The Ruble Collapses
Posted by Eddy Elfenbein on February 28th, 2022 at 12:08 pm

The stock market is digesting the dramatic news out of Ukraine. To be blunt, the bulk of the financial world has shut Russia out of the global financial system.

The ruble has collapsed. The Russian Stock Exchange isn’t open, but the Russia ETF has also plunged. It’s a complete disaster for anything that is even closely related to Russia.

There will be a lot of unusual side effects. The price of wheat is up, as is oil. Some precious metals like palladium are up.

For the most part, our stock market is behaving well. The indexes opened lower this morning, but we’ve seen some buyers come out. As I write this, the Nasdaq and Russell 2000 are both positive.

On our Buy List, Science Applications International (SAIC) is getting a nice 3% lift. Trex (TREX) is due to report after the close. This is a stock that’s gotten trashed this year, although it’s bounced in the last few days. Perhaps traders are positioning themselves for an earnings beat. The consensus is for 53 cents per share.

Morning News: February 28, 2022
Posted by Eddy Elfenbein on February 28th, 2022 at 7:04 am

China’s Stimulus Fails to Jolt Construction in Blow to Economy

Why the Chinese Internet Is Cheering Russia’s Invasion

Liquidity Vanishes Across Russia Assets With Ruble Plunging

Western Firms Head For The Exit In Russia As Sanctions Tighten

Shares in Russian Energy Giants, Putin’s Safety Net, Tumble

Russia Erects Financial Defenses to Shield Economy From Curbs

Car Parts, Chips, Sunflower Oil: War in Ukraine Threatens New Shortages

Oil Prices Climb As Ukraine Crisis Deepens

Goldman Says Demand Destruction Only Thing That Can Restrain Oil

The ‘PhD.’ Monetary Standard Has Been An Abject Failure. Let’s Return Money To the Marketplace.

Wall Street’s Risky ‘Razor Blade’ Trade Is Making a Comeback

Corporations Raise Prices as Consumers Spend ‘With a Vengeance’

Tech Giants Turn to a Classic Recruitment Tool: Cash

Berkshire Hathaway’s Reduced Buybacks May Overshadow Powerful Earnings Gains

Barclays Pays Out Millions for Failing to Vet Collapsed FX Firm

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Morning News: February 25, 2022
Posted by Eddy Elfenbein on February 25th, 2022 at 7:02 am

Why Didn’t the U.S. Cut Off Russia from SWIFT? It’s Complicated

Why the Toughest Sanctions on Russia Are the Hardest for Europe to Wield

Russia Sanctions Mean $22 Billion of Debt May Need New Lenders

Russia’s Economic Defences Likely To Crumble Over Time Under Sanctions Onslaught

Pozsar Says $300 Billion Russia Cash Pile Can Roil Money Markets

Putin Huddles With Tycoons and Promises Banks Bulk of State Aid

Bitcoin Donations To The Ukrainian Military Are Soaring As Russia Invades

‘The Sky’s the Limit’: Food Inflation to Worsen on Ukraine

A Key Inflation Gauge Is Still Rising, and War Could Make It Worse

Fed Officials Signal March Rate Hike on Track Despite Ukraine

Big Oil CEO Responds To Biden: We Would Never ‘Take Advantage Of’ War In Ukraine

Airline Industry Shifts Attention To Russia Risks After Ukraine Airspace Closed

Justice Dept. Sues to Block $13 Billion Deal by UnitedHealth Group

Beyond Meat Shares Tumble After Reporting Wider-Than-Expected Loss, Shrinking Revenue

1MDB Loot Wasn’t Enough, So Ex-Goldman Banker Stole Even More

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Morning News: February 24, 2022
Posted by Eddy Elfenbein on February 24th, 2022 at 7:06 am

Gold Jumps To Highest Level In More Than A Year As Russia Invades Ukraine

Russian Stock Market Rout Wipes Out $250 Billion in Value

EU Unlikely To Cut Russia Off Swift For Now, Sources Say

U.S. Banks Tackle Russia Sanctions Fine Print, Worry Over Escalating Restrictions

Russia Could Use Cryptocurrency to Blunt the Force of U.S. Sanctions

Russia Is Sowing Conflict in Ukraine. What Does That Mean for the U.S. Economy?

More Trouble for a Troubled Market

Nasdaq 100 Futures Point to First Bear Market Since March 2020

Oil Prices Soar And Worries Mount About Future Energy Supplies

U.S. Presents ‘Buy American’ Plan to Ease Supply Chain Squeeze

Renting a Car Is Still Going to Be Hard This Summer

Why Offices Are Still Empty

Tesla Plans New Shanghai Plant To More Than Double China Capacity

The $200 Billion Club Loses Last Member as Elon Musk’s Wealth Tumbles

Ex-Goldman Banker’s Trial to Pause on U.S. Documents Blunder

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Thermo and Silgan Raise Dividends
Posted by Eddy Elfenbein on February 23rd, 2022 at 6:04 pm

Silgan Holdings (SLGN) raised its quarterly dividend from 14 to 16 cents per share. The dividend is payable on March 31 to the holders of record on March 17. This is an increase of 14.3%. Silgan has increased its dividend every year since 2004.

Thermo Fisher Scientific (TMO) is raising its quarterly dividend by 15% to 30 cents per share.

Heico Earns 63 Cents per Share
Posted by Eddy Elfenbein on February 23rd, 2022 at 4:29 pm

After the bell, Heico (HEI) reported fiscal Q1 earnings of 63 cents per share. That’s up from 51 cents per share one year before. Wall Street had been expecting 61 cents per share. Net sales rose by 17% to $490 million and operating income increased by 23%.

Heico noted that while Covid has been impacting its business, that impact has been gradually decling over time. Heico has now seen “six consecutive quarters of sequential growth in net sales and operating income at the Flight Support Group.”

Heico’s consolidated operating margin improved to 20.2% in the first quarter of fiscal 2022, up from 19.2% in the first quarter of fiscal 2021. EBITDA increased 18% to $122.3 million in the first quarter of fiscal 2022, up from $104.0 million in the first quarter of fiscal 2021.

Laurans A. Mendelson, HEICO’s Chairman and CEO, commented on the Company’s first quarter results stating, “We are very pleased to report continued strong trends in quarterly consolidated financial results with quarterly consolidated increases of 23% and 17% in operating income and net sales, respectively. These results reflect 13% organic growth in our net sales principally arising from a continued rebound in demand for our commercial aerospace products and services.

Our total debt to shareholders’ equity ratio improved to 10.1% as of January 31, 2022, down from 10.3% as of October 31, 2021. Our net debt (total debt less cash and cash equivalents) of $112.3 million as of January 31, 2022 to shareholders’ equity ratio improved to 4.8% as of January 31, 2022, down from 5.6% as of October 31, 2021.

Our net debt to EBITDA ratio improved to .22x as of January 31, 2022, down from .26x as of October 31, 2021. We have no significant debt maturities until fiscal 2024 and plan to utilize our financial strength and flexibility to aggressively pursue high quality acquisitions of various sizes to accelerate growth and maximize shareholder returns.

Down Four Days in a Row
Posted by Eddy Elfenbein on February 23rd, 2022 at 2:24 pm

Yesterday, the stock market officially closed in correction territory, meaning down more than 10%, and it’s down again today. We’re very close to yesterday’s low. This could be our fourth down day in a row.

This morning, TJX bombed its earnings report. The retailer earned 78 cents per share versus estimates of 91 cents per share. The stock is down about 5% to a new 52-week low.

Thanks to the TJX report, shares of Ross Stores (ROST) are down as well. As usual, Wall Street assumes that if one company is having difficulties, then its competitors must be as well. Oddly enough, Ross is currently down more than TJX.

There’s no big economic news today, but tomorrow we’ll get jobless claims and a revision to the GDP report.

Morning News: February 23, 2022
Posted by Eddy Elfenbein on February 23rd, 2022 at 7:02 am

The Russia-Ukraine Crisis Is Shaking Markets and Portfolios

Europe’s Banks Brace For Russia Fallout While U.S. Banks See Limited Pain

Putin Insulated Russia’s Economy. Will Biden’s Sanctions Hold Him Back in Ukraine?

Western Sanctions On Banks Only Scratch Surface Of Fortress Russia

As Sanctions Start, Russia’s Trade Flow Shifting Towards China

Climate Fears on Back Burner as Fuel Costs Soar and Russia Crisis Deepens

Gold Fights Off Rising Rates, Bitcoin to Be Haven in Tough Times

Omicron Ripping Through Cargo Ships May Exacerbate Shipping Woes

The Global Glut of Clothing Is an Environmental Crisis

IMF Urges BOE To Shrink Balance Sheet by £650 Billion

Some Companies Ditch Annual Raises and Review Worker Pay More Often

Goldman Sachs Wants Its Bonuses Back as Punishment for Jumping Ship

Why This Economic Boom Can’t Lift America’s Spirits

Virgin Hyperloop Lays Off Half Its Staff, Abandons Mass Transit Plan

Macy’s Opts Against Separation of E-Commerce Business

Getting Hitched? Good Luck Finding Food, Photographers and Even Venues

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Cramer with Carrier’s CEO
Posted by Eddy Elfenbein on February 22nd, 2022 at 8:31 pm

CWS Market Review – February 22, 2022
Posted by Eddy Elfenbein on February 22nd, 2022 at 6:54 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.”)

War and the Stock Market

The headlines have been dominated by war news from Eastern Europe. As I write this, Russian troops have moved across the border into Ukraine. Let me be clear that this news is not be a cause for you to sell out of the market, particularly any of our Buy List stocks.

I’m hardly a national security expert, so I’ll avoid any commentary on that. However, I will touch upon the long and troubling relationship between war and financial markets.

In fact, it’s not a stretch to say that the growth of modern financial markets is a byproduct of war. When countries have had to raise enormous sums of money to keep the battle going, that has spurred the development of financial centers that could sell war bonds at fantastic rates.

At the outset of World War I, the British government thought it could pay for the war with existing revenues. That wasn’t the case. It was the need for funds, particularly in our Civil War, that created the infrastructure that could later be used to raise money for large-scale corporate ventures.

Here’s a famous photo of Charlie Chaplin being held aloft by Douglas Fairbanks at a Liberty bond drive in 1918:

That bond drive was for $4.1 billion at 4.15%.

One hundred years later, at the exact same spot, your humble editor tries to mimic Chaplin’s gesture:

War, sadly, is big business and it’s often good business, especially if you win. The line attributed to Nathan Rothschild is that one should “buy on drums and sell on trumpets,” meaning to buy at the start of a war and sell once peace returns. In 2003, the stock market reached its bottom right as the fighting started.

During World War II, the stock market fell from Pearl Harbor until April 1942. The ultimate low came on April 28, ten days after the daring Doolittle Raid over Tokyo. The Dow closed at 92.92. To add some context, on September 3, 1929, the Dow had been at 386. So more than twelve years after the peak, the stock market was still about a quarter of where it had been.

The war, however, spurred a big rally for stocks. Within two years, the Dow was up 50%, and it doubled by 1945. By 1955, the Dow was up fivefold, and it doubled again ten years later. The market really didn’t see any pause until 1966 when inflation started to have a major impact. Twenty-four years after FDR’s “Day of Infamy” speech, the Dow had advanced close to 1,000%, and that’s not counting dividends.

At the outbreak of WWI, the stock exchange shut down. They didn’t think it was going to last long. Traders soon started meeting in the street outside the exchange. The NYSE finally relented and trading resumed indoors in November 1914.

What about after the war? Post-war periods have often been associated with ugly bouts of inflation. That’s when the loose money policies come due. Many people remember the persistent inflation of the 1970s, but the post WW2 inflation seems to have been lost down the memory hole. In 1946, inflation was 8.3% and the following year, it got to 14.4%. You rarely hear about that but that’s what happens when you hold back demand for a few years.

Here’s an amazing stat. During World War II, how many cars did America make? The answer is 139. Compare that to the year just before America entered the war, 1941, when we made three million.

I was recently on Michael Gayed’s podcast and I said that in many ways, dealing with Covid has been similar, in an economic sense, to going to war. Not in a literal sense, of course, but the government and the Federal Reserve went to extreme lengths to keep the economy afloat.

In this case, we already had inflation at the outset of hostilities. The price of gold is up to $1,900 per ounce. It was over $2,000 over the summer. Oil may soon be closing in on $100 per barrel. On Friday, the government released a very good retail sales report for January. Last month, retail sales rose by 3.8%. This tells us that higher prices aren’t scaring shoppers away. In fact, they may be getting them off the couch.

This news also jibes with the recent jobs report. More people are working and getting paid higher wages. That’s leading to more shopping and higher prices. That’s good for our stocks.

The inflation debate is falling into two camps. One camp, largely sympathetic with the Biden Administration, is blaming the supply-chain mess. The other side is less sympathetic with the administration. I won’t pick a side, but I suspect that it’s a little of both. The supply chain troubles should soon begin to gradually fade.

The Selloff Is Officially a “Correction”

The stock market had a rough day today. At its low, the Dow was off by 714 points. The S&P 500 finished the day at its lowest level in nearly five months.

This is now an official correction going by market closes. That means a drop of more than 10%. Since January 3, the S&P 500 has lost 10.25%. A bear market is a drop of more than 20%. (I don’t know who comes up with these, but that’s the nomenclature.)

Again, we’re seeing more conservative sectors do well. The S&P 500 Growth Index was off by 1.27% today while the Value Index was down only 0.76%.

This trend has been going on for several weeks. Since early December, the S&P 500 Value Index is up by 2.40% while the S&P 500 Growth Index is down by 12.58%.

There’s a Russia ETF (RSX) that trades on the NYSE. It’s mostly oil and gas companies. Four months ago, RSX was at $33 per share. Today it got down to $20. The Russian ruble fell the most in two years.

Although it’s not on our Buy List, I was curious to see the earnings report today from Home Depot (HD). This is an interesting stock to watch in that it’s far from the largest company on Wall Street, but it’s probably one of the most closely tied to the health of the economy. If the economy is happy, then HD is doing well. If the economy is off the rails, then HD is not doing well.

Home Depot is the largest home-improvement retailer in the world. It runs more than 2,300 warehouse stores. The company is also a component in the Dow Jones Industrial Average.

For its fiscal Q4, HD said it made $3.21 per share. That was a three-cent beat. Year-over-year same-store sales rose by 8.1%. At a nuts-and-bolts level (literally), this was a good report. Plus, HD also boosted its dividend by 15%. The company said it expects earnings growth in the “low single digits” for this year.

Still, traders were unnerved as shares of HD lost close to 9% today. I don’t think that’s due to Putin. But why were traders so upset? This is part of the larger rotation away from cyclical stocks and towards defensive stocks. Even good earnings won’t spare you.

But I was still surprised that Home Depot was punished so severely today. In financial markets, you want to pay particular attention to things that don’t seem to add up. There’s a good chance you or the market is missing something.

The fate of Home Depot is closely tied to consumer spending and the housing sector. While things are going very well for housing, I’m not sure how much longer the party can last. This morning’s Case-Shiller report said that home prices are rising at the fastest pace in over three decades. Over the last 12 months, home prices are up 18.8%. That’s the fastest calendar year increase in 34 years. Meanwhile, the supply of homes is at a record low.

Perhaps the market is sensing a coming top in the housing market. Plus the Federal Reserve appears ready to hike interest rates several times in the coming year. On top of that, the 2/10 spread is surprisingly low. The Fed could have an inverted yield curve in a few months.

These are signs that it’s smart to steer clear of cyclical stocks and find safety in defensive names. As much as I like Home Depot, I’m not a buyer at these levels.

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

– Eddy

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