Author Archive

• Morning News: June 3, 2022
  Eddy Elfenbein, June 3rd, 2022 at 7:04 am

  Turkish Inflation Reaches Fastest Since 1998 With Surge Past 73%

  India Can’t Afford to Lose the World’s Trust on Trade

  US Crackdown on Forced Labor in China Risks Further Supply Chaos

  Is ‘Greedflation’ Rewriting Economics, or Do Old Rules Still Apply?

  Why a Not-So-Hot Economy Might Be Good News

  Elon Musk’s ‘Super Bad Feeling’ About the Economy

  Job Growth Seen Slowing but Remaining Strong

  Fed’s Logan Says Digital Money Could Affect Central Bank Operations

  U.S. Technology, a Longtime Tool for Russia, Becomes a Vulnerability

  ‘Most Clever Oligarch’ Severed His $37 Billion Fortune From Russian Roots

  New York Just Passed a Bill Cracking Down on Bitcoin Mining — Here’s Everything That’s In It

  Redditors Rip SEC Over Video Targeting ‘Meme Stock’ Investors

  Ex-Merrill Banker’s Broker App Boosts Valuation to $5.4 Billion

  Restaurants Add New Fees to Your Check to Counter Inflation

  Hormel Says Bird Flu to Squeeze Turkey Supply

  Sheryl Sandberg Built Meta’s Ad Machine but Someone Else Will Have to Fix It

  Frontier Airlines to Pay Spirit $250 Million Breakup Fee if Deal Falls Apart

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• Morning News: June 2, 2022
  Eddy Elfenbein, June 2nd, 2022 at 7:01 am

  Trillions at Stake in India as Women Disappear From Workforce

  China Warns US Ban on Xinjiang Goods to ‘Severely Disrupt’ Ties

  In Russia, No Air Bags, Costly Toilets and Old Hollywood Movies Are Sanctions Fallout

  Europe’s Russian Oil Ban Could Mean a New World Order for Energy

  Saudi, OPEC May Make Up for Russian Oil Output Loss as Biden Visit Looms

  Economic Scorecard: Biggest Numbers May Not Be Best, for Now

  Biden Says No Short-Term Fix to High Energy, Grocery Prices

  Federal Reserve’s Portfolio Runoff Has Begun

  SPACs Were All the Rage. Now, Not So Much.

  Jamie Dimon Says U.S. Consumers Still Have Six to Nine Months of Spending Power

  Gen Z Workers Want Mission-Driven Jobs. A Big Paycheck Would Be Nicer.

  $5.8 Billion in Loans Will Be Forgiven for Corinthian Colleges Students

  Sheryl Sandberg Is Stepping Down From Meta

  Sheryl Sandberg’s Advertising Empire Leaves a Complicated Legacy

  Winklevoss Twins’ Gemini Slashes Staff 10% on Crypto Slump

  This Tesla-Supplying Battery Maker Has Lost Some of Its Power

  When Elon Musk Dreams, His Employees Have Nightmares

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• ISM Improves in May
  Eddy Elfenbein, June 1st, 2022 at 11:59 am

  The stock market is down again today. This could be our second down day in a row.

  This morning’s ISM Manufacturing Index improved to 56.1. That’s up from 55.4 in April. Wall Street had been expecting 54.5.

  Job openings fell by 455,000 in April. That’s still a huge number compared with the amount of unemployed.

  The openings total declined by 455,000 from the upwardly revised March number to 11.4 million in April, about in line with the FactSet estimate, according to the bureau’s Job Openings and Labor Turnover Survey.

  That left a gap of 5.46 million between openings and the available workers, still high by historical standards and reflective of a very tight labor market, but below the nearly 5.6 million difference from March. As a share of the labor force, the job openings rate fell 0.3 percentage point to 7%.

  Two other news items to pass along. Janet Yellen admitted that she was wrong when she said that inflation was “transitory.”

  Delta Air Lines said that business will return to pre-pandemic levels.

• Morning News: June 1, 2022
  Eddy Elfenbein, June 1st, 2022 at 7:08 am

  Russian Oil Producers Stay One Step Ahead of Sanctions

  How the World Is Paying for Putin’s War in Ukraine

  Russian Yachts and Money Are Going Where US Influence Has Waned

  Seizing Russian Assets to Help Ukraine Sets Off White House Debate

  The Bolsheviks to Putin: A History of Russian Defaults

  President Biden, Fed Chairman Jerome Powell Meet With Inflation at Its Highest in 40 Years

  Fed Starts Experiment of Letting $8.9 Trillion Portfolio Shrink

  25% of Americans Are Delaying Retirement Due to Inflation, Survey Finds

  Sizzling U.S. Energy Stock Rally Confronts Global Growth Worries

  Americans Start Summer Travel Season Beset by Record Gas Prices

  EV Sales Will Triple by 2025 and Still Need More Oomph to Reach Net Zero

  Missed Payments, Rising Interest Rates Put ‘Buy Now, Pay Later’ to the Test

  Forbes, Chronicler of Wealthy and Powerful, Will Scrap Plan to Go Public via SPAC

  Animal-Testing Calls Threaten to Derail ‘Cruelty-Free’ Cosmetics

  Movie Theaters Experiencing Popcorn, Candy Shortages Over Inflation

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• CWS Market Review – May 31, 2022
  Eddy Elfenbein, May 31st, 2022 at 10:37 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 Bear May Not Be Finished

  Last week, the S&P 500 gained 6.6% for its best weekly gain in 18 months. That was welcome news, and it snapped a seven-week losing streak. Still, the odds are very high that this is yet another bear market rally.

  Unfortunately, this recent bump comes amid a poor overall market. In fact, this year is the worst start to a year, through 100 trading days, in 52 years. It’s the second-worst start in over 82 years (the fall of France was apparently not good for stocks).

  The truth is that bear market rallies are common. Investors will typically see several before the real rally begins. Is this latest rally just another head-fake? Probably, but there’s no way to be certain. In my experience, the stronger the bounce is, the less likely it is to last. As a rule, bear market rallies should be assumed to be phony until proven otherwise.

  Here’s an updated look at the S&P 500 High Beta Index (black) versus the S&P 500 Low Vol Index (blue).

  

  In plain English, the chart above is risky stocks against conservative stocks. As you can see, it’s been the risky stocks getting hammered while the conservative ones are barely scratched. This latest rally is focused almost exclusively among the risky stocks. That adds to my skepticism.

  The simple reality is that it’s hard for me to believe that the market has suddenly changed its outlook when all the previous problems are still there. At the top of the list, the U.S. economy still faces high inflation, and there’s little evidence that things are improving.

  Many Americans just celebrated the Memorial Day weekend while facing higher prices for food and gasoline. The highest inflation in four decades is leading the Federal Reserve to (finally) adopt an aggressive policy of raising interest rates. The recent minutes from the Fed made that clear.

  Investors should understand that higher interest rates are like kryptonite to stocks. Nearly every market rally has eventually been done in by the Federal Reserve.

  Here’s an example from the financial crisis:

  

  The Fed raised rates by 0.25% at 17 consecutive meetings. They overdid it and choked off first, the market and second, the economy.

  The Fed meets again in two weeks, and it seems highly likely that we’ll see another 0.5% rate increase. On top of that, there will probably be another 0.5% hike in late July. How high will rates go? I don’t know but I wouldn’t be surprised to see rates rise by 2% before the end of the year.

  Fed Governor Christopher Waller said yesterday that he expects to see the 0.5% rate hikes continue. Waller said he supports raising rates until they’re above the “neutral level.” This is the idea that there’s an ideal interest rate where all the parts of the economy come into perfect balance. The problem is that we don’t know exactly where this rate is. Recently, the Fed pinpointed the neutral rate at 2.5%. Still, that’s only a guess.

  We’re at an odd crossroads with the economy. Many of the numbers continue to look good, but the outlook for the near future is very pessimistic. I’ve never seen a gap this wide between economic reports and the outlook. The housing market is booming. The jobs market is on fire. Summer businesses are having trouble finding employees. (Hey guys, offer more!) There are now two job openings for every unemployed person. Yet everyone on Wall Street thinks we’re headed back to the 1970s.

  Another good example is the strength in corporate profits. In the S&P 500, 375 companies beat Wall Street’s earnings expectations for Q1. While many companies have reported trouble with supply-chain issues, they’re still experiencing strong demand.

  Last year was a very good year for corporate profits, and a large part of that was driven by wider profit margins. The problem with margin expansion is that there’s only so far you can push that. Now we’re seeing the pushback, and that’s what has stock traders so antsy.

  On Friday, the government said that consumer spending rose by 0.9% last month while after-tax income rose by 0.3%. Households set aside just 4.4% of their after-tax income. That’s the lowest rate since 2008.

  The government also updated the Q1 GDP report last week. The Bureau of Economic Analysis now says that the U.S. economy contracted by 1.5% during the first three months of this year. That’s 0.1% lower than the initial report. Don’t let the negative number fool you. Consumer spending was pretty good during the first quarter.

  With the income and spending report, the government also updates the personal consumption expenditure numbers. This is important to watch because it’s the Fed’s preferred measure for inflation. For the 12 months ending in April, core PCE rose by 4.9%. That’s down from the 12 months ending in March which was 5.2%. Headline PCE, which includes food and energy prices, rose by 6.3%. Over the last year, home prices were up more than 20%.

  On Friday, we’re going to get the jobs report for May. I expect to see more good numbers. Wall Street expects to see a gain of 325,000 nonfarm payrolls, and it is looking for the unemployment rate to fall to 3.5%. That’s a bold forecast but it’s reasonable. The weekly jobless claims numbers are still holding up well. The Federal Reserve recently conducted a survey on consumer health. It found that 78% of respondents say that they’re doing “at least OK.” That’s the highest result in the survey’s history.

  Stock Focus: Atrion

  I want to revisit Atrion (ATRI), which is a stock I’ve profiled before. Atrion is a great example of a niche company with an amazing track record, and barely anyone knows about them. Atrion makes products for the healthcare field for applications such as fluid delivery, cardiovascular and ophthalmology.

  These fluid delivery products include valves that hold and release precise amounts of fluids. This is crucial for areas like anesthesia and oncology. Do you wonder who makes valves for life vests? There’s a good chance it’s Atrion.

  Even though Atrion is small (about $1.1 billion in market cap), several of their most successful products are dominant in their market niches. For example, Atrion is a leading U.S. manufacturer of soft contact lens disinfection cases, clamps for IV sets, cardiac surgery vacuum relief valves, minimally invasive surgical tapes, check valves and balloon catheters for the treatment of tear duct blockages.

  The company currently has about 400,000 square feet of manufacturing and R&D capacity in three facilities in Alabama, Florida and Texas. Over the past five years, Atrion has steadily increased R&D funding by 5% per year. The firm has also invested $60 million in manufacturing and quality assurance equipment.

  Over the last 20 years, Atrion has averaged 6% sales growth and 18% growth in operating income. Most impressively, this growth has been organic, meaning it hasn’t come from acquisitions. Over the last 20 years, earnings-per-share has grown by an average of 20% per year. I also like that Atrion doesn’t have any debt.

  The stock has had an amazing run. Since 1990, shares of Atrion are up close to 300-fold. An investment of $10,000 would have grown to more than $2.9 million. Despite the amazing track record, shares of ATRI peaked at $948 in 2019. The stock is down about one-third since then.

  

  Best of all, not a single Wall Street analyst follows Atrion. I can’t say if the company has topped Wall Street’s expectations because there aren’t any expectations. Earlier this month, Atrion reported fiscal Q1 earnings of $4.71 per share. That’s an 18% increase over last year’s Q1.

  About the earnings, David Battat, Atrion’s president and CEO, said, “The three primary drivers of performance in the quarter were medical devices used in minimally invasive surgical procedures, consoles utilized in open heart surgeries, and components used to safely deliver therapeutics.”

  He added, “The substantial expansion of one of our manufacturing facilities remains on track for completion in the summer of 2023, which will support ongoing projects to increase the number of new product launches as well as the expansion of markets for existing ones.”

  Last year, Atrion’s sales rose about 11% and its EPS increased from $17.44 to $18.18. Atrion also increased its quarterly dividend from $1.75 to $1.95 per share. I’m expecting another dividend hike in August. This is a company that has rewarded its shareholders. Not only has Atrion consistently increased its dividend for 20 years, but the company has also paid out several generous special dividends.

  I can’t recommend Atrion just yet. I think the shares are still too expensive, but if Atrion dips another 20%, I would definitely be interested.

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

  – Eddy

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• Morning News: May 31, 2022
  Eddy Elfenbein, May 31st, 2022 at 7:08 am

  Why China Is Miles Ahead in a Pacific Race for Influence

  China’s Economic Downturn Shows Signs of Easing

  As China’s Private Developers Retreat, State-Backed Rivals Gain Ground

  Russia’s Gazprom Cuts Off Natural-Gas Supply to the Netherlands After the Dutch Refused to Pay in Rubles. Denmark Could Be Next

  Global Oil Refiners Falter in Efforts to Keep Up with Demand

  Oil Surge Fans Inflation Fears, Dampens Stocks

  Biden Pledges to Back Fed in Effort to Combat High Inflation

  Treasury Market Faces Liquidity Risks as Fed Pares Balance Sheet

  Wall Street’s Losing Streak Ends, but Uncertainty That Drove It Lingers

  After a Bumper 2021, Companies Might Struggle to Increase Profits

  States Help Business Owners Save Likely More Than $10 Billion in Federal Taxes

  Summer Worker Shortage Means Things Will Be Closed. Again.

  U.S. Wheat Crop Hit by Dry Winter then Soggy Spring, Adding to Global Tightness

  US Meat Prices Surge — Beef, Chicken Hit Record Highs on Memorial Day

  Unilever to Add Activist Investor Nelson Peltz to Board

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• Morning News: May 30, 2022
  Eddy Elfenbein, May 30th, 2022 at 8:09 am

  U.S. Retakes Top Spot in Supercomputer Race

  The Luna Cryptocurrency Has Been Resurrected After Its $40 Billion Collapse. It’s Already Crashing

  Treasury Releases Pandemic Funding for Small Businesses as They Face New Risks

  17 States Where Unemployment Is at Record Lows

  Safe As Houses? Rising Rates Test Foundations of Property Boom

  Russia Comes Up With a New Bond-Payment Plan to Avoid Default

  Europe’s Bid to Kick Russian Natural Gas Faces Opposition

  Companies Rush to Cash In on EPA Rules for Capturing Methane Emissions

  Hit Hard by High Energy Costs, Hawaii Looks to the Sun

  EVs Proliferate, While Charging Stations Lag Behind

  Bottleneck Fuels Record-High Gas Prices

  Illegal Immigration Is Down, Changing the Face of California Farms

  The Texas Law That Has Banks Saying They Don’t ‘Discriminate’ Against Guns

  Activist Investing Has Come for Fossil Fuels. What About Guns?

  Can Paramount Go It Alone?

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• Morning News: May 27, 2022
  Eddy Elfenbein, May 27th, 2022 at 7:02 am

  I Watched Russia Join The World’s Markets. Now It All Feels Like an Illusion

  Digital Dollar Could Coexist With Stablecoins, Fed Vice Chairwoman Says

  Dip Buyers Storm Back to Stocks After Selloff

  A New Prediction Market Lets Investors Bet Big on Almost Anything

  How Influencers Hype Crypto, Without Disclosing Their Financial Ties

  ESG Haters Think Climate Investors Are Controlling Everything. If Only

  Britain Will Tax Oil and Gas Profits as Cost-of-Living Crisis Swells

  American Shoppers Boost Retailers With Spending on Work Clothes, Discount Staples

  When the Best Available Home Is the One You Already Have

  Apple Supplier Faces Worker Revolt in Locked Down China Factory

  Broadcom to Acquire VMware in $61 Billion Enterprise Computing Deal

  ‘Top Gun: Maverick’ Loses Chinese Investor Due to Pro-U.S. Messaging

  China Excels in Google Rankings on Xinjiang and Covid-19 Searches

  ‘Escalation of Secrecy’: Global Brands Seek Clarity on Xinjiang

  Accounting Firm EY Considers Split of Audit, Advisory Businesses

  Full House: American Casino Development Has Hit Its Saturation Point

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• Morning News: May 26, 2022
  Eddy Elfenbein, May 26th, 2022 at 7:08 am

  Russia’s Central Bank Cuts Key Interest Rate To 11%, Citing Decreased Stability Risks

  Fed Minutes Show Urgency for Raising Rates to Tame High Inflation

  CBO Projects Inflation, Economic Growth to Cool This Year and Next

  SEC Proposes More Disclosure Requirements for ESG Funds

  Sequoia Capital Warns Founders After ‘Crucible Moment’

  The Tech Rout Isn’t Just Cyclical—It’s Well-Earned, and Overdue

  Twitter’s Chief Tries Staying the Course as Elon Musk Upends Plans

  Rescinded Twitter Job Offer Points to Turmoil at the Company

  Twitter is Fined $150 Million in Privacy Settlement, as Elon Musk Commits More Equity to Fund Deal

  Apple to Keep iPhone Production Flat as Market Grows Tougher

  Apple Boosting Pay Budget for Workers Amid Tight Labor Market

  South Korean Workers Turn the Tables on Their Bad Bosses

  ‘Quantum Internet’ Inches Closer With Advance in Data Teleportation

  Gen Zers Are Buying Homes. Here’s Where They’re Looking

  Macy’s Raises Annual Profit Outlook as Party-Wear Demand Rebounds

  The Ice Cream Choice Is Endless, but We All Get the Same Cone

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• The Latest Fed Minutes
  Eddy Elfenbein, May 25th, 2022 at 3:18 pm

  This afternoon, the Federal Reserve released the minutes from its meeting held earlier this month. The minutes showed that the Fed is looking at making three more rate hikes over the next few months. Some Fed members said they think inflation may be cooling off, but it’s too early to say that inflation has peaked.

  From the minutes:

  In their consideration of the appropriate stance of monetary policy, all participants concurred that the U.S. economy was very strong, the labor market was extremely tight, and inflation was very high and well above the Committee’s 2 percent inflation objective. Against this backdrop, all participants agreed that it was appropriate to raise the target range for the federal funds rate 50 basis points at this meeting. They further anticipated that ongoing increases in the target range for the federal funds rate would be warranted to achieve the Committee’s objectives.

  I’ve been critical of the Fed because I believe it was slow to react to inflation, even as the evidence became clear. These minutes tell me that the Fed is starting to realize that inflation is a problem. Still, I want to see more action rather than rhetoric.