Author Archive

• Musk Takes a Stake in Twitter
  Eddy Elfenbein, April 4th, 2022 at 10:55 am

  The stock market got a surprise today when Elon Musk announced he had taken a 9.2% stake in Twitter (TWTR). As I write this, shares of TWTR are up 24% in today’s trading.

  That’s a nice gig to be a well-known billionaire, buy a stake in a company and then announce what you bought and watch it soar in value.

  Twitter isn’t that large a company. Before today’s rally, its market value of $30 billion placed it at about the middle of the S&P 500. Twitter has 7,500 employees. That’s a lot, but it’s about one-twentieth of Google. It’s not really among the tech giants.

  In terms of Elon Musk’s wealth, this investment is pocket change. I’ll be curious to see if he pushes to make any changes in how the social media site is run. Previously, Musk had been vocal in his criticisms of Twitter.

  The announcement will be yet another major test for new Twitter CEO Parag Agrawal, who replaced Jack Dorsey after he unexpectedly resigned in November. Agrawal vowed to increase accountability, make decisions faster and to improve product execution. The company set ambitious goals for growth including increasing annual revenue to $7.5 billion and getting to 315 million daily users by the end of 2023.

  Musk posted a cryptic meme in December after Twitter announced that Agrawal was taking over from Dorsey as Twitter’s CEO. It depicted Agrawal as Soviet dictator Joseph Stalin and Dorsey as Soviet secret police head Nikolai Yezhov being shoved into water.

  I noticed that shares of WD-40 (WDFC) slid to a new 52-week low this morning. WDFC is getting close to a two-year low. I like to take notice when the stocks of good companies do poorly. Of course, no one is safe from the villain of over-valuation. An investment house downgraded it from neutral to underperform.

• Morning News: April 4, 2022
  Eddy Elfenbein, April 4th, 2022 at 7:06 am

  The Battery Metal Really Worrying China Is Lithium, Not Nickel

  Putin Reminds the World He Still Wields a Powerful Economic Weapon

  How the Recoil From Russian Gas Is Scrambling World Markets

  Turkey’s Trade Deficit Widens in March as Energy Imports Soar

  The Economic Shock Hitting the Housing Market Just Got Bigger

  JPMorgan’s Dimon Warns of Potential $1 Billion Loss from Russia Exposure

  Biotech Stocks, Once Booming, Enter Bear Territory

  How Two Best Friends Beat Amazon

  Elon Musk Takes 9.2% Stake in Twitter After Hinting at Shake-Up

  U.S. Credit Reporting Firms Aim to Magically Make Us Taller

  Starbucks Founder Schultz Suspends Share Buybacks on Return

  The Investor Who’s Sticking With Russia

  How One Man Helped Create a Nation of Investors

  How Bill Gross Built a Bond Empire — Then Lost It All

  Outdoor Dining Saved Restaurants, but Making It Permanent Is Complicated

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• Strong Jobs Report for March
  Eddy Elfenbein, April 1st, 2022 at 1:52 pm

  This morning, the government released the March jobs report. During the month, the U.S. economy created 431,000 net new jobs. Wall Street had been expecting 490,000. The numbers for January and February were revised higher as well.

  The unemployment rate fell to 3.6%. That’s another post-Covid low. It’s also lower than every single month from January 1970 through August 2019.

  The broader U-6 rate fell to 6.9%. That’s just 0.1% above the all-time low from 2019, although that series only goes back to 1994.

  The moves in the jobless metrics came as the labor force participation rate increased one-tenth of a percentage point to 62.4%, to within 1 point of its pre-pandemic level in February 2020. The labor force grew by 418,000 workers and is now within 174,000 of the pre-pandemic state.

  Average hourly earnings, a closely watched inflation metric, increased 0.4% on the month, in line with expectations. On a 12-month basis, pay rose nearly 5.6%, just above the estimate. The average work week, which figures into productivity, edged down by 0.1 hour to 34.6 hours.

  Also this morning, the ISM Manufacturing Index fell to 57.1. That’s an OK number. Wall Street had been expecting 59.0.

• Morning News: April 1, 2022
  Eddy Elfenbein, April 1st, 2022 at 7:04 am

  Euro Zone Inflation Hits Another Record High Of 7.5% As Russia-Ukraine War Pushes Up Energy Prices

  Thousands of Russia-Linked Ship Containers Pile Up in Rotterdam

  Ukrainian Factories Struggle as Russia’s Assault Rattles Supply Chains

  European Gas Buyers Navigate Russian Rouble Order as Supply Threat Eases

  U.K. Agrees to Join U.S. in Strategic Oil Reserves Release

  Russia Avoids Default Once Again As $447 Million Dollar Bond Payment Goes Through Even After Clearinghouse Blocks Account

  How to Endure the Big Decline in Bonds

  5-Year And 30-Year Treasury Yields Invert Again Ahead of Key Jobs Data

  The Dominance of Tech Stocks in S&P 500 Is Set to Shrink Next Year

  AMC, Other Meme Stocks Rally After GameStop’s Share-Split Plan

  China Weighs Giving U.S. Full Access to Audits of Most Firms

  March Jobs Report Could Reveal Strong Hiring Momentum

  Labor Groups Close in on Amazon in Two Tight Union Elections

  Toyota’s Hybrid Bet Vindicated by Big Gains in U.S. Market Share

  Ford, GM to Halt Production at Two Michigan Plants Due to Parts Shortage

  It’s Scary How Dominant Apple Has Become. But How Scary?

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

  Covid, Russia and Economy Put the ‘China Model’ to the Test

  Putin Tells Draghi Payments Can be Made in Euros

  The U.S. Sanctions a Russian Oligarch—but Exempts His Companies

  IMF Warns Russia Sanctions Threaten to Chip Away at Dollar Dominance

  Cucumber Crisis: Surging Energy Prices Leave British Glasshouses Empty

  Soaring Cost of Diesel Ripples Through the Global Economy

  Biden Team Weighs a Massive Release of Oil to Combat Inflation

  Rising Wages Could Complicate America’s Inflation Cool-Down

  Can Home Prices and Interest Rates Soar at the Same Time?

  Profits Soar as U.S. Corporations Have Best Year Since 1950

  SEC Proposes New Disclosure Requirements for SPACs

  It Isn’t Just Tom Brady—More People Are Coming Out of Retirement

  Ben McKenzie Would Like a Word With the Crypto Bros

  CDC Drops Its Covid-19 Risk Advisory for Cruise Ship Travel

  Apple and Meta Gave User Data to Hackers Who Used Forged Legal Requests

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• Morning News: March 30, 2022
  Eddy Elfenbein, March 30th, 2022 at 7:01 am

  China’s Regulator Cracks Down on Using Feng Shui To Predict Stock Market Trend

  Why an Inverted Yield Curve May Not Be All Bad for U.S. Banks

  Corporate Bonds Lost $1 Trillion and There’s More Trouble Ahead

  Hackers Steal About $600 Million in One of the Biggest Crypto Heists

  Half of Russia’s Top 20 Richest Billionaires Are Not Sanctioned

  What Happens If Russia Turns Off Gas to Germany?

  Business, Highway Lobbies Fight Gas-Tax Holidays

  BlackRock President Says ‘Entitled Generation’ Now Learning About Shortages

  Brand Loyalty Takes a Hit from Inflation, Shortages

  U.S. Labor Reshuffle Has More Room to Run, Fueling Higher Wages

  Why Pay Raises Alone Won’t Help Fill America’s 11 Million Open Jobs

  UnitedHealth to Buy Home-Health Firm LHC Group

  Consortium to Buy Nielsen for $10 Billion

  Federal Trade Commission Accuses Intuit of Deceptively Advertising TurboTax as Free

  Robinhood Is Offering Extended Trading Hours, Eyes 24/7 Trading

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• CWS Market Review – March 29, 2022
  Eddy Elfenbein, March 29th, 2022 at 9:49 pm

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  The S&P 500 Has Rallied 11% in 11 Days

  Despite war, inflation and a flattening yield curve, the stock market has rallied quite impressively over the last several days. Sometimes the market has a mind all its own. Through Tuesday’s trading, the S&P 500 has gained 11% in eleven trading days. The index is now above its 50- and 200-day moving averages. In fact, we’re not that far from an all-time high.

  

  I’ve been a doubter of this rally nearly since Day #1. It’s moved too fast, too soon and it’s been too concentrated in higher-risk stocks. Since the rally has been making us money, that’s helped comfort my misguided forecast. It also tells you why we follow a long-term buy-and-hold strategy. Just because the evening news appears scary doesn’t mean the market is worried.

  The month of March comes to a close this week. Not too long ago, it looked like we were headed towards one of the worst quarters for the stock market in many years. Fortunately, the recent uptick has softened that blow. With the change of the month, we’re going to get several important economic reports.

  Tomorrow, ADP will release its payroll report for March. For some reason, this report gets a lot of attention even though the ADP report is notoriously bad. A few weeks ago, ADP revised its January jobs number from a loss of 301,000 to a gain of 509,000. I’m sorry, but that wrecks your credibility.

  Also tomorrow, the government will update its report for Q4 GDP growth. Bear in mind that this is a fairly dated report. We’re talking about the period that began six months ago and ended three months ago.

  The last report showed Q4 growth of 7%. That’s in annualized terms and it’s adjusted for inflation. Except for the quarter immediately following the lockdown, last quarter was the best quarter for economic growth in more than 20 years. It also looks like 2021 was the best year for annual economic growth since 1984, although tomorrow’s revision could alter that.

  On Thursday, we’ll get another jobless-claims report. The last report was the best since September 1969. That data series tends to be “noisy” which is a fancy stats term for meaning it can bounce around a lot. I’ll be curious if we can set another long-term low.

  The day after the GDP report, the government releases the monthly personal income and spending data. This is one of the key data pieces that decides if we’re in a recession or not. For the time being, these numbers are quite healthy. The government also releases the personal consumption expenditures report. This is important because it’s the Federal Reserve’s preferred measure of inflation.

  The big day for economic news will be on Friday when the government releases its March jobs report. Yes, it will be on April Fool’s Day. Please note that at the time of the release, March will have been over for just 8.5 hours.

  The last jobs report showed that the unemployment rate is lower now than at any time in the 1970s, 1980s, 1990s and 2000s. There still is the problem that many people haven’t returned to the jobs market. The good news is that that has receded somewhat in recent months. I hope that trend continues.

  I’m also looking out for the next CPI report which will be due out on April 12. I’m particularly concerned about this report because I don’t believe the Fed realizes just how much of a problem inflation is. This report will also be the first to show the price impact of the war in Ukraine. Prices at the pump rose 85 cents per gallon in just two weeks.

  I want to take some time to discuss inflation because it’s a complicated topic and often misunderstood. For one, inflation tends to have an unusual impact on society. For example, there were severe bouts of inflation in pre-revolutionary France and in Weimar Germany. Those are extreme examples, but they show that inflation can often be a destabilizing force in society.

  The soundness of money, at its root, is an implied trust between the citizen and the state. When that gets shattered, weird things can follow. Note the general sense of disillusionment in the United States in the 1970s.

  For our concerns, inflation can also have a destabilizing impact on financial markets. I think of inflation as being similar to holding a magnet near a compass. It screws up the readings.

  To give you an example, let’s say you run a manufacturing company. Your company buys its raw materials at Time X. It processes its parts at Time Y. It then sells its finished goods at Time Z.

  The distance between those three time points can be quite large and if inflation is high enough, it will distort your actual profitability. Initially, inflation can give you the illusion of efficiency even when that’s not the case at all.

  Not all earnings are the same, and inflation exacts a heavy toll on asset-heavy businesses. Companies with high assets relative to their profits tend to report ersatz earnings.

  Inflation also benefits the borrower at the expense of the lender. The cost of inflation falls heavily on lower-income consumers and people on a fixed-income.

  There are almost no upsides of inflation, and it often leads to a recession. If you remember the later 1970s, inflation sparked a massive rally in precious metals. The Hunt Brothers tried to corner the global silver market. They failed but came perilously close. The point is that investing in rocks shouldn’t be more profitable than in investing in businesses that provide jobs to people.

  Inflation can be very rough for stocks. During the entire decade of the 1970s, the Dow Jones Industrial Average gained a grand total of 38 points.

  To get a better sense of inflation’s impact on the stock market, I went over to Professor Robert Shiller’s online data library. Shiller is a Nobel laureate who maintains a database of stock market numbers going back to the 19th century.

  I took all the monthly data and re-sorted it by level of inflation. The tipping point is 7.3%. Below that, stocks have gained an average of 7.5% annually adjusted for inflation. When inflation is above 7.3%, stocks have lost more than 11% annually adjusted for inflation. We’re not far above 7.3% right now.

  This is why the Fed has to make it clear that it’s committed to beating inflation. In three months, I expect to see rates at least 1% higher. The Fed must stand firm.

  The Stock Split Boom

  Yesterday, Tesla (TSLA) said that it’s proposing to increase its number of shares so the company can split its stock.

  This is an unusual topic because stock splits themselves do absolutely nothing, yet shareholders love them. If you own 100 shares of a $50 stock, a 2-for-1 stock split means you now own 200 shares of a $25 stock. The value of your position hasn’t changed one penny.

  Still, shares of Tesla jumped 8% yesterday. That’s worth $100 billion. Again, there was zero reason for this. To quote Sire Isaac Newton, “I can calculate the motion of heavenly bodies, but not the madness of people.” Tesla is now worth more than the combined value of the world’s 13 largest automakers.

  Two years ago, Tesla jumped 12% when its previous split went into effect—not when it was announced, but simply when the split went into effect. I don’t even know what to say about that.

  Tesla isn’t the only big stock to split its stock. Nvidia (NVDA) had a 4-for-1 split last year. Apple (AAPL) split its stock 4-for-1 two years ago. In 2014, Apple had a 7-for-1 split.

  Both Alphabet (GOOG) and Amazon (AMZN) have announced massive 20-for-1 stock splits. That means for every one share you own, you’ll get 19 more although the nominal price will drop about 95%. Amazon’s split will take effect in June while Alphabet’s will be in July.

  The data has shown that stock splits are good for stocks, but I think they’re getting cause and effect backward. Companies announce splits because their stock has gone up. The stock has gone up because business has been good. It seems reasonable that the conditions that led to the split hang around for a little while. The splits themselves do nothing.

  It seems that investors simply don’t like share prices that are too high. Even with modern markets, the transaction costs aren’t that high. Many years ago, when I worked on the retail side, I often heard investors say they didn’t want to buy stocks over $100 per share, even if it simply meant buying fewer shares. If I had to guess, I’d say there’s a comfort range of $20 to $50 per share for a stock.

  Of course, there are exceptions. The “A” shares for Berkshire Hathaway (BRK-A) recently broke $500,000 per share. There are currently 616,000 shares outstanding.

  Even with Amazon’s big scheduled split, that will bring its price down to around $170 per share (based on the current price). That would still make the nominal share price higher than about two-thirds of the S&P 500. Alphabet will be around $145 per share.

  From what I recall, there used to be a lot more stock splits. I was never a fan of the small 5-for-4 or 3-for-2 splits. In my opinion, JetBlue deserves an award for the worst stock splits. The company split its shares 3-for-2 three times in less than three years, yet the stock went nowhere.

  

  What’d the point?

  My stock split hero is Hawkins (HWKN). This is a specialty chemical company based in Minnesota. So if you’re in, say, St. Paul and you need a shipment of sodium hydroxide, well…these are the folks to call.

  Hawkins distributes, blends and manufactures chemicals and other specialty ingredients for its customers in a wide variety of industries. The company has 49 facilities in 24 states.

  They’ve been around for many years and the company is largely in family hands. The current CEO is Patrick Hawkins. They do what they do, and they do it well.

  Hawkins often announces 10% or 15% stock dividends each year. These have tended to be in line with the stock’s long-term performance. As a result, the nominal share price is often around $40, but that might you lead you to believe the stock hasn’t moved much.

  On the contrary, Hawkins has been a huge winner. Check out its performance this century compared with the S&P 500.

  

  After all that success, Hawkins is followed by one Wall Street analyst. The madness of people, indeed.

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

  – Eddy

• Morning News: March 29, 2022
  Eddy Elfenbein, March 29th, 2022 at 7:01 am

  OPEC Says the U.S. Must Trust Its Oil Production Strategy

  The War Is Reshaping How Europe Spends

  Xi Battles Distrust by Global Investors Burned in China Before

  Shanghai Covid-19 Lockdown Poses Fresh Test to Supply Chains

  Russian Supply Chains Next in Line for Sanctions, Deputy U.S. Treasury Secretary Says

  Russia Built Parallel Payments System That Escaped Western Sanctions

  Do Russian Oligarchs Have a Secret Weapon in London’s Libel Lawyers?

  Fed Pivots Toward Jumbo Hikes After Being Slammed as Too Slow

  America’s Inflation Problem Is Weirdly Hard to Fix

  Inside Biden’s $5.8 Trillion Wish List

  Apple’s Best Run Since 2003 Brings $3 Trillion Back in Focus

  If You’re Focused on Amazon’s Competition, You’re Missing the Future

  Walmart Stops Selling Cigarettes in Some Stores

  Emirates Says Russians Also Have Right to Travel Despite Ukraine

  World’s Longest Passenger Flight Plans to Avoid Russian Skies

  FedEx Says Fred Smith to Step Aside as CEO, Remain Executive Chairman

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• Morning News: March 28, 2022
  Eddy Elfenbein, March 28th, 2022 at 7:08 am

  Japan to Revise Foreign Exchange Law to End Crypto Loophole for Sanctions on Russia

  Heineken to Exit Russia at Cost of Around 400 Million Euros

  Oil Slides on Concerns of Weaker Chinese Demand

  U.S. to Boost Gas Deliveries to Europe Amid Scramble for New Supplies

  Ukraine War Drives Up Cost of Wind, Solar Power

  Global Bond Rout Deepens on Fear Rate Hikes Will Stoke Recession

  Goldman, JPMorgan Strategists Say Equities Can Weather Bond Rout

  A Recession Warning Sign? Part of U.S. Yield Curve Inverts for First Time Since 2006

  U.S. Bankruptcy System Faces Government Pushback Over New Corporate Tactics

  PhDs Killed Off the Gold Standard In 1971, Not ‘Guns & Butter’

  New Supply Chain Risk: 22,000 Dockworkers Who May Soon Strike

  Volkswagen Prepares for a Deglobalized World

  Vanguard Stumbles in Pivot from Cult of Jack Bogle

  Billionaire Bonderman’s Wild Ways Forged TPG. It’s Up to Winks to Tame It

  From GM to Powerade, Brands Pitch Mental Health

  NordicTrack CEO Scott Watterson Forced Out in Battle with Peloton

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• Morning News: March 25, 2022
  Eddy Elfenbein, March 25th, 2022 at 7:05 am

  E.U. Takes Aim at Big Tech’s Power with Landmark Digital Act

  U.S., EU Reach LNG Supply Deal to Cut Dependence on Russia

  U.S. Gas Prices Are Coming Back Down, but Not in California

  London Metal Exchange Sees Trader Exodus as Open Interest Slides

  Bank of Mexico Lifts Interest Rates for Seventh Time

  Sri Lanka Economy Has ‘Hit Rock Bottom,’ Putting Pressure on President

  Europe’s Economy Slows as Ukraine War Sends Costs Soaring

  Four Weeks of War Scar Russia’s Economy

  Alibaba’s Russia Venture Puts Chinese E-Commerce Giant in Awkward Spot

  Inside China’s Electric Drive for Swappable Car Batteries

  Call for an Uber, Get a Yellow Taxi

  Instacart Slashes Its Valuation by Almost 40% to $24 Billion

  Apple Is Working on a Hardware Subscription Service for iPhones

  She Was a Candidate to Lead Levi’s. Then She Started Tweeting.

  Frosties NFT Creators Charged with ‘Rug Pull’ Investor Fraud

  ‘Testosterone-Fueled Bear Pit’ Discourages Women From Economics

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