Score One for Inefficient Markets
Posted by Eddy Elfenbein on January 12th, 2021 at 10:21 am

On Thursday, Elon Musk tweeted the cryptic message “Use Signal.”

Use Signal

— Elon Musk (@elonmusk) January 7, 2021

The billionaire’s tweet was liked and re-tweeted many thousands of times. The day before, shares of Signal Advance (SIGL) closed at 60 cents per share. On Thursday, it got to $3.76 per share.

There’s one slight problem. Signal Advance has nothing to do with Elon Musk. It’s a biotech stock that was formerly known as Biodyne Development Company. Musk wanted people to use Signal, an encrypted-messaging platform which isn’t publicly traded.

Here’s the craziest part. SIGL continued to rally even after the truth was uncovered. On Monday, it got to over $70 per share.

Now reality is beginning to set in. But only partially. SIGL is down 57% this morning, but that only brings it to $16.50 per share.

Morning News: January 12, 2021
Posted by Eddy Elfenbein on January 12th, 2021 at 7:08 am

Oil Producers Commit to Supply Curbs, Sustaining Price Rally

How China Won Trump’s Trade War and Got Americans to Foot the Bill

Value Stocks Surge Boosts 2020’s Losers As Investors Bet on Economic Revival

Jabs Equal Jobs? Fed Sees Possible Economic Boom If Vaccine Gets On Track

Wall Street Visionaries Provide Chilling Views on Next Big Risk

Republicans Face Growing Corporate Backlash After Capitol Assault

Trump Dropped By Biggest Lender Deutsche Bank for Future Business

An Urgent Reckoning for the Trump Brand

Twitter, in Widening Crackdown, Removes Over 70,000 QAnon Accounts

Fringe Groups Splinter Online After Facebook and Twitter Bans

‘An Epiphany Moment’ for Corporate Political Donors May Have Arrived

Walmart Creates Fintech Partnership With Ribbit Capital

Mercedes and BMW’s Dominance Wanes as Electric Brands Ascend

Howard Lindzon: Momentum Monday…The Wall of Worry Continues To Eat Through Supply

Ben Carlson: Are Roth IRAs Overrated?

Michael Batnick: Animal Spirits: Should I Use a Roth or a Traditional IRA?

Be sure to follow me on Twitter.

ICE to Sell Its Crypto Unit
Posted by Eddy Elfenbein on January 11th, 2021 at 11:57 am

This morning, Intercontinental Exchange (ICE) said that its Bakkt unit will be going public. Bakkt focuses on digital markets. Initially, it made a big splash by having Bitcoin futures. Now it lets people trade all sorts of digital assets.

Bakkt will go public through a special purpose acquisition company, or SPAC, which involves a shell company raising money to buy another company and take it public. Bakkt will merge with VPC Impact Acquisition Holdings (VIH), which is sponsored by the Chicago investment firm Victory Park Capital. VPC Impact went public in September.

The deal gives Bakkt an enterprise value of $2.1 billion. So far, more than 400,000 people have signed up for Bakkt’s app, which is still invite-only, the company said. It is set for a wider launch in March.

ICE will still maintain a large ownership stake in Bakkt.

Morning News: January 11, 2021
Posted by Eddy Elfenbein on January 11th, 2021 at 7:01 am

Goldman, JPMorgan to Delist Some Products in Hong Kong

The Hot Alternative Investments to Watch in 2021

Libor Proving Hard to Kill in $200 Trillion Derivatives Market

U.S. Bank Quarterly Profits Expected to Fall Again From Pre-COVID Levels

The Business Rules the Trump Administration Is Racing to Finish

‘It Was a Joke’: Some Small Businesses Got $1 Relief Loans

U.S. Small Businesses to Get More Cash As Pandemic Loan Program Re-Opens

He Created the Web. Now He’s Out to Remake the Digital World.

Tech Under Attack After Parler Goes Dark, Twitter Shares Drop

Chinese Search Giant Baidu to Create An Electric Vehicle Company

CES 2021: The World’s Largest Tech Show Trades Las Vegas for Cyberspace

Novavax Bosses Cash Out For $46 Million with COVID-19 Vaccine Trials Still Under Way

Jeff Miller: Weighing the Week Ahead: Can Earnings Growth Justify Current Stock Prices?

Michael Batnick: The Stock Market Is Causing The Bubbles

Ben Carlson: It’s OK To Build Wealth Slowly & Bitcoin is a Call Option on Human Nature

Joshua Brown: Listen: When An Asset Goes Out of Style & The Stock Market is Heartless, Be A Bayesian About Risk Taking, About Those $2,000 Checks (with Allison Schrager)

Be sure to follow me on Twitter.

December NFP = -140,000
Posted by Eddy Elfenbein on January 8th, 2021 at 9:41 am

We had a surprising jobs report this morning. According to the government, the US economy shed 140,000 jobs during the month of December. Prior to this report, there were several economic reports were suggesting this would be a bad job report. They were right. Wall Street had been expecting a loss of 50,000.

The unemployment rate was 6.7%, compared to the 6.8% estimate. An alternative unemployment measures that includes discouraged workers and those holding part-time jobs for economic reasons declined to 11.7% from 12%.

Markets, however, shrugged off the report, likely on the anticipation that it strengthened the case for more stimulus from Congress and reflected a likely temporary reduction in jobs that would be reversed as Covid vaccine distribution accelerated. Stocks were poised for a modest gain at the open.

“In some ways, bad news is good news, because it increases the probability for more stimulus,” said Michael Arone, chief investment strategist for US SPDR Business. “Investors have convinced themselves this week that given what’s happened in Georgia, given the weakness in the economic data, that more help is on the way. We’re going to get more fiscal help, and it’s likely to happen pretty soon.”

The stock market opened higher.

CWS Market Review – January 8, 2021
Posted by Eddy Elfenbein on January 8th, 2021 at 7:08 am

“In a roaring bull market, knowledge is superfluous and experience is a handicap.”
– Benjamin Graham

This week’s financial news was overshadowed by the disturbing events in Washington, D.C. It seems somewhat inappropriate to focus on financial markets at this moment, but that’s our job with this newsletter, and do it we shall.

I live in Washington, not too far from Capitol Hill. In fact, I’m writing this newsletter to you under orders of a 6 p.m. curfew. That’s a sentence I’d never thought I’d write. At this moment, I can see National Guard units from my window.

Nevertheless, the stock market has had a positive week. On Thursday, the S&P 500 broke above 3,800 to reach a new all-time high. This is another reminder of an old lesson—financial markets aren’t easily phased by scary headlines.

I’m pleased to say that our Buy List is off to a good start in 2021, and we’re already beating the overall market. Speaking of the Buy List, in this week’s issue, I want to go into more depth about the Buy List changes I made this year. But first, I want to look at a question a lot of people have been asking—are we in a bubble?

Are We In A Bubble?

Since the market low last March, the stock market has raced ahead nearly without a break. In fact, November and December were some of the best final two months for the market on record. All of this happened during a pandemic and a contentious election.

That’s led some people to claim that we’re in the midst of a gigantic bubble. Bear in mind that there are people who always claim that we’re in a bubble. Of course, bubbles do happen, but they’re rare. Bear markets also happen, but I’m distinguishing a normal market downturn from a true bubble.

First, let’s get an important fact out of the way: Just because prices go up, we don’t have proof of a bubble. This time, we’re not seeing rallies only in stocks but in other areas as well. Tesla and Bitcoin are probably the best examples. This week, Bitcoin broke above $40,000. That’s nearly a tenfold increase from its low in March. That’s an astounding rally.

In the last month, the price of Bitcoin has doubled. The total value of all cryptocurrencies is now more than $1 trillion. This week, JP Morgan said that Bitcoin could get to $146,000 in the long term.

Over the last 18 months, shares of Tesla are up close to 20-fold. Elon Musk recently passed Jeff Bezos to become the richest man in the world. During 2020, Musk saw his net worth increase by $140 billion. That works out to $265,000 every minute.

I’ve heard the claim that these aren’t separate rallies. Rather, all these rallies are connected. The world, we’re told, is drowning in fiat currency. So the argument is that this is nothing more than the inevitable outcome of unprecedented monetary stimulus all around the world.

Eh…maybe.

While it’s true that governments have printed money like never before, I tend to be a skeptic regarding all the bubble predictions. I’ve shied away from both Bitcoin and Tesla—not because I have anything against them, but rather because both appear to be difficult investments. I can’t make a reliable forecast of Musk’s future business. With Tesla, you’re paying a tremendous amount for a company that’s still quite small compared with other car companies.

With Bitcoin, you have a tremendously volatile asset. Not that long ago, it fell from $19,000 to $3,000. True, it made that money back, but this price history suggests that such plunges are part of Bitcoin’s nature. Some people might be fine with that, but others are not.

Bitcoin is also highly concentrated. Very highly. According to researchers, 95% of Bitcoins are owned by 2% of accounts. That means that it can be susceptible to manipulative trading. While Bitcoin’s rally is certainly impressive, I wonder if a currency that’s so volatile will become more mainstream. There’s some comfort in knowing that your daily run to the local Starbucks won’t change that much day to day.

The other part of all this bubble talk is timing. Bubbles can go on longer than you think. John Maynard Keynes famously said, “markets can remain irrational longer than you can remain solvent.” That’s certainly true. I remember the dot-com craze of 20 years ago. Lots of people knew it was a bubble. The problem was that no one knew when it would burst. The same for the housing bubble.

I think the best strategy is to steer clear of such investments. Perhaps a modest allocation of resources, if you’re truly game. I always remember these words from Peter Lynch: “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.”

Now let’s take a closer look at this year’s Buy List changes.

This Year’s Five Buy List Sells

As happens every year, this year five stocks were added to the Buy List and five stocks were deleted. That keeps the turnover at 20%. It also means that the average holding period for each new stock is five years.

I’m often asked if that’s a handicap. I think it’s the opposite because it forces me think hard about whether I’ll be comfortable owning each new stock for five years. Doing that makes you focus on the long term.

The five sells were Becton, Dickinson (BDX), Eagle Bancorp (EGBN), Globe Life (GL), Hormel Foods (HRL) and RPM International (RPM).

The decision to sell a stock is not easy. The most common reason is that it’s no longer the company you bought. With Becton, Dickson, that’s literally true, because we originally bought CR Bard. We got shares of BDX after they bought out CR Bard.

Such situations are always a difficult call, because the nature of the investment changes. We gave BDX a good chance to prove itself, but the earnings this year weren’t as good as I expected.

With Eagle, the problem was obvious. The bank had racked up big legal bills due to possible bad deeds from its previous management. I thought I saw an opportunity for a bargain. The problems, however, were never cleared up, and I underestimated how long the cloud would hang over the bank.

The decision to sell Globe Life was about earnings. In February, the company reported a miss for its Q4. Then its Q1 earnings were down from the previous year. GL’s outlook for 2021 wasn’t terribly impressive. I thought this was a good time to let the stock go.

I love Hormel Foods, but the Spam people made my decision easy this year. Hormel simply didn’t perform well for us. The most recent earnings miss was the final nail in the coffin.

RPM International was a difficult decision. Fundamentally, it’s a solid company. However, I think the shares are rather pricey. I wouldn’t mind adding RPM back sometime. The company has a long dividend streak.

Profile of Miller Industries

The five new stocks are Abbott Laboratories (ABT), HEICO (HEI), Miller Industries (MLR), Thermo Fisher Scientific (TMO) and Zoetis (ZTS).

Over the next few issues, I want to highlight the new buys and why I like them. This week, I’ll start with Miller Industries. To refer to Peter Lynch again, in his book One Up on Wall Street, Lynch gave some advice about what kinds of companies to look for. He said investors should look for companies that do something dull. Why? Because those stories often get overlooked. He also said to look for companies that do something disagreeable. After all, someone needs to do the dirty jobs.

That reminds me of Miller Industries (MLR) of Ooltewah, Tennessee. My apologies to the good people of Ooltewah, but I don’t think it’s normally thought of as a hot spot for promising companies. Well, perhaps it should be.

Miller Industries makes and sells towing and recovery equipment. The company makes wreckers that are used to move disabled vehicles. They also make those car carriers that you often see on the road. If a car or truck needs to be hauled out of something and then hauled away somewhere, odds are, Miller’s got a vehicle that can do it.

The company was started by Bill Miller in 1990. His idea was to find well-known brand names in a highly segmented industry. Miller then planned to grow the business by buying up smaller names.

Miller standardized the business so that different parts could fit in any vehicle. Miller Industries now owns several different brands, including Century, Vulcan, Chevron and Holmes. Miller quickly grew to have 40% market share. In fact, it soon got the attention of the anti-trust folks.

By 1994, Miller had its initial public offering. The company sold 10.7 million shares to the public, which brought in $30 million. The stock took off and vaulted eight-fold in less than three years. As you can see in the chart below, the stock price got a reckoning about 20 years ago. After that, it’s been much more of a steady grower. The current market cap is $450 million.

The company currently has three manufacturing facilities in the United States, plus one in England and another in France. I like how they keep innovating. A few years ago, Miller introduced the world’s first rolling rotator with a 100-ton recovery capacity.

This is an interesting time to look at MLR because the stock got slammed during the initial lockdowns. From top to bottom, the shares lost one-third of their value. However, the stock hasn’t bounced that much off its low. It’s up, but not nearly as much as the rest of the market. That got my attention.

Like many other businesses, Miller was impacted by the lockdowns. In May, Miller said that sales for Q1 fell by 10.7% to $176.1 million and net income fell from 76 cents per share down to 48 cents per share.

Jeffrey I. Badgley, the co-CEO, said they had to shut down some of their manufacturing facilities. However, Miller has adjusted operations, and the company has been classified as an essential business. Miller should be able to weather the storm.

For Q3, Miller saw its sales drop by 13.9%. EPS was 57 cents. That was down 19% versus the same quarter the year before. Miller also paid off all its long-term debt. The next earnings report should be out in early February.

Miller Industries is a good example of a company with a strong “moat.” There are competitors, but it’s the dominant name in the business. It would be very difficult for a competitor to come in and knock Miller off its perch.

I like that no Wall Street analysts follow Miller. That’s pretty remarkable considering the company’s long-term success. The company currently pays out a quarterly dividend of 18 cents per share. That works out to a dividend yield of 1.8%. Miller Industries is a buy up to $42 per share.

That’s all for now. The December jobs report is due out later today. There are a few key economic reports scheduled for next week. The CPI report comes out on Wednesday. We get another jobless-claims report on Thursday. The retail-sales and industrial-production numbers come out on Friday. Soon after that, the Q4 earnings seasons starts up. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

P.S. Josh Brown recently hosted me on his podcast. I had a great time. Check it out.

Morning News: January 8, 2021
Posted by Eddy Elfenbein on January 8th, 2021 at 7:04 am

The Pandemic Helped Reverse Italy’s Brain Drain. But Can It Last?

Europe’s Contested Deal With China Sends Warning to Joe Biden

In Trump Era’s End, an Uneasy Reckoning for Corporate America

Democrats Get Clout Needed for Risky Bid to End Trump’s SALT Cap

Trump Moves to Loosen Mining Regulations, Approve Projects As He Exits

The President Is Losing His Platforms

UK’s Competition Watchdog to Probe Google’s Browser Changes

Hyundai Motor Says It’s In Early Talks With Apple to Develop A Car, Sends Shares Soaring 19%

Boeing Reaches $2.5 Billion Settlement With U.S. Over 737 Max

Tesla Founder Elon Musk Surpasses Jeff Bezos As World’s Richest Human

The Sperm Kings Have a Problem: Too Much Demand

Cullen Roche: Is All of Finance Just a Big Network Effect?

Ben Carlson: Deep Risk in the United States of America

Joshua Brown: Commodities Are Breaking Out in 2021 & This Will Probably Go On Forever

Michael Batnick: Animal Spirits: 2021 Outlook, The Flows & 10 Things I’ll be Watching Closely in 2021

Howard Lindzon: Zebra IQ CEO and Gen Z Whisperer Tiffany Zhong Joins Me on Panic with Friends to Discuss the 5 Cs: Creators, Community, Content, Commerce and Culture

Be sure to follow me on Twitter.

Initial Claims Beat Expectations
Posted by Eddy Elfenbein on January 7th, 2021 at 12:04 pm

This morning’s initial claims report came in at 787,000. That was better than expectations. To me, the only noticeable feature in the report is that the claims have been very stable for the last few weeks.

The report also showed a drop of 126,000 in continuing claims, taking the total down to 5.07 million. Those receiving benefits from all programs also fell, declining by 420,000 to 19.2 million.

Claims remain well above pre-pandemic levels as a continued surge in Covid-19 cases has caused economic restrictions in states and municipalities across the country.

The stock market continues to climb higher. The S&P 500 has been up as much as 1.5% today. This time, it’s Tech that’s doing the heavy lifting. In yesterday’s market, Tech was the laggard.

On our Buy List, there are new highs today from Broadridge Financial Solutions (BR), HEICO (HEI) and Trex (TREX). A few others are very close.

The internals today are a bit odd. For example, the Dow is trailing the S&P 500 was 60 basis points today. That kind of gap is not unheard of, but it’s pretty wide. The Nasdaq is leading the S&P 500 by about 90 basis points.

Morning News: January 7, 2021
Posted by Eddy Elfenbein on January 7th, 2021 at 7:08 am

India Sees 7.7% Contraction in Fiscal Year 2021 on Virus Woes

Will the Sudden E.U.-China Deal Damage Relations With Biden?

Corporate Group Urges Officials Consider Trump’s Removal ‘To Preserve Democracy’

Twitter and Facebook Lock Trump’s Accounts After Violence on Capitol Hill

Stocks Hold Gains Amid Violence at the Capitol

How Covid Laid Bare America’s Economic and Political Divides

Crypto Market Value Tops $1 Trillion as Bitcoin Hits $38,000

2 U-turns in 2 days: Why the NYSE Finally Decided to Delist 3 Chinese Companies

U.S. Considering Adding Alibaba, Tencent to China Investment Ban

Brevan Howard’s Main Hedge Fund Has Best Year on Record

Ben Carlson: Animal Spirits: Inflation Truthers

Cullen Roche: Is Inflation Really 10%?

Howard Lindzon: The Unbundling Of Indexes and Markets – Further Explained

Joshua Brown: Old School Karate

Michael Batnick: Am I Being Duped?

Be sure to follow me on Twitter.

Nice Gain for our Buy List
Posted by Eddy Elfenbein on January 6th, 2021 at 11:32 pm

I live in Washington, DC, not far from today’s news. I’m in no danger but we have a 6 pm curfew.

I wanted to mention briefly that today was a very good day for our Buy List. It’s odd to focus on financial markets on a day like this, but that’s our job around here. The S&P 500 gained 0.57% while our Buy List gained 1.78%. Of course, that’s just one day so we don’t want to get carried away.

Stepan (SCL) was up over 6% and Miller Industries (MLR) rose by more than 5%. The Tech sector performed unusually poorly today. We’ll see how well that holds up this week.

The futures market suggests another up day tomorrow.