Morning News: April 15, 2022
Posted by Eddy Elfenbein on April 15th, 2022 at 7:03 am

China Central Bank Holds Interest Rate With Focus Now on RRR

China’s Central Bank Gives Lenders Cash Boost to Spur Growth

Apple, Others Face Shipment Delays as China Covid Curbs Squeeze Suppliers

A Year of Inflation-Beating Yields With No Risk? Time May Be Running Short

High Gasoline Prices Take Up Big Share of March Retail Spending Increase

Biden Will Nominate Michael Barr as Fed’s Banking Supervisor

The Wolf of Crypto

Interns Are Making Over $16,000 a Month as Wall Street Talent Wars Heat Up

Mortgage Rates Hit 5% for First Time Since 2011

Fuel Prices Send Airfares Higher, but Travelers Seem Ready to Pay

Elon Musk Contends Censorship, Not Abuse, Is Twitter’s Problem

With Twitter in His Sights, Musk Creates New Model of 21st Century Billionaire

Twitter Is Weighing a Poison Pill Defense to Thwart Elon Musk’s Takeover Bid

The ‘Hell or High Water Clause’ Is Tormenting Small-Business Owners

Pfizer, Moderna, J&J See RSV as Next Vaccine Target

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Morning News: April 14, 2022
Posted by Eddy Elfenbein on April 14th, 2022 at 7:01 am

China’s Economy Pays a Price as Lockdowns Restrict Nearly a Third of Its Population

Russian Companies, Global Banks Could Reap Windfall from Depositary Receipt Delisting

Oreo-Maker, Nestle, Pepsi Face Pressure from European Employees Over Russia

European Central Bank May Bring Forward the End To Its Bond Buying As Inflation Spirals

The Fed’s Balancing Act Is About to Get a Lot Harder

After Rapid Recovery, Watch for Sudden Slowdown

Supplier Prices Rose Sharply in March

Supply Chain Hurdles Will Outlast Pandemic, White House Says

A New Legal Tactic to Protect Workers’ Pay

Sellers Who Ship Through Amazon Will See a New 5% Fuel and Inflation Surcharge

Wells Fargo Profit Beats as Lower Costs Blunt Hit from Weak Mortgage Lending

Elon Musk Launches $43 Billion Hostile Takeover of Twitter

America’s Favorite Truck Is About to Test Tesla’s Dominance

Brazil’s Motor City Seeks New Life as Manufacturing Declines

Gopuff Does Deliveries in 30 Minutes or Less. It’s Also Buying Time for Itself

Manhattan Apartment Rents Hit Another Record in Frenzied Market

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Earnings Season Starts
Posted by Eddy Elfenbein on April 13th, 2022 at 11:11 am

Today is the unofficial start of Q1 earnings season. Usually the big banks go first. JPMorgan (JPM) said it made $2.76 per share which was seven cents more than estimates.

JPMorgan said it took a $902 million charge for building credit reserves for anticipated loan losses, compared with a $5.2 billion release a year earlier. The bank also booked $524 million in losses driven by markdowns and widening spreads after Russian’s invasion of its neighbor.

Combined, the two factors sapped 36 cents from the quarter’s earnings, the bank said.

Dimon said he built up credit reserves because of “higher probabilities of downside risk” in the U.S. economy, specifically from the impact of high inflation and the Ukraine conflict.

BlackRock (BLK) earned $9.52 per share versus the consensus of $8.84 per share. We won’t have our first Buy List earnings report until next week.

Also this morning, the PPI report said that producer prices rose 11.2% in the last year. That’s the largest gain on record although the data only goes back to 2010. For the month, producer prices rose by 1.4%. Wall Street had been expecting an increase of 1.1%.

Morning News: April 13, 2022
Posted by Eddy Elfenbein on April 13th, 2022 at 7:06 am

China Sets Aside Push to Spread Wealth in Pivotal Year for Xi

Inflation Hits Fastest Pace Since 1981, at 8.5% Through March

Why There Are Growing Fears the U.S. Is Headed to a Recession

Stagflation Risk Has Investors Sinking Billions Into Hedges

London’s $2 Trillion Rainmaker Has No Plans to Slow Down or Sell Out

‘Please Don’t Tell’: Essex Boys’ Texts Spur Judge to Allow Lawsuit

U.S. Mortgage Interest Rates Top 5%, Buyers Look to Lock In Rates

Grocers Push Through Inflation, Passing Higher Prices to Shoppers

Nexo and Mastercard Launch ‘World First’ Crypto-Backed Payment Card

How Jack Dorsey Quit Twitter to Become Bitcoin’s Spiritual Leader

How Chris Dixon’s Dive Down The Crypto Rabbit Hole Made Him The World’s Top Venture Capitalist

War Sidelines Crucial Ukraine-Made Fleet of Cargo Megaplanes

Airbnb’s 135% Rally Takes IPO Crown With Room to Run

Substack’s Growth Spurt Brings Growing Pains

Welcome Back to the Office. Isn’t This Fun?

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CWS Market Review – April 12, 2022
Posted by Eddy Elfenbein on April 12th, 2022 at 7:56 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.”)

Change That: Elon Musk Won’t Be on Twitter’s Board

In last week’s issue, I discussed Elon Musk taking a large stake in Twitter and being invited to join its board. The stock soared 30% in one day which helped the richest man in the world become even wealthier. Musk agreed not to own more than 14.9% of the company.

That story got an update this week. Twitter said that Mr. Musk will not join its board.

What happened? We don’t know the precise details, but I’m assuming the lawyers had a long talk with Musk and explained that even he can’t do some things as a board member. A board member has a fiduciary obligation to act in the best interest of the shareholders.

That could be a wee bit of a problem for someone like Elon. For example, Musk suggested turning Twitter’s San Francisco headquarters into a homeless shelter. Make of that what you will. Musk also suggested deleting the “w” from Twitter’s name. You can see how this kind of behavior might be…problematic.

As a board member, Musk would be banned from trolling the company or from commenting on non-public information. This is hardly the first time that Musk’s tweets have gotten him in hot water.

In 2018, Musk famously tweeted that Tesla had “secured” a buyout offer. For that, the SEC fined him $20 million. That would be like levying a fine of $10 on a person with a net worth of $140,000.

Personally, I’m a big fan of Elon. I like the idea that there’s a multi-zillionaire who goes out and says whatever he likes. I also realize that a good part of Musk—say, 30%— is pure showman. He’s often closer to P.T. Barnum than he is Ford or Edison. Of course, those folks were part-showmen, too.

There’s also an important angle to this in that the founders of Twitter never bothered to structure the company to prevent it from being taken over by activist investors. Alphabet, the parent company of Google, has different voting classes of stock which are designed to prevent someone on the outside from taking over the company. Facebook has also prevented itself from being easily pushed around.

All in all, I don’t like these dual-class structures. The argument used to be made that it could be important for some companies, such as newspapers, that needed to be protected from outside shareholders. Years ago, some companies viewed themselves as guardians of the public trust. Naïve? Probably, but they believed it. I suppose there’s an argument to be made for dual classes, but I’d much rather see regular shareholders treated best.

There’s perhaps some irony in that Elon Musk can probably best serve shareholders off the board and make his feelings known without restrictions. How else? Via Twitter.

Inflation Jumps to Highest Since 1981

We had another inflation report this morning and it was a doozy. I’ve become used to saying that inflation has soared to its highest level since 1982. That’s now changed. Thanks to the March inflation report, we can now say that inflation is at its highest level since December 1981.

The report said that last month, headline inflation rose by 1.24%. That brought the 12-month rate to 8.56%. At the current rate of inflation, for a $1 million portfolio, inflation eats up $85,575 per year. For the Dow Jones Industrial Average, inflation gobbles up 3,000 points every year.

Most disturbingly, at the current rate of inflation, if you’re paid in dollars, you effectively work one month of the year for free. That’s all due to inflation.

Here’s a chart of headline inflation in blue and core inflation in red:

The stock market responded by rallying more than 1.3% this morning. It later thought things over and decided that wasn’t a good idea. The market retreated for a daily loss of 0.34%. In the last 10 sessions, the S&P 500 has lost a little over 5%. The yield on the 10-year Treasury got all the way up to 2.77% today. Of course that’s still low, but it‘s a lot higher than where it was two years ago. The average 30-year mortgage rate is now up to 5.25%.

You can see that inflation truly causes chaos for an economy. Here’s a quote to ponder from John Maynard Keynes:

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but at confidence in the equity of the existing distribution of wealth.

This morning’s inflation report was also noteworthy because it’s the first report to be impacted by the war in Ukraine. Energy prices were up 11% last month. Not annualized, but for the whole month.

If there’s any consolation, it’s that core inflation appears to be far more modest. Last month, consumer prices excluding food and energy rose by just 0.32%. That’s really not so bad. Over the past year, core inflation is running at 6.44%. That’s the highest since August 1982, which happens to be the same month the stock market reached a generational low.

This low core inflation number for March could be good news going forward. I say that very cautiously. The increase for March was the slowest of the last six months, and the fourth-slowest of the last 12 months. If we assume that the headline rate will eventually move towards the core rate, then our inflation problems could be over soon. That’s a lot to assume for now, but it’s worth taking note of.

What’s also interesting is that the 2/10 Spread has backed off significantly over the past few days. On April 1, the two-year Treasury was yielding 0.05% more than the 10-year Treasury. That’s usually a signal of more Fed tightening and slower economic growth. Since then, the 2/10 Spread has turned positive. The 10-year now yields 0.33% more than the two-year. Perhaps the Fed doesn’t have a lot more work to do? Again, it’s too early to draw sweeping conclusions, but it’s not to be ignored.

My Mistake with AmerisourceBergen

We all learn from our mistakes including me. To quote Freddie, “bad mistakes, I’ve made a few.” I find it useful to go over my past errors and try to learn from what I did wrong.

I made a big one this year. In January, I told you how I strongly considered adding AmerisourceBergen (ABC) to our Buy List, but ultimately, I decided to pass. The stock is up over 20% this year. Smooth move, Eddy!

Here’s some of what I wrote:

There’s a lot to like about AmerisourceBergen. If you’re not familiar with the company, ABC is a major drug wholesaler. The company was formed 20 years ago through the merger of Bergen Brunswig and AmeriSource. They also have units offering consulting services and veterinary supply.

It’s a great business to be in. I especially like their smooth earnings line. This is an important characteristic in a successful company. Some businesses see their earnings bounce all around during a business cycle. Other stocks, by contrast, churn out steady increases. All things being equal, the market prefers the steady increases.

The stock is literally ABC. How could I have passed?

Frankly, it’s not the worst of errors to pass on a good stock. As investors, we should be very discerning. My mistake was not realizing how strongly the market would favor stocks with consistent earnings growth. I also didn’t fully realize how the company had addressed its legal issues.

But first, here’s the yearly earnings for AmerisourceBergen:

2017: $5.62
2018: $5.88
2019: $6.49
2020: $7.09
2021: $7.90
2021: $9.26
2022: $10.80 (est.)
2023: $11.60 (est.)
2024: $12.45 (est.)

Those numbers are exactly what we’re looking for. Steady upwards growth. But numbers don’t tell you everything.

While AmerisourceBergen appeared to be inexpensive based on conventional valuations, I was put off by its legal risks for its role in the opioid epidemic. Over a 20-year period, nearly half a million Americans died from opioid addiction.

Last July, AmerisourceBergen and two other drug companies, Cardinal Health and McKesson, reached a major settlement with several state governments. The deal calls for the drug companies to pay $21 billion over the next 18 years. ABC’s portion comes to $6.4 billion. The deal is intended to address, in one big action, more than 3,000 lawsuits. None of the companies has admitted to any wrongdoing.

I’m still not certain if that ends the matter for ABC. So far this year, the stock market appears to be greatly relieved. That’s a decision I felt I couldn’t adequately make in January. Investing is about predicting the future. Instead, it’s about weighing the risks and potential benefits.

The other lesson with investing is to not beat yourself up for “the one the got away.” Chasing it is not the answer. Instead, be patient and wait for the next chance. There’s no game clock with investing. We can pass on as many stocks as we like.

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

– Eddy

P.S. Q1 earnings season starts soon, and this looks to be another good season for us. Don’t forget to sign up for our premium newsletter.

Morning News: April 12, 2022
Posted by Eddy Elfenbein on April 12th, 2022 at 7:07 am

China Sets Aside Push to Spread Wealth in Pivotal Year for Xi

Moscow’s Central Banker Dismantles What She Built

Here’s How Much It Is Costing Companies to Leave Russia

Rocketing Prices Test Europe’s Political Resolve in Confrontation With Russia

Inflation Seen Nearing New Four-Decade High in March

Treasury Yield Surge to Threaten Bull Run’s Last Resistance Line

SPAC Trades May Have Made as Much as 888% Profit—Now, Some Are Drawing SEC Scrutiny

‘Staggering’ Crypto Seizures Have Cops Struggling to Keep Up

Elon Musk, Again an Outsider at Twitter, Emerges as Unshackled Wild Card for Company

Etsy Sellers Strike as Site Ramps Up to Battle Amazon

Pandemic Jet Deals in Spotlight as Airbus Axes Russia Delivery

Digital Ad Revenue Jumped 35% in the U.S. Last Year, Biggest Gain Since 2006

The Clean-Power Megaproject Held Hostage by a Ranch and a Bird

Goldman Women Pick Big Lawsuit Over Arbitration But Many Abstain

Unraveling a High-Rise Horror Story

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Musk Will Not Be Joining Twitter’s Board
Posted by Eddy Elfenbein on April 11th, 2022 at 10:55 am

The stock market is down again today. This could be our fourth down day in the last five sessions. At the time I’m writing this, the S&P 500 is off by 1.03%. Tech stocks are especially weak, but the Russell 2000 is barely positive. Among the different sectors, financials and industrials are both positive.

The surprising move is in the bond market. The 10-year yield is now up to 2.75%. In July 2020, it was yielding just 0.55%.

We’re starting to get earnings dates for the upcoming earnings season. The reports will start coming out around April 20. Between then and mid-May, 21 of our 25 Buy List stocks are due to report.

The big news this morning is that Elon Musk will not be joining the board of Twitter. If I had to guess, I’d say the lawyers had a chat with him and told him that as a board member, his public comments would be under a microscope. Even Elon Musk won’t take on the SEC. Twitter’s stock is up so he’s making money from the news.

Morning News: April 11, 2022
Posted by Eddy Elfenbein on April 11th, 2022 at 7:09 am

Treasuries Slump Ignites Global Selloff as Rate Hikes Gain Focus

Recession Risk Is Rising, Economists Say

Fed to Raise Rates Aggressively In Coming Months, Say Economists

Tech Rout Could Drag Bitcoin to $30,000, BitMEX Founder Says

Crypto Industry Helps Write, and Pass, Its Own Agenda in State Capitols

How Sotheby’s Combined NFTs And A Netflix Attitude In A Wild Bid To Be Crypto Cool

Big Banks Set to Post Weaker Deal Revenue Amid Ukraine Chaos

After Many Western Companies Fled Ukraine, a Holdout Adapts to Wartime

Truck Makers Face a Tech Dilemma: Batteries or Hydrogen?

Gas Price Surge Fuels Fights at FedEx, Uber Over Who Will Pay

Elon Musk’s Mysterious Investment In Twitter Is a Happy Rejection of Victimhood

Musk Rejects Twitter’s Offer to Join Board in Surprise Twist

Amazon’s Drone Delivery Program Is Hit by Crashes and Safety Concerns

Harvard Endowment’s Debate Shows PE Funds’ China Struggle

New Era Begins at Warner Bros., Tinged With Nostalgia

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Morning News: April 8, 2022
Posted by Eddy Elfenbein on April 8th, 2022 at 7:01 am

A $430 Billion Habit Got Japan’s Central Bank Hooked on ETFs

Crypto-Like Digital Dollar at Least Several Years Away, Yellen Says

Biden Plan to Combat Inflation with U.S. Manufacturing Faces Skepticism

Thiel Blasts Dimon, Buffett and Fink as ‘Finance Gerontocracy’ at Bitcoin 2022

Food Prices Jump Most on Record as War Sparks Supply Chaos

Energy Funds Lead Again, but Ukraine War Makes Future Uncertain

Staying the Course May Be the Key to Wartime Investing

Brands That Just Can’t Quit Russia

Facial Recognition Goes to War

The Huge Endeavor to Produce a Tiny Microchip

China’s Covid Lockdowns Hit Supplies to Companies Like Apple and Tesla

Tesla Will Sell Its Long-Awaited Cybertruck Next Year, Elon Musk Says

U.S. Bank Earnings to Decline in First Quarter

How Greenwood Became the Most Hyped Startup in Black America

Blue-Collar Workers Make the Leap to Tech Jobs, No College Degree Necessary

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Morning News: April 7, 2022
Posted by Eddy Elfenbein on April 7th, 2022 at 7:09 am

JPMorgan Says Be Ready for 40% Commodities Rally in Market Shift

Russia Coal and Oil Paid for in Yuan Starts Heading to China

Oil Major Shell to Write Off Up to $5 Billion in Assets After Exiting Russia

Tesla-Backed Startup Made Cheap Power a Debt Burden for the World’s Poorest

Yellen Says the Aim Is ‘Maximum Pain’ for Russia Without Hurting the U.S. Economy

Fed Signals Faster Pace of Rate Increases, Likely Bond Runoff

U.S. Solar Expansion Stalled by Rural Land-Use Protests

U.S. Consumer Watchdog to Ramp Up Credit Card Enforcement, May Review Fee Caps

Biden Extends Pause on Federal Student-Loan Payments Through August

This Is the Red-Hot Center of the Tightest Job Market Since WWII

Job Wars: Employers Wince as Amazon Warehouse Rises in Indiana Town

Amazon Workers Who Won a Union Their Way Open Labor Leaders’ Eyes

Twitter’s Edit Button Isn’t Just a Simple Fix. It Could Be a Mistake.

Google Bans Apps with Hidden Data-Harvesting Software

Buffett’s Berkshire Hathaway Adds New $4.2 Billion HP Stake

How Many Billionaires Are There, Anyway?

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