Morning News: March 11, 2022
Posted by Eddy Elfenbein on March 11th, 2022 at 9:31 am

Crypto’s War Test Leaves Future of Money Debate Wide Open

China Has Tools to Help Russia’s Economy. None Are Big Enough to Save It.

Wall Street Joins the Unbanking of Russia

Deutsche Bank Bucks Trend As It Maintains Ties To Russia

Russia Owes Western Banks $120 Billion. They Won’t Get It Back

Gazprombank: The Big Russian Lender That Dodged Western Sanctions

Goldman Sees U.S. Recession Risk as High as 35%, Cuts Forecast

The New Financial Supermarkets

Biden Wants U.S. Oil to Drill More. Here’s Why They’re Holding Back

Ukraine Halts Half of World’s Neon Output for Chips

Mercedes Flags Billions at Risk as Russia Weighs Expropriation

A Secret Ad Deal Between Google and Meta Is Under Scrutiny in Europe

Amazon’s Washington Strategy Wins Few New Friends in the Biden Era

Apps and Oranges: Behind Apple’s ‘Bullying’ on Trademarks

Rivian Makes an Unexpected Gift to Tesla, Ford and GM

A Peloton Bike and Subscription for One Monthly Fee? Company to Test New Price Plans

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Morning News: March 10, 2022
Posted by Eddy Elfenbein on March 10th, 2022 at 7:01 am

Europe’s Plan to Quit Russian Fuel Starts a Global Fight for Gas

An Oil Shock Is Coming, But the U.S. May Have Already Paid for It

Biden and the Oil Industry Are at Odds, Clouding Effort to Tame Gasoline Prices

U.S.’s Raimondo Warns Chinese Firms on Evading Russia Sanctions

Russia Devises Plan to Seize Firms Abandoned in Foreigner Exodus

No Ikea Shelves, No Levis: The Retail Exodus from Russia Is On

How Western Firms Quietly Enabled Russian Oligarchs

Rich Exiles Put Dubai in Spotlight as World Chases Russian Money

Russia, Belarus Squarely In ‘Default Territory’ On Billions in Debt -World Bank

What Can Consumers and Businesses Do With 5G? Take a Look at South Korea

Aeroflot’s Decades-Long Turnaround Faces Undoing

SEC Files Plan to Pay $40 Million To Tesla Shareholders in Wake of Elon Musk Tweets

Amazon Is Splitting Its Stock. Why It Wants a Lower Share Price.

When Amazon Nearly Flamed Out, Jeff Bezos Conceived Kindle and Prime

Starting Salaries for Some Grads Hit $100,000, and Their Co-Workers Are Annoyed

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Miller Industries Earns 24 Cents per Share
Posted by Eddy Elfenbein on March 9th, 2022 at 4:12 pm

Miller Industries (MLR) reported Q4 earnings of 24 cents per share and sales rose 13.1% to $207.7 million. For the year, Miller earned $1.42 per share and sales rose 10.2% to $717.5 million. Miller also announced a regular dividend payment of 18 cents per share.

Gross profit for Q4 was $15.6 million, or 7.7% of net sales. That’s down from $24.3 million, or 13.6% of net sales, for Q4 2020. Selling, general and administrative expenses were $11.2 million, or 5.5% of net sales, compared to $9.4 million, or 5.3% of net sales, in the prior year period.

William G. Miller, II, Chief Executive Officer of the Company said, “We continued to experience supply chain challenges and inflation pressures during the fourth quarter. While it remains difficult to secure certain parts for our products that would allow us to complete finished goods, we are pleased with the steps we have taken to improve the underlying business. We expect that our inventory build-up and strong backlog levels will allow us to capitalize on the demand in our end-markets as supply chain challenges ease. While we are unsure of the timing of a resolution to the supply chain constraints, we believe we have taken the necessary operational actions and pricing initiatives to offset inflationary pressures as we remain committed to providing excellent service to our customers, distributors, and stakeholders.”

Mr. Miller, II continued, “Demand remains at all-time highs. Given the favorable macro dynamics and strong backlog levels, we remain confident about our long-term business prospects. We also saw continued improvement in our international operations as European pandemic restrictions eased. The extended nature of supply chain and inflationary challenges has proved difficult for not only Miller, but for nearly every manufacturing company around the globe. That said, we remain focused on our strategy of delivering our backlog and improving our operational efficiency to hit the ground running as these pressures subside. Supply chain constraints and inflationary pressures had eased slightly as we moved into 2022, however the impact of the current military conflict between Russia and Ukraine has added an additional negative impact on our raw material availability and pricing. We will continue to focus on opportunities in front of us to generate long-term shareholder value.”

Morning News: March 9, 2022
Posted by Eddy Elfenbein on March 9th, 2022 at 7:07 am

Putin Clings to Russia’s Market Economy as Sanctions Wind Back the Clock

Europe Is on a Wartime Mission to End Its Addiction to Russian Fossil Fuel

Loss of Russian Oil Leaves a Void Not Easily Filled, Straining Market

Russia’s Attack Casts Huge Shadow Over Future of ESG

Pills That Blunt Radiation’s Health Danger Post 100% Price Surge

Food Companies, Long Symbols of the West in Russia, Pause Operations

Russian Car Maker, Known for Cold War Self-Reliance, Idles Factories

Goodbye Londongrad: Russian Oligarchs Put Pressure on U.K. Property Market

Empty Stores and an Exodus: Hong Kong’s Covid Crackdown Stirs Panic

Chinese Nickel Giant Secures Bank Lifelines After Epic Squeeze

Bitcoin Jumps After Apparent Yellen Statement Quells U.S. Clampdown Fears

Biden to Take Step Toward Regulating Cryptocurrencies

Alphabet CFO Explains Reasoning Behind $5.4 Billion Mandiant Acquisition

Walmart To Offer Its Walmart Plus Service To Its Workers For Free

U.S. Probes Options Trade That Gained on Microsoft-Activision Deal

Ex-Goldman Banker Faked His Ex-Wife’s Email to Spin Web of Lies

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CWS Market Review – March 8, 2022
Posted by Eddy Elfenbein on March 8th, 2022 at 7:41 pm

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The Markets React to War

The war in Ukraine is about to enter its third week, and the economic ramifications are starting to be felt. Not just in Russia but all over the world. In December, the price for oil was below $70. This week, it cracked $130.

AAA reported that gasoline prices are the highest on record (not adjusted for inflation). On Tuesday, the average price at the pump reached $4.17 per gallon. Last week, it was $3.60. The increases ain’t over.

The war has wreaked havoc in world markets. JPMorgan said that oil could hit $185 per barrel before the end of this year. Here’s a handy stat: Every $10 increase in the price for oil adds 0.2% to the rate of inflation. The Russian Deputy Prime Minister said that oil could hit $300 per barrel if Europe bans energy imports.

That’s just oil. All sorts of commodities are rallying. For example, Russia is the world’s leading producer of palladium. That’s a metal few people ever think about but it’s very important if you have a catalytic converter. Palladium is more expensive than gold, and it’s been soaring recently.

Wheat shot up to an all-time high and then it plunged. In the futures pits, wheat trading has hit the daily limit for the last six days in a row. Corn has rallied as well. These price increases will fall particularly hard on the world’s developing nations. They could even lead to social and political chaos.

But those rallies are nothing compared with nickel. In two days, nickel gained more than 250%. That’s the largest move ever on the London Metal Exchange. Apparently, a Chinese billionaire shorted nickel and now faces huge losses. It’s an old story. After nickel broke above $100,000 per metric ton, the LME suspended trading and it doesn’t see nickel trading resuming before March 11.

What’s the impact? There could be several. For example, nickel goes into lithium-ion cells that many electric cars use. One analyst said that Monday’s increase alone added $1,000 to the input cost of an average electric vehicle. I can’t help but think of the Butterfly Effect.

Stocks Are at a Nine-Month Low

The reaction from the stock market continues to be one of fear. Stocks have become a lot more volatile. Yesterday, the S&P 500 had its biggest one-day loss since October 2020. Today, the index closed at a nine-month low. Measuring to today’s close, the index is down 13% from its all-time high close which came on the first trading day of this year.

Today was an unusual day of trading. While there were 75 new 52-week lows in the S&P 500, there were also 19 new 52-week highs. The explanation is that many energy stocks did well, while many consumer staples did not.

It’s noteworthy to see what’s happening within the market. I’ve talked about this a lot, but the key trend continues to be low volatility stocks holding firm while high beta stocks are getting pummeled.

This trend has been very beneficial for our Buy List. Since our portfolio is very high-quality, it tends to outperform during scary markets.

So far this year, energy stocks have done very well. The S&P 500 Energy Index is currently up 39% YTD. Banks started off the year well but have lagged badly since the war started. We’re also seeing a lot of weakness in consumer non-discretionaries. In plain English, those are big-ticket items like cars and houses.

Could the bottom be in? I won’t venture a prediction, but I’ll add that as long as the S&P 500 is below its 50- and 200-day moving averages, as it is now, that’s usually a sign of more trouble ahead.

On an historical note, this is a popular time of year for market inflection points. The Nasdaq peaked on March 9, 2000. Three years later, the S&P 500’s closing low came on March 11, 2003. After the financial crisis, the market bottomed on March 9, 2009. The Covid low came on March 23, 2020.

If you’re of a particular historical bent, I’d add that today, March 8th, is also the anniversary of the start of the Russian Revolution, the “February Revolution” (1917), the USSR confirming it had the atomic bomb (1950) and Ronald Reagan giving his Evil Empire speech (1983).

Expect the Fed to Hike Next Week

On Friday, the Bureau of Labor Statistics released the February jobs report, and it was good news. Last month, the U.S. economy created 678,000 net new jobs. That easily beat expectations of 440,000. We’ve nearly made back everything we lost (see chart below). The unemployment rate ticked down to 3.8%. The revisions for the previous two months added 92,000 jobs. The broader U-6 rate was 7.2%.

The surprise is that the average hourly earnings figure was unchanged. Over the last year, average hourly earnings are up 5.1%. Private payrolls increased by 654,000. Expectations were for 400,000. Manufacturing added 36,000 jobs. The labor force participation rate was 62.3%. That’s a post-Covid high.

The Federal Reserve meets next week, on Wednesday and Thursday. The war does not seem to have altered the Fed’s policy. It seems virtually certain that the Fed will raise rates next week. The futures market now places the odds of a rate increase at 96%. That seems about 3.999% too low, but that’s just me. It seems increasingly likely that the Fed will hike rates by 0.25% at each of its next four to five meetings, perhaps more.

The key test for the economy is how much more inflation we’ll see. Inflation is a cruel tax, and it takes a heavy toll on lower-income folks. The next CPI report is due out on Thursday. The last report showed year-over-year inflation of 7.5%. That’s the highest in 40 years.

I expect to see similar numbers for this week. Wall Street expects core and headline inflation of 0.6% for February. If that turns out to be accurate, it will slightly increase the year-over-year figure. I had expected to see inflation cool off later this year, but the war has changed my outlook. We may be seeing only the start of high inflation, especially for key commodities.

Simulations Plus Revisit

Last year, I told you about Simulations Plus (SLP). I said I liked the stock but that it was way too expensive. At the time, SLP was going for $57 per share. But I added that I would like it if SLP fell below $40 per share. That seemed a long way away.

Well, that day came. In fact, the shares recently fell below $37 and SLP closed today at $41.43 per share. That has my attention.

So what do they do? Simulations Plus makes software that lets drug companies simulate tests of their products in the virtual world before using any human or animal test subjects.

That’s a big cost-saver for drug companies. Simulations Plus helps streamline the R&D process by making it faster and more efficient. Not only is this cost effective, but it also helps drug companies in dealing with time-consuming regulatory hurdles.

In fact, there are times when the results from SLP’s products have allowed companies to waive clinical studies. The cost savings are substantial. This means drug companies don’t have to deal with the time and expense of recruiting test subjects and analyzing test results.

By using SLP’s software, drug companies can experiment with many variables like fine tuning dosage amounts. Companies can also see potential harmful side effects. Another important factor is that companies can identify treatments that have no benefits.

In healthcare, cost control is a major issue. That’s why SLP’s products are in such heavy demand. A great business to buy is one that helps other companies control their costs.

In many ways, I think what Simulations Plus does for pharmaceutical researchers is closely akin to what Ansys (ANSS) does for engineers. By sitting at a computer, an employee can efficiently iron out a lot of kinks before experimenting in the real world. Simulations Plus is also branching out from their core customer base of drug companies. They work with consumer products companies to see the side effects of things like pesticides.

In January, Simulations Plus reported fiscal Q1 earnings of 15 cents per share. That beat Wall Street’s forecast of nine cents per share. Total revenue rose 16% to $12.4 million. The CEO said, “we remain confident in achieving our 10-15% total revenue guidance for fiscal 2022.”

I’m not adding SLP to our Buy List. I don’t many any changes until December. But I rate the stock a “buy” for aggressive investors. I’ll warn you, SLP moves a lot but they have a winning business.

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: March 8, 2022
Posted by Eddy Elfenbein on March 8th, 2022 at 7:02 am

Ukrainians Risk Their Lives to Keep Russian Gas Flowing to Europe

Shell Says It Will Quit Purchasing Oil and Gas from Russia

The Future Turns Dark for Russia’s Oil Industry

Gas Prices Are Now The Most Expensive In U.S. History, Breaking Record From 2008

LME Halts Nickel Trading After Unprecedented 250% Spike

Carmakers Face Soaring Metal Costs With Russian Supplies At Risk

EU Eyes Bonds to Counter Impact as War Grinds On

Putin’s War on Ukraine Shows Xi the Dangers of Attacking Taiwan

Russia, Blocked From the Global Internet, Plunges Into Digital Isolation

Expats Quietly Leave Russia Over Financial and Safety Worries

Morgan Stanley CEO Says Workers Staying Despite Office Push

Wall Street’s Office Return Is Taking Hold. Just Look at the Lattes.

Big Tech Is Spending Billions on AI Research. Investors Should Keep an Eye Out

Can A.I. Help Casinos Cut Down on Problem Gambling?

Axios Wants Us to Read Everything in Bullet Points

Mandiant Spikes 16% On Report Google Is In Talks To Acquire The Company

Lego Revenue Jumped 27% In 2021, As Kids And Adults Continue To Build

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Ross Stores to Open 100 New Stores this Year
Posted by Eddy Elfenbein on March 7th, 2022 at 1:03 pm

Press release:

Ross Stores, Inc. opened 22 Ross Dress for Less® (“Ross”) and eight dd’s DISCOUNTS® stores in 15 different states and Guam in February and March. These new locations are part of the Company’s plans to add approximately 100 new stores – 75 Ross and 25 dd’s DISCOUNTS – during fiscal 2022.

“We recently raised our store potential targets for both Ross and dd’s DISCOUNTS. Our return to stronger unit growth in 2022 reflects our belief that Ross can ultimately grow to 2,900 locations and dd’s DISCOUNTS can become a chain of 700 stores given consumers’ ongoing focus on value and convenience,” said Gregg McGillis, Group Executive Vice President, Property Development. “Our continued expansion of both chains also demonstrates our commitment to further building our presence in both existing and newer markets. With these recent openings, we currently operate a combined total of 1,952 Ross Dress for Less and dd’s DISCOUNTS locations in 40 states, the District of Columbia, and Guam.”

Silgan Approves Buyback
Posted by Eddy Elfenbein on March 7th, 2022 at 9:59 am

The stock market is down again today as the financial world continues to be impacted by the war in Ukraine. One example is palladium, a metal which you probably don’t think much about. It’s used in catalytic converters, and Russia is a major producer. Palladium is more valuable than gold and it’s nearly doubled in the past three months.

Energy stocks are doing the best today while many financial stocks are lagging. JP Morgan made a new 52-week low.

On Friday, Silgan Holdings (SLGN) said that is has approved a buyback for $300 million worth of its stock through the end of 2026.

“This authorization replaces our prior similar authorization which had expired at the end of 2021 and will allow us to repurchase common stock from time to time through December 31, 2026,” said Adam Greenlee, President and CEO. “As in the past, we maintain a disciplined approach to capital deployment with a priority towards growth investments for the Company,” concluded Mr. Greenlee.

This week, we’re going to get an earnings report from Miller Industries (MLR). That will be the final report of the Q4 earnings season. Later this month, we’ll get earnings reports from SAIC (SAIC) and FactSet (FDS). SAIC’s quarter ended in January while FactSet’s ended in February. FactSet will be on March 24 and SAIC’s will be on March 28.

After that, everything gets back to normal and the Q1 earnings reporting season will start in mid-April.

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

Indian Police Arrest Former National Stock Exchange Head

Bankers Are Abandoning Hong Kong as Beijing and Covid Remake the City

Fraud Is Flourishing on Zelle. The Banks Say It’s Not Their Problem.

How War in Ukraine Drives Up Inflation at U.S. Farms, Supermarkets, Retailers

Oil Prices Jump as U.S. Discusses Russian Import Ban

This Russian Metals Giant Might Be Too Big to Sanction

Russian Banks May Issue Cards With China’s Unionpay As Visa, Mastercard Cut Links

How U.S. Law Enforcement Could Take Control Of Russian Oligarchs’ Assets

UBS Has $200 Million Exposure to Russian Assets in Loans to Rich

Uniqlo Owner Pledges to Stay in Russia as Wave of Companies Exit

Congress’ Police Force Declares Emergency Over Trucker Convoys

Car Industry Woes Show How Global Conflicts Will Reshape Trade

Carmakers Race to Control Next-Generation Battery Technology

Dreaming of Suitcases in Space

Why American Mask Makers Are Going Out of Business

Cathie Wood Says She Still Expects To See ‘Spectacular Returns’ Over The Next 5 Years

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February Jobs Report
Posted by Eddy Elfenbein on March 4th, 2022 at 8:35 am

The February jobs report is out. Last month, the U.S. economy created 678,000 net new jobs. That’s a big beat. Expectations were for 440,000. The unemployment rate ticked down to 3.8%.

The revisions for the previous two months were +92,000. The broader U-6 rate was 7.2%.

The surprise is that the average hourly earnings figure was unchanged. Over the last year, average hourly earnings are up 5.1%.

Private payrolls increased by 654,000. Expectations were for 400,000. Manufacturing added 36,000 jobs.

The labor force participation rate was 62.3%. That’s a post-Covid high.