Morning News: September 20, 2022
Posted by Eddy Elfenbein on September 20th, 2022 at 7:02 am

Fed Set to Reveal ‘Pain’ Coming in Next Stage of Inflation Fight

Jerome Powell’s Inflation Whisperer: Paul Volcker

Climbing Housing Costs Could Prop Up Inflation for a While

Overstretched U.S. Companies Feel Pinch of Higher Borrowing Costs

Wall Street’s Mysterious 2,200% IPOs Come From Tiny N.J. Broker

Tycoon’s Wild $3 Billion Gamble on ‘China’s LVMH’ Crashes

World Will Get More Millionaires After 2022’s Wealth Loss

Mining Giant Fortescue to Spend Billions in Bid to Eliminate Fossil Fuels by 2030

Why The Current Oil Boom For Arab States May Be Their Last

Porsche Investor Demand Exceeds $9.4 Billion Offering in Hours

How a Quebec Lithium Mine May Help Make Electric Cars Affordable

Why GM Is Taking the Slow Lane in the Great EV Race

Ford Says It Will Spend $1 Billion More in Third Quarter Because of Supply Chain Problems

An Anti-E.S.G. Activist Takes on Apple and Disney

Judge Rejects Antitrust Challenge to UnitedHealth Acquisition

Morgan Stanley to Pay $35 Million to Settle SEC Charges It Mishandled Customer Data

Beyond Meat COO Arrested for Biting Man’s Nose After College Football Game

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Morning News: September 19, 2022
Posted by Eddy Elfenbein on September 19th, 2022 at 7:09 am

Food Supply Disruption Is Another Front for Russian Falsehoods

‘Crippling’ Energy Bills Force Europe’s Factories to Go Dark

Private Drillers Are Hitting Their Limits

Electric Vehicles Took Off. Car Makers Weren’t Ready

The Global Race to Hike Rates Tilts Economies Toward Recession

Dollar’s Rise Spells Trouble for Global Economies

Rising Bond Yields Change the Calculus for Stocks

Put Away the Smelling Salts, the Fed Doesn’t Threaten Washington’s ‘Solvency’

Bitcoin Drops to 3-Month Low; Ether Extends Swoon Since ‘Merge’

Student Loan Subsidies Could Have Dangerous, Unintended Side Effects

Home-Goods Retailers Jolted by Slowdown in Housing Market

Railroads’ Strategy Thrilled Wall Street, but Not Customers and Workers

Delta Looks to Improve Margins, Cut Debt as Travel Rebounds

Business Class for $20,000 Means Staff Fly Coach or Not at All

Porsche IPO to Raise up to $9.4 Billion for Parent VW

Apple Flexes Muscle as Quiet Power Behind App Developer Group

Apple Shot an Oscar Contender Starring Will Smith. That Was Before the Slap.

Clearview AI, Used by Police to Find Criminals, Now in Public Defenders’ Hands

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Morning News: September 16, 2022
Posted by Eddy Elfenbein on September 16th, 2022 at 7:02 am

China’s Downturn Moderates, Though Property Woes Linger

Germany Seizes Assets of Russian Oil Giant Rosneft

What Price Is Right? Why Capping Russian Oil Is Complicated

Britain’s Spending and Tax Cut Plans Worry Investors in Its Debt

The World Has a $1 Trillion La Nina Problem

Thanksgiving Could Be Ruined Due to a Looming Cranberry Shortage

Biden Administration Targets Crypto Enforcement, Digital Asset Rules

Can ‘the Merge’ Save Crypto?

BofA Sees New Lows for US Stocks as Inflation Shock ‘Ain’t Over’

Mortgage Rates Top 6% for the First Time Since the 2008 Financial Crisis

More Workers Head to Picket Lines Amid Higher Inflation and a Tight Job Market

The Ivy League Dropout Who Just Sold His Firm to Adobe for $20 Billion

FedEx to Close Offices, Park Aircraft After Warning of Sales Shortfall

For Gen Z, TikTok Is the New Search Engine

TikTok’s C.E.O. Navigates the Limits of His Power

How Rich Is King Charles III? Inside The New Monarch’s Outrageous Fortune

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Morning News: September 15, 2022
Posted by Eddy Elfenbein on September 15th, 2022 at 7:05 am

US Railroads, Unions Reach Tentative Pact on Eve of Deadline

Households a Wild Card as Europe Moves to End Russian Gas Dependence

A Chinese Spy Wanted GE’s Secrets, But the US Got China’s Instead

New Inflation Developments Are Rattling Markets and Economists. Here’s Why.

Ray Dalio Does the Math: Rates at 4.5% Would Sink Stocks by 20%

Janet Yellen Will Pledge 5,000 New I.R.S. Hires to Bolster Taxpayer Responsiveness

U.S. Senate to Grill SEC’s Gensler Over Climate, China and Crypto

F.D.A.’s Drug Industry Fees Fuel Concerns Over Influence

Ethereum Finishes Long-Awaited Energy-Saving ‘Merge’ Upgrade

The Founder of Patagonia Is Giving His Company Away to Help Fight Climate Change

At Detroit Auto Show, Biden Announces Money for Charging Stations

Shell Names New CEO as Longtime Boss Steps Down

California Files Antitrust Lawsuit Against Amazon

Inside Starbucks’ Plan to Speed Up Service

The World’s Best Business Schools, Ranked

Disney to Roll Out Israeli Superhero in ‘Captain America’ Film — Irking Arabs

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Morning News: September 14, 2022
Posted by Eddy Elfenbein on September 14th, 2022 at 7:05 am

Chinese Manufacturers Get Around US Tariffs With Some Help From Mexico

Rail Strike Threat Is Set to Halt Shipments of US Crops, Autos

U.S. Inflation Remained High in August

Markets Plunge as Inflation Data Undercuts Wall Street’s Optimism

US Stocks Set for Bounce After $1.5 Trillion Inflation-Led Rout

Gundlach Urges Fed to Slow Rate Hikes as Summers Prefers 1% Jump

Are We In a Recession? Both Sides React

U.S. SEC to Propose Treasury Market Clearing Reforms to Address Resilience Fears

Credit Suisse-Tycoon Clash Has Wealth Industry Holding Its Breath

Pandemic Aid Cut U.S. Poverty to New Low in 2021, Census Bureau Reports

Social Security’s Cost-of-Living Increase Will Be Largest in Four Decades, an Estimate Says

U.S. Mortgage Interest Rates Top 6% for First Time Since 2008

E.U. Scores Major Legal Victory Against Google

Battery Recycling Race Heats Up After Inflation Reduction Act

Rio Tinto Forges Deal With China for $2 Billion Iron-Ore Mine

China Evergrande’s Other Spending Spree—on Soccer—Is Also Running Into Trouble

Nearly 20% of Congress Trades Stocks that Present Conflicts of Interest

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CWS Market Review – September 13, 2022
Posted by Eddy Elfenbein on September 13th, 2022 at 7:40 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 Stock Market Suffers Its Worst Day Since 2020

This morning, the government released its report on inflation for August. Wall Street had been eagerly anticipating this report. Last month inflation was unchanged, and it was hoped that we would see more good news on the inflation front.

The equation is simple: If inflation backs off, then the Federal Reserve may back off with its rate hikes as well. After all, gasoline prices have fallen for over 90 days in a row. Up and down Wall Street, all eyes were hoping for good news.

Well, we didn’t get it.

Instead, inflation is alive and well. According to the Bureau of Labor Statistics, the U.S. economy had inflation of 0.1% last month. That beat expectations of -0.1%.

Over the last year, inflation is running at 8.3%. Wall Street had been expecting 8%. At that rate, that means if you’re paid a salary at a constant rate for one full year, then you work one month for free.

We know that falling energy costs have had a major impact on the overall inflation rate, so let’s also look at core inflation which excludes food and energy prices.

Eh, not much good news. For August, core inflation was up 0.6% (see chart below). That doubled Wall Street’s forecast of 0.3%. I think this is the stat that really stung people. Over the last year, core inflation is now running at 6.3%.

Here are some details:

Energy prices fell 5% for the month, led by a 10.6% slide in the gasoline index. However, those declines were offset by increases elsewhere.

The food index increased 0.8% in August and shelter costs, which make up about one-third of the weighting in the CPI, jumped 0.7% and are up 6.2% from a year ago.

Medical care services also showed a big gain, rising 0.8% on the month and up 5.6% from August 2021. New vehicle prices also climbed, increasing 0.8% though used vehicles fell 0.1%.

This bout of inflation is unusual in that it appears to be hitting regular consumers harder than the overall numbers suggest. It’s one thing to say that inflation has increased by 8.3% over the last year, but that’s just the average. For example, the index for food is up by 11.4% over the last 12 months. That’s the highest rate since 1979. The price for electricity is up nearly 16% in the past year.

Larry Summers, the former Treasury Secretary, tweeted:

Today’s CPI report confirms that the US has a serious inflation problem.
Core inflation is higher this month than for the quarter, higher this quarter than last quarter, higher this half of the year than the previous one, and higher last year than the previous one.

— Lawrence H. Summers (@LHSummers) September 13, 2022

Traders hated the report. I mean, they hated this report. Prior to the report coming, the futures indicated that the stock market was ready to open higher. Today could have been the market’s fifth up day in a row.

But as soon as the report came out, so did the bears. They loved the lousy inflation news. This was the stock market’s worst day since 2020. The S&P 500 lost 4.32% and the Dow gave up more than 1,200 points. The Nasdaq Composite lost more than 5% on the day. Today was just ugly.

The strong inflation news gives political cover to Jerome Powell and his friends at the Fed to continue hiking interest rates. When the Fed hikes rates, risky stocks suffer the most and conservative stocks provide much greater protection. I feel like a broken record on this point, but we saw it so clearly today.

Here are some numbers from today that make the story clear. The S&P 500 High Beta Index lost 5.16% today while the S&P 500 Low Volatility Index fell “only” 2.89%. It’s a similar story with growth and value. The S&P 500 Growth Index lost 5.19% while the S&P 500 Value lost 3.49%.

Amazon and Netflix were both off by more than 7%. Facebook was down more than 9%.

On our Buy List, Hershey (HSY) is probably one of the best examples of a conservative, defensive stock. It’s our top-performing stock this year. Not surprisingly, it was among our top-performing stock today. In fact, today really was a microcosm for the whole year so far. Our Buy List outperformed the S&P 500 today by more than 1% today.

Where do we go from here? The Federal Reserve meets again next week. We can almost certainly expect another 0.75% rate increase. This would be its third 0.75% rate hike in a row. There’s even a decent chance (around 33%) that we’ll see a full 1% increase, but I doubt that will happen. Six months ago, the Fed’s range for short-term interest rates was 0% to 0.25%. After next week, it will be 3% to 3.25%.

The meeting after next week will be on November 2, just before Election Day. Yesterday, the futures market was indicating only a 14% chance of a 0.75% rate hike. Thanks to today’s inflation report, that’s up to 53.5%. That would bring the upper range to 4%.

One of the reasons why I like to track the two-year Treasury yield is that it serves as an unofficial estimate for what the Fed will eventually do. It’s not perfect, but it’s a decent proxy for what Wall Street is thinking. Today the two-year yield got as high as 3.75%. That’s a 14-year high (see chart below). More importantly, it’s much higher than you see in most stocks. The yield on the 30-year Treasury topped 3.5% today. Eighteen months ago, during Covid, it was at 1%.

Today’s message is clear. The Fed still does not have a handle on inflation. Despite assurance that inflation is merely transitory, inflation is becoming annoyingly persistent. The Fed now realizes that it will have to take bold action to defeat inflation. Christopher Waller, a Fed governor, said, “This is a fight we cannot, and will not, walk away from.”

As long as the Fed is determined to raise interest rates, then the stock market will be soggy. I’m not predicting a crash, or even a downward market, but bulls will find it difficult to get a sustained rally going. As fun as this summer’s rally was, it’s come to an end.

The other important takeaway is that holding risky assets right now is dangerous. I’m mostly speaking of high-volatility stocks, but this spills into NFT and crypto as well. With higher rates on the way, conservative stocks will fare much better. That’s been consistent for the last 10 months. These stocks aren’t nearly as impacted by the Fed’s inflation battle as is the rest of Wall Street.

BofA’s Investor Survey

Bank of America recently conducted a survey of major investors. I’m brining this to your attention because I was struck by the level of fear it revealed. Personally, I like to keep an attitude of reasonable optimism. In most cases, it’s too easy to let fear overtake what should be a sober process.

According to the survey, 52% of investors are underweighted in stocks, and another 62% are overweight in cash. I would not have guessed it’s that high.

As concerns over the economy escalate, the number of investors expecting a recession has reached the highest since May 2020, strategists led by Michael Hartnett wrote in a note on Tuesday. Sentiment is “super bearish,” with the energy crisis further weighing on risk appetite, they said. A net 42% of global investors are underweight European equities, the largest such position on record.

What also stood out to me is that a new 92% of the respondents expect profits to fall next year. Investors are clearly shying away from risk.

Persistently high inflation is seen as the biggest tail risk, followed by hawkish central banks, geopolitics and a global recession. Only 1% of participants see a resurgence in the Covid-19 pandemic as a tail risk.

Unfortunately, investors see more problems in Europe. According to the survey, 70% of respondents think Europe’s energy crisis will push the continent into a recession.

One positive note is that 79% of investors expect to see inflation calm down in the U.S. over the next year, and 36% see the Fed ending rate hikes by Q3 of next year.

Stock Focus: McGrath RentCorp

One of my hobbies is finding interesting (and hopefully profitable) businesses that few on Wall Street know about. I’ve featured many of them in these pages. This week, I want to introduce you to McGrath RentCorp (MGRC). This is a fascinating and little-known stock. The company is involved with business-to-business renting.

McGrath rents relocatable modular buildings, portable storage containers, electronic test equipment and liquid containment tanks. This means things like modular classrooms. Or imagine a construction site in the middle of nowhere. McGrath can rent the foremen an instant office. These things are more common than you might expect.

But McGrath does more than that. They also rent test equipment and storage tanks. The company currently operates through four segments: Mobile Modular, TRS-RenTelco, Adler Tanks and Enviroplex.

Only two Wall Street analysts currently follow the stock, but despite being almost completely ignored by Wall Street, this is a very sound company. McGrath has raised its dividend for 31 years in a row. Earlier this year, they bumped up the quarterly dividend from 43.5 to 45.5 cents per share.

The company was founded by Bob McGrath in March 1979 in a small two-acre inventory center in San Leandro, California. McGrath was quickly successful and by 1984, the stock IPO’d on the Nasdaq at $6 per share.

Since then, McGrath has split 2-for-1 three times which comes to 8-to-1. That means that McGrath’s split-adjusted IPO price was 75 cents per share. Today it’s at $85.37 per share.

Check out this chart:

And it’s only gotten the attention of two analysts!

McGrath was hurt during Covid but it still managed itself well. The company’s EPS dropped from $4.16 in 2020 to $3.66 in 2021. I think the company has a good shot this year of topping its all-time EPS high from 2020.

During Q1 of this year, the company made 77 cents per share which beat by five cents. For Q2, McGrath made $1.07 per share which beat consensus by 17 cents per share. (Please bear in mind that with so few analysts following it, that’s a stretch to call it a “consensus.”)

The current market cap is a little over $2 billion. McGrath runs a very strong business and the shares are going for a very good price. That may not last long.

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: September 13, 2022
Posted by Eddy Elfenbein on September 13th, 2022 at 7:07 am

European Manufacturers Reel From Russian Gas Shutoff

Inflation Is Upending Politics in the Most Unequal Region on Earth

Inflation Explained: The Good, the Bad and the Uncertain

Bond Yields Dip Ahead of Key August Inflation Report

BofA Survey Shows Investors Fleeing Equities en Masse on Fear of Recession

U.S. Banks’ Key Performance Metric Set to Turn Around in Second Half

There’s a New Cop on the Banking Beat: Chief Climate Risk Officer

Who Are America’s Missing Workers?

US Falls to 18th Place in Global Retirement Ranking

Strike Threat on Freight Railroads Is New Supply Chain Worry

Peloton Chairman John Foley to Exit in Management Shake-Up

Instagram Stumbles in Push to Mimic TikTok, Internal Documents Show

A $100 Million Bet on Finding the Next ‘Mr. Beast’

King Charles Inherits Untold Riches, and Passes Off His Own Empire

Most Twitter Shareholders Vote in Favor of Sale to Musk

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Looking to Tomorrow’s CPI Report
Posted by Eddy Elfenbein on September 12th, 2022 at 9:53 am

The stock market opened higher modestly this morning. This could be our fourth up day in a row. On Friday, the S&P 500 closed above its 50-day moving average. That came after a seven-day stretch of being below the 50-DMA.

I think Wall Street is more focused on tomorrow’s CPI report. Some of the major Wall Street investment houses are saying that it’s possible that we’ll see a month-over-month decline in prices. Of course, that would be heavily influenced by energy since gasoline has dropped markedly.

So far, energy and tech stocks are leading the way on Wall Street. On our Buy List, shares of Silgan Holdings (SLGN) made a new 52-week high. At one point, Trex (TREX) was up close to 6%.

This is an interesting day where the market is rallying. At noontime, we’re up about 1% and Utility Sector ETF (XLU) is at a new 52-week high.

Morning News: September 12, 2022
Posted by Eddy Elfenbein on September 12th, 2022 at 6:52 am

Flurry of New Rules Leave Turkish Banks Struggling to Lend

Janet Yellen Warns U.S. Gas Prices Could Spike this Winter as Oil Soars Once Europe Stops Buying Russian Crude

Energy Costs Are So High Aga Owners Are Ripping Out £5,000 Cookers

The World’s Hottest Housing Markets Are Facing a Painful Reset

US Economy a Safer Bet Than ‘Dire’ Europe, Goldman Strategists Say

Zoltan Pozsar Sees a New Dollar Regime. His Longtime Collaborator Disagrees

Fed’s Exit Puts World’s Biggest Bond Market on Shakier Ground

Why the U.S. SEC is Looking to Reform the Treasury Market

Startups Are Borrowing More as the Easy Venture Capital Money Vanishes

Store Shelves Are No Longer Bare, but Baby Formula Remains in Short Supply

Rise in Deaths Spurs Effort to Raise Alcohol Taxes

New Starbucks CEO to Learn Role Alongside Howard Schultz

Activist Investor Dan Loeb Backs Off Pushing Disney to Sell ESPN

At Corporate Pep Rally, Disney C.E.O. Pitches Warmer, Fuzzier Side

Take Your Fries and Leave: Why Fast Food Is Racing to Ditch the Dining Room

Nikola Founder Faces Securities-Fraud Trial Over Promises About Electric Trucks

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Morning News: September 9, 2022
Posted by Eddy Elfenbein on September 9th, 2022 at 7:05 am

Shock Waves Hit the Global Economy, Posing Grave Risk to Europe

Lagarde Says ECB Can Offer Liquidity to Banks, Not Energy Firms

Bank of England Delays Next Interest Rate Decision Following Queen’s Death

How Silicon Chips Rule the World

Climate Change Could Worsen Supply Chain Turmoil

Companies Are Buying Large Numbers of Carbon Offsets That Don’t Cut Emissions

The World’s Third-Richest Man Sells the World a Green Dream Built on Coal

The Days of Energy Deregulation Are Over in Europe

Wall Street’s Commodity Traders on Track to Break Profit Records

BofA Says ‘Appalling’ Mood Fuels $11 Billion US Stocks Exodus

Yellen Embarks on Economic Victory Tour as Midterm Elections Approach

US Housing Market to Remain ‘Especially Frigid’ as Mortgage Rates Spike

Despite What Politicians Tell You, Credit Cards Are the Embodiment of ‘Main Street’

EY Leaders Green Light Split Plan

Summer Movie Season Fizzles Out, With Few Blockbusters to Count On This Fall

How Do Japanese Show They Care? By Sending a Telegram.

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