Rise in Bond Yields
Posted by Eddy Elfenbein on December 8th, 2021 at 3:24 pm

Check out the rise in the 1-, 2- and 3-year bond yields.

11 Million Job Openings
Posted by Eddy Elfenbein on December 8th, 2021 at 1:36 pm

Here’s something that we haven’t had in a few days—the stock market is largely flat today. As I write this, the S&P 500 is up by 0.09%. The S&P 500 got as high as 4,698.63 today. That’s not far from the all-time close of 4,794.54 from November 18.

Growth stocks and high beta stocks have a slight edge today.

Two of our Buy List stocks, Zoetis (ZTS) and Trex (TREX), hit new 52-week highs today.

This morning, the BLS said that there were 11.033 million job openings in October. The initial claims report is out tomorrow and the inflation report comes out on Friday.

Zoetis Announces $3.5 Billion Buy Back Program
Posted by Eddy Elfenbein on December 8th, 2021 at 9:24 am

After the close on Tuesday, Zoetis (ZTS) announced a huge share repurchase program:

Zoetis Inc. (NYSE:ZTS) today announced that its Board of Directors has approved a $3.5 billion share repurchase program as part of its capital allocation plans. The shares are expected to be repurchased over a multi-year period, and the program can be cancelled at any time. The Company’s previous $2.0 billion share repurchase program, which was approved in December 2018, is expected to be completed in 2022.

The company also declared a dividend of $0.325 per share for the first quarter of 2022, an increase of 30% from the quarterly dividend rate paid in 2021. The dividend will be paid on Tuesday, March 1, 2022, to all holders of record of the Company’s common stock as of the close of business on Thursday, January 20, 2022.

“Our financial performance has remained very strong this year and allows us to continue making meaningful investments in our business while returning capital to our shareholders,” said Wetteny Joseph, Executive Vice President and Chief Financial Officer at Zoetis. “This new share repurchase program, along with the dividend increase, is a demonstration of our ongoing commitment to shareholders as part of our capital allocation priorities.”

Morning News: December 8, 2021
Posted by Eddy Elfenbein on December 8th, 2021 at 7:03 am

Evergrande Crisis No Lehman Moment with China Markets Unmoved

Yellen Says Lifting Output May Need Protectionist-Like Steps

As Omicron Threat Looms, Inflation Limits Fed’s Room to Maneuver

House Passes Bill Opening Way to Quick Debt Ceiling Increase

Crypto Is the ‘Top Contender’ for Correction, Money Managers Say

President Biden’s Pick for a Key Banking Regulator Backs Out

The Achilles’ Heel of Biden’s Climate Plan? Coal Miners

And Now, Some Good News About Americans and Money

From the Great Resignation to Lying Flat, Workers Are Opting Out

Amazon’s Trucking Ambitions Bump Up Against Driver Shortage, Competition

Kellogg Workers Prolong Strike by Rejecting Contract Proposal

Starbucks Loses Appeal in Union Vote Process

Better.com CEO Vishal Garg Apologizes to Current Employees for ‘Blundering’ of Mass Layoffs; SPAC Delayed

Tesla Owners Are Playing Video Games While Driving

The Key to Marketing to Older People? Don’t Say ‘Old.’

Bitcoin’s Self-Proclaimed Inventor Largely Prevails in Trial Over Stash Worth $54 Billion

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CWS Market Review – December 7, 2021
Posted by Eddy Elfenbein on December 7th, 2021 at 6:56 pm

(This is the free version of CWS Market Review. I’m going to unveil our 2022 Buy List on December 24. To see the new list, make sure you’re a premium subscriber. You can get the premium newsletter for $20 per month or $200 for the whole year.)

Pearl Harbor: 80 Years Ago Today

Eighty years ago today, the Japanese military attacked Pearl Harbor which brought the United States into World War II. Many others have memorialized the event far better than I could. For my part, I want to look at how the financial markets reacted to that terrible day.

While the United States was at peace on December 7, its stock market was not in good shape. Since December 7th was a Sunday, the stock market was closed, but the day before, the Dow closed at 116.60. (The NYSE had a brief Saturday trading session into the 1950s.)

That was well below its peak from four years before. In March 1937, the Dow peaked at 194, and later that year, the bottom fell out. We tend to think of the Great Depression as one long recession but that’s not quite right. After several attempts to get the economy out of its depression, the economy crashed again in 1937.

From August to November 1937, the market suffered one of its sharpest drops on record. The 1937 crash may also be one of the most forgotten. Since it’s so close to 1929, the 1937 mess probably gets lost in the shuffle. Still, the Dow crashed 40% in just three months. From May 1937 to June 1938, the unemployment rate rose from 14.3% to 19.0%.

Things didn’t get much better. In May 1940, the market crashed again as the Germans marched into Paris. (“I remember every detail. The Germans wore gray, you wore blue.”). From May 11 to May 21, the Dow lost 21%.

We should also remember that stock investing hadn’t reached the middle class yet. ETFs and 401(k) plans were still many years away. The Great Depression scared away many potential investors. It took years to convince Americans that the stock market was a sound part of a financial plan.

By December 7, 1941, the market was still far below its 1929 peak. The Dow was 69.4% below where it had been 12 years before. Can you imagine investing for 12 years and still being that far in the hole? For us to say the same for today, the Dow would have to be at 2,850 instead of 35,700.

The market didn’t respond well to the attacks. On Monday, December 8, the Dow fell 3.50%. The selling continued into Tuesday as the Dow lost another 2.89%. As the reality of full mobilization set in, the market continued to fall. By April 28, the Dow reached its low of 92.92. That was ten days after Jimmy Doolittle’s daring raid over Tokyo.

Measuring from December 6, this was a drop of 20%. That was already on top of a lousy market. After 12.5 years, the Dow was still less than one-quarter of its September 1929 peak. You can see why so many members of the Greatest Generation were wary of financial institutions.

The government soon mobilized America for all-out war. That included our finances. The Federal Reserve reached a deal with the U.S. Treasury to buy Treasuries at a yield of 3/8 of 1%. The reserve banks dropped their interest rates to 1%. Americans bought bonds to fund the war.

In October 1942, Franklin Roosevelt issued Executive Order 9250 which limited incomes to $25,000 a year.

7. In order to correct gross inequities and to provide for greater equality in contributing to the war effort, the Director is authorized to take the necessary action, and to issue the appropriate regulations, so that, insofar as practicable no salary shall be authorized under Title III, Section 4, to the extent that it exceeds $25,000 after the payment of taxes allocable to the sum in excess of $25,000. Provided, however, that such regulations shall make due allowance for the payment of life insurance premiums on policies heretofore issued, and required payments on fixed obligations heretofore incurred, and shall make provision to prevent undue hardship.

Yes, this really happened.

Four years after Pearl Harbor, the Dow closed at 194.08. That’s a gain of two-thirds in just four years.

As it turned out, the April 1942 low was a historic buying opportunity. The stock market rallied almost continuously for the next 25 years. The American post-war economy was a boom for both the rich and poor. By May 1965, the Dow was up tenfold from its 1942 low.

The Stock Market Turns Defensive

Now let’s turn our attention to the current stock market. Today, the S&P 500 closed higher by 2.07%. It was the best day for the index since March and the second-best day all year.

The S&P 500 has now closed up or down by more than 1% in seven of the last eight sessions. That didn’t happen once in the 29 sessions prior to that.

From November 18 to December 1, the S&P 500 lost just over 4%. In the last four sessions, the index has made back more than 90% of what it lost. On an intra-day basis, the S&P 500 had a drawdown of 5%. This was our 29th such drawdown since 2009.

What’s stood out in the recent market is how defensive it’s been. By that, I mean that low volatility stocks have done much better than so-called high beta stocks. Here’s a chart of the S&P 500 High Beta Index (in black) along with the S&P 500 Low Vol Index (in blue).

Except for the last two days, the low volatility stocks have done much better while the high beta stocks have suffered the most pain.

That’s a big change from the dynamics that had ruled the market. What happened is that the Fed’s aggressive policies virtually eliminated risk from stock investing. As a result, all the risky asset classes took off. From March 2020 to June 2021, the S&P 500 High Beta Index tripled. Meanwhile, the S&P 500 Low Volatility Index gained just 35%.

Now that the Fed is shifting gears, some of that risk tolerance is shifting as well. Suddenly boring stocks are popular. For example, both Facebook (FB) and Tesla (TSLA) are 15% off their highs. The ARK Innovation ETF (ARKK), which holds many emerging growth stocks, is over 37% below its 52-week high.

Meanwhile, many fairly dull yet stable stocks are at new highs. This includes Abbott Labs (ABT), Procter & Gamble (PG) and McDonald’s (MCD). Hershey (HSY) and AFLAC (AFL) came close to new highs today.

A few times this year, there’s been a shift away from risk, but each time, the trend has petered out. This time may be different.

Stock Focus: Mesa Laboratories

This week’s stock focus is little Mesa Laboratories (MLAB) of Lakewood, Colorado. The company is involved in the lucrative business of high-performance measurement devices. It may sound a bit dull, but these kinds of niche-markets can be very profitable.

After all, there are countless uses for precise measuring devices. Obviously, these devices are crucial for the medical field, but the same is also true for food processing, electronics and aerospace. Mesa serves them all.

Mesa is fairly small compared with many publicly-traded stocks. It has a market cap of about $1.7 billion. One fact that I like is that Mesa is virtually ignored by Wall Street. Only a few analysts bother to follow it.

Despite being ignored, or perhaps because of it, shares of Mesa have done very well over the years. The stock is up more than 160-fold since 1995.

You know a stock has done well when the numbers on the log scale turn into a blur.

Mesa was founded in 1982. Their products include sensors that record temperature, humidity and pressure levels. Mesa also manufactures flow meters for water treatment, polymerization and chemical processing applications. In addition, Mesa makes kidney dialysis treatment products, including metering equipment and machines that clean dialyzers for reuse.

Mesa has four business divisions: Sterilization and Disinfection Control (39% of revenues), Biopharmaceutical Development (29%), Instruments (20%) and Continuous Monitoring (12%).

The Sterilization and Disinfection Control division makes indicators that are used to measure the effectiveness of sterilization for healthcare businesses.

The products in the Instruments division includes data loggers which are self-contained, wireless devices that do things like measure temperature and humidity. Data loggers can also measure pressure and validate the proper use of manufacturing equipment.

The last earnings report blew past expectations. Mesa earned 70 cents per share while the analyst community, to the extent that it exists for Mesa, had been expecting 42 cents per share.

In October, Mesa merged with Agena Bioscience. In Mesa’s words, this “creates new opportunities for us within Clinical Genomics tools.”

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: December 7, 2021
Posted by Eddy Elfenbein on December 7th, 2021 at 7:06 am

Household Spending Drove Euro-Area Growth in Third Quarter

UAE Switches Weekend to Saturday-Sunday, Adopts 4 ½ Day Week

German Chip Cheical Supplier to Spend $1 Billion in U.S., Pairs with Palantir on Supply Chain Data

This Chemical Is in Short Supply, and the Whole World Feels It

Sri Lanka’s Plunge Into Organic Farming Brings Disaster

High Inflation, Falling Unemployment Prompted Powell’s Fed Pivot

Inflation Is the Biggest Threat to the Bedrock 60/40 Portfolio

Peter Lynch Says All-In on Passive Investing Is All Wrong

Americans’ Pandemic-Era ‘Excess Savings’ Are Dwindling for Many

Evergrande’s Epic Restructuring Puts Onus on Xi to Limit Fallout

EU Antitrust Regulator Seeks Input on Microsoft’s Nuance Deal

Microsoft Seizes 42 Websites From a Chinese Hacking Group

Millions of Followers? For Book Sales, ‘It’s Unreliable.’

American Airlines CEO Doug Parker to Retire, President Isom to Take Reins March 31

Samsung Replaces CEOs, Merges Units in Shake-Up

Constellation Brands Agrees to Build Large Brewery in Southeastern Mexico

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Evan Medeiros’s Podcast
Posted by Eddy Elfenbein on December 6th, 2021 at 12:39 pm

Evan Medeiros invited me on his podcast. We had a fun and informative chat. Check it out:

Top Performing Stocks in the S&P 500
Posted by Eddy Elfenbein on December 6th, 2021 at 12:22 pm

Here’s a list of the top-performing stocks in the S&P 500 today. I sense a theme.

The Defensive Market Continues
Posted by Eddy Elfenbein on December 6th, 2021 at 10:04 am

The stock market is up in early trading. This is a strong day for value stocks while growth is flat. Defensive sectors like utilities, staples and REITs are up the most. Tesla is below $1,000 and on pace for a six-week low.

On our Buy List, shares of AFLAC (AFL) are up to a new high.

Middleby (MIDD) said it bought Masterbuilt Holdings LLC, the owner of the Kamado Joe and Masterbuilt brands with an estimated $250 million in net sales for 2021.

Headquartered in the Atlanta area, the brands are known for their outdoor residential products designed for cooking with charcoal. The purchase price of $385 million will be funded in cash and financed under Middleby’s existing senior credit facility. The transaction is expected to close in December 2021, subject to completion of closing conditions.

“The residential outdoor market has gained momentum over the past few years as consumers are spending more time in the backyard. The addition of Kamado Joe and Masterbuilt expands our offerings in this large and growing category, complementing our Lynx, Viking, Josper and EVO residential outdoor cooking brands,” said Tim FitzGerald, Middleby CEO.

“Consumers are seeking products to enhance and simplify the backyard grilling experience. The Kamado Joe and Masterbuilt brands have grown rapidly as the company’s new products have been adopted by the next generation of outdoor enthusiasts. Charcoal as an energy source for cooking continues to gain popularity due to its flavor profile, availability, and affordability. Kamado Joe and Masterbuilt are well positioned to capture the charcoal trend.”

“We are excited about the strategic fit of this acquisition, as it enhances our presence in the outdoor cooking category and expands our residential business,” Mr. FitzGerald continued. “The combination provides for further growth opportunities at Kamado Joe and Masterbuilt, as we accelerate product innovation, expand distribution, and leverage shared manufacturing and supply chain capabilities.”

Morning News: December 6, 2021
Posted by Eddy Elfenbein on December 6th, 2021 at 7:06 am

IMF Chief Warns of ‘Digital Berlin Wall’ That Would Hurt Growth

Riksbank Hawks Zero In on Next Year’s Asset Purchases

Why Does Sri Lanka Want Migrant Workers to Remit Funds via Banking Channels?

Bitcoin’s Outsized Drop Versus Ether May Stem From Macro Link

Believing That the Fed Controls the Value of the Dollar Does Not Make It True

Morgan Stanley Sees Fed as Bigger Threat to Stocks Than Omicron

Wall Street Wants to Sell a Special Index, Just for You

Covid Can’t Stop Corporate Profits From Climbing to Record Highs

How the Supply Chain Crisis Unfolded

Alibaba Overhauls e-Commerce Businesses, Names New CFO

How TikTok Reads Your Mind

Inside Tesla as Elon Musk Pushed an Unflinching Vision for Self-Driving Cars

Evergrande Sets Up Risk Committee; Inches Closer to Restructuring

Condé Nast Knows Faded Glory Is Not in Style

Patek Philippe Brings Back the ‘Holy Grail’ of Watches for 170 Lucky Buyers

10-Year-Old Entrepreneur Set to Retire at 15, Mom Says

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