

The Private Equity Firm That Quietly Profits on Top-Selling Drugs

Jawbone’s Demise a Case of ‘Death by Overfunding’ in Silicon Valley

Jeff Miller: Weighing the Week Ahead: A Seinfeld Market?

Michael Batnick: These Are The Goods

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RIP: Neal Patterson
Posted by Eddy Elfenbein on July 9th, 2017 at 7:56 pm

Neal Patterson, the founder of Cerner (CERN), has died.

Neal Patterson, who helped build Cerner Corp. into a health care IT giant and wrote another chapter in Kansas City’s entrepreneurial lore, died Sunday of complications after a recurrence of cancer. Cerner co-founder and Vice Chairman Cliff Illig has been named chairman and interim CEO.

Patterson, Illig and Paul Gorup came up with the idea for Cerner around a picnic table at Loose Park. Their idea of incorporating technology to improve health care grew into a public company and industry giant whose imprint is seen throughout the metropolitan area skyline. Along the way, Patterson and Illig prodded Kansas City to boost entrepreneurship, with Patterson regularly hosting events at his home where promising entrepreneurs could talk to local masters, and turned Kansas City into the “Soccer Capital of America” after leading a group that purchased what is now Sporting Kansas City and built Children’s Mercy Park.

Patterson was diagnosed with a soft-tissue cancer in January 2016. He last spoke in a surprise appearance at the Cerner Health Conference in November, recounting his experience as a cancer patient and his aspirations for the company.

“We have incredible trust in our providers — we have to. But, ultimately, we are at their mercy,” Patterson said. “The EHR needs to make medicine faster and safer, and there needs to be more participation from the patient. The industry’s not there yet. It’s still lacking and I know I was put in this position to make it better.”

Several years of furious growth have made Cerner the area’s largest private-sector employer, with more than 11,800 local employees last July — a total that came before the opening of the first two buildings in what will be a massive new corporate campus early this year. Cerner’s Innovations Campus was to house roughly 3,000 employees in the first two buildings and eventually have 16,000 employees. The company also has sizable workforces at its North Kansas City headquarters, its Realizations Campus in South Kansas City and its Continuous Campus in Kansas City, Kan.

85 Years Ago
Posted by Eddy Elfenbein on July 8th, 2017 at 11:29 am

This is a big year for market history buffs. In October, we’ll celebrate (or at least commemorate) the 30th anniversary of Meltdown Monday. Next month is the 35th anniversary of the start of the Reagan Bull Market. Earlier this year, we had the 110th anniversary of the beginning of the Panic of 1907.

But this Sunday is the most important one of all. On July 8, 1932, the stock market reached its low. Or more technically, its low, low, LOOOWWW. The Dow bottomed out at 41.22—a stunning 89.2% drop from its peak from three years before. The S&P hit a measly 4.41, and the Nasdaq was still 40 years away.

On Monday, July 11, the Dow rallied to 42.99. That was it-the crash was finally over! But few people knew it. The next few weeks saw a furious rally as the Dow hit 79.93 on September 7. That’s a gain of 94% in two months.

Going by Friday’s close, the Dow is up 51,851% over the last 85 years. The S&P 500 is up a little more, 54,893%. Add in dividends and the market is up about 1,350,000%.

Here’s to the next 85 years!

Michael Batnick has more.

The Top 125 Finance Follows on Twitter
Posted by Eddy Elfenbein on July 7th, 2017 at 2:43 pm

Thank you Business Insider for naming me one of “the 125 most important finance people you have to follow on Twitter.”

It’s a great list. Check it out.

Willow Farm on Ross Stores: “A Retailer With 25% Upside”
Posted by Eddy Elfenbein on July 7th, 2017 at 11:17 am

Here’s a look at Ross Stores (ROST) by RJ Rhodes at Willow Farm Investments.

Ross Stores is an excellent business with high returns. The stock price has undergone a periodic retreat, producing a valuation that is at worst fair but, more likely, compelling in a market where visible growth is scarce.

Ross has a 10-year runway for unit growth in store base before reaching final maturity, with a differentiated business model totally unlike the mall-based department stores. No doubt this selloff in the stock, while not on the same magnitude as the implosion in Macy’s (M), et al., is driven by some of the same psychology, e.g. fear of disintermediation by Amazon.com (AMZN). I believe the Ross moat, even though not bulletproof, is unique enough to enable continued success. I recommend the stock for purchase with a two-year horizon and potential appreciation to the low $70s.

Check out the whole thing.