Eagle Bancorp Announces Big Share Buyback
Posted by Eddy Elfenbein on December 17th, 2020 at 10:24 pm

After the closing bell, Eagle Bancorp (EGBN) issued a press release which touched on two items. The first is that the bank is paying out a quarterly dividend of 22 cents per share. That’s not really news because Eagle has paid a 22-cent dividend for several quarters. The cash dividend will be payable on February 1 to shareholders of record on January 8.

The other item is that the Board of Directors adopted a new share repurchase program. The new program will start on January 1. The board authorized Eagle to buy back 15.89 million shares of stock. That’s about 5% of the outstanding shares. Eagle currently has 31.78 million shares outstanding as of December 16.

Over the last three months, shares of Eagle have gained more than 63%.

Housing Starts and Initial Claims
Posted by Eddy Elfenbein on December 17th, 2020 at 8:48 am

We got two important economic reports this morning, and we got good news and bad news.

Let’s start with the bad. The initial claims report came in at 885,000. That’s not so good. That’s an increase of 23,000. We’re moving in the wrong direction. On top of that, the number for last week was revised higher by 9,000. A silver lining is that continuing claims came in at 5.508 million. That’s a pandemic low.

The good news is that the housing starts number was very strong. Housing starts were up 1.7% last month compared with expectations for a decline of 0.7%. That works out to 1.547 million (that’s an annualized and seasonally adjusted number). Permits were up 6% to 1.639 million.

The futures indicate that the S&P 500 will open at an intra-day high.

Morning News: December 17, 2020
Posted by Eddy Elfenbein on December 17th, 2020 at 7:05 am

BOE Maintains QE Plan, Extends Company Aid on Prolonged Crisis

Bitcoin Soars Above $23,000 as More Wall Street Firms Pile In

Why the US Government Hack Is Literally Keeping Security Experts Awake At Night

Fed Leaves Rates Unchanged and Commits to Ongoing Bond Purchases

What’s New With the Fed’s 2020 Bank Stress Tests?

$900 Billion Covid-Relief Plan Inches Forward With Talks Down to Final Details

Workers Tap Retirement Savings as a Last Resort

10 States Accuse Google of Abusing Monopoly in Online Ads

Samsung Works Its Way Into European 5G Race to Fill Huawei Gap

A 1958 ’Vette Translated Into Modern Chinese

Amazon Has Turned a Middle-Class Warehouse Career Into a McJob

Mackenzie Scott’s Gifts Cast Unflattering Light on Bezos’ COVID Capitalism

Joshua Brown: “take all your common stocks and sell them”

Howard Lindzon: The Killer B’s … Biotech and Bitcoin

Michael Batnick: Animal Spirits: IPO Mania

Be sure to follow me on Twitter.

The Fed Policy Statement
Posted by Eddy Elfenbein on December 16th, 2020 at 2:02 pm

Here’s the latest policy statement from the Federal Reserve:

The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year. Weaker demand and earlier declines in oil prices have been holding down consumer price inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.

To summarize, there’s no change in policy. The Fed is going to keep rates on the floor and it will continue to buy bonds.

Here are the updated economic projections. The Fed’s projections are notoriously poor, but they’re interesting to see. For example, the Fed now sees the economy growing by 4.2% next year. That’s quite good. The Fed sees the jobless rate getting down to 5% next year.

Now for interest rates. The Fed unanimously sees no rate hikes next year and the year after that, except for one member who sees one hike in 2022.

Five members sees hikes in 2023, but the other 12 members continue to see no need for rate increases.

Retail Sales Fall Again
Posted by Eddy Elfenbein on December 16th, 2020 at 12:30 pm

The stock market is up again today. The S&P 500 briefly broke above 3,700. The market is not far from a new all-time high. The Dow came very close to a new high this morning. Yesterday, in fact, the Russell 2000 got to a new high.

This morning’s retail sales report showed a decline of 1.1% in November. This is probably due to the impact of new lockdown measures. Over the last year, retail sales are up 4.1%.

The second straight monthly decline in retail sales reported by the Commerce Department on Wednesday could nudge Congress to agree on another fiscal stimulus package. News of the weak start to the holiday shopping season came as Federal Reserve officials were wrapping up a two-day policy meeting.

The U.S. central bank is expected to keep interest rates near zero and deliver a playbook for what might prompt the Fed to pump more money into the economy.

Retail sales dropped 1.1% last month, with receipts declining almost across the board. Data for October was revised down to show sales slipping 0.1% instead of rising 0.3% as previously reported, adding a sting to the report.

October’s dip was the first since April, when stringent measures to control the first wave of coronavirus cases crippled the economy.

We’ll learn more this afternoon when the Fed releases its new policy statement. Don’t expect much in the way of action, but the Fed may lay out its plans regarding its bond-buying program.

Morning News: December 16, 2020
Posted by Eddy Elfenbein on December 16th, 2020 at 7:04 am

Look at the Big Picture in Money Market Reform, Says Regulator

Big Fines and Strict Rules Unveiled Against ‘Big Tech’ in Europe

Tech Companies Shift Their Posture on a Legal Shield, Wary of Being Left Behind

After COVID Shock, U.S. Treasury Market Set for New Scrutiny

How to Revive the Economy, and When to Worry About All That Debt

Fed Closes Out Wild Year as All Eyes Focus on Bond-Buying Program

Federal Reserve ‘Boneheads’ Emerge From Trump Era Unscathed

Fifty Years of Tax Cuts for Rich Didn’t Trickle Down, Study Says

Aphria, Tilray Combining to Create Biggest Cannabis Company

Satellite-to-Smartphone Broadband Company AST & Science to Go Public Through A SPAC

MacKenzie Scott Donates $4.2 Billion to 384 Organizations

Joshua Brown: Vaccine Week, the Trillion Dollar Fund, Moving to Austin, ‘Your Honor’

Nick Maggiulli: The Best Way to Organize Your Assets

Ben Carlson: The 2020s Will be the Decade of Customization For Financial Advisors

Howard Lindzon: Rick Heitzmann of FirstMark Capital Joins Me on Panic with Friends to Discuss Public & Private Markets, VC Investing and the Anti-Portfolio

Be sure to follow me on Twitter.

Industrial Production Rises 0.4% in November
Posted by Eddy Elfenbein on December 15th, 2020 at 10:51 am

The stock market is up today after four days in a row of losses. The declines, however, have been quite modest. We’re still within earshot of a new all-time high.

The Federal Reserve begins its meeting today. We’ll get the policy statement tomorrow afternoon followed by Chairman Powell’s press conference. I doubt the Fed will actually do anything, but it may update its guidance on buying bonds.

The Fed is currently gobbling up $80 billion in Treasuries each month, plus another $40 billion in mortgage-back securities. The amounts will probably stay the same, but the Fed may discuss the timetable at which they’ll pare back their purchases.

At the Fed’s last meeting, they made it clear that they’re going to keep interest rates low through 2023.

This morning’s report on industrial production showed an increase of 0.4% for November. We’re now 5% from the pre-pandemic peak.

Manufacturing was up 0.8% in November, its seventh consecutive monthly gain, with last month’s increase boosted by a rebound in auto production. Production of motor vehicles and parts rose 5.3%, the biggest monthly increase since a 31% surge in July. However, after that jump following spring lockdowns, auto production fell in August, September and October.

Output in the mining sector, which includes oil and gas production, rose 2.3% while utility output fell 4.3%, a decline that reflected unseasonably warm weather in November.

U.S. industry operated at 73.3% of capacity in November, still below the pre-pandemic rate of 76.9% in February.

On our Buy List, Trex (TREX) finally took out its high from October. The shares are at a new 52-week high this morning. We have a gain of more than 82% in Trex this year.

Morning News: December 15, 2020
Posted by Eddy Elfenbein on December 15th, 2020 at 7:01 am

Hackers Used Obscure Texas IT Vendor to Attack U.S. Agencies

Supersonic Jet Startup Boom Technology Is Now a Unicorn

Hedge Funds Are Highly Invested in Stocks. Here’s Why That Could Be a Problem.

Amazon, TikTok, Facebook, Others Ordered To Explain What They Do With User Data

Google Dominates Thanks to an Unrivaled View of the Web

Tech Companies Shift Their Posture on a Legal Shield, Wary of Being Left Behind

How the Facebook Case Could Revitalize Our Broken Antitrust Law

Time’s Up on Corporate America’s 2020 Climate Goals. Here’s How They Did

Feeling Like A Fraud At Work? 3 Ways to Combat ‘Imposter Syndrome’

Delivery Workers in South Korea Say They’re Dying of ‘Overwork’

Fund Leader Vanguard Pushes For Diverse Boards, But Avoids Targets

Pinterest Settles Gender Discrimination Suit for $22.5 Million

Ben Carlson: The 5 Phases of a Bubble

Michael Batnick: The Most Powerful Motivator

Joshua Brown: Custom Indexing is THE Investing Mega Trend of 2021

Be sure to follow me on Twitter.

Mercury General Jumps on Barron’s Feature
Posted by Eddy Elfenbein on December 14th, 2020 at 3:06 pm

Shares of Mercury General (MCY) are soaring today after the insurance company was featured in Barron’s.

Mercury’s shares, now around $46, look appealing. Most notable is the company’s lofty dividend of $2.53 a share, which results in a 5.4% yield. The stock trades for 1.3 times book value and about 13 times projected 2021 earnings of $3.43 a share.

This year’s estimated profits of $4.68 a share are inflated by the reduced driving activity that has come as a result of the pandemic, leading to fewer accidents and better underwriting results. The company is the No. 6 auto insurer in the Golden State with an 8% share of the private-passenger market, according to AM Best.

I have one small quibble in that Barron’s could have gone into more detail on CEO George Joseph’s remarkable life. He’s a perfect example of the great American success story. He’s the son of Lebanese immigrants. Joseph grew up in West Virginia where his father worked as a coalminer.

During World War II, Joseph served as a navigator on a B-17, and he flew 50 missions. After the war, he went to Harvard on the GI Bill. He finished in three years. After that, he founded Mercury General and today he’s a billionaire. I’m happy to say that George Joseph is still with us at the age of 99.

George Joseph founded Mercury General in 1961. The company has raised its dividend every year for the last 34 years. Check out this long-term chart. Mercury General is in black while the S&P 500 is in blue.

Disney Surges After Investor Day
Posted by Eddy Elfenbein on December 14th, 2020 at 12:24 pm

I neglected to mention Disney’s (DIS) strong performance on Friday. In the newsletter issue, I said it was higher in Thursday’s after-hours market, but I had no idea how strong it would be. At one point on Friday, Disney was up 16%. DIS eventually closed at $175.72 which was a gain of 13.6%. Not bad.

The stock market is up so far today which reverses three down days in a row from last week. It’s early but so far, small-caps and growth stocks are leading the charge. Energy stocks are down the most but that’s after an impressive rally over the last month.

Last week, Wall Street was floored by the DoorDash and Airbnb IPOs. According to the WSJ, recent IPOs are pricing at an average of 23.9 times revenues. In the 2010s, the average was six times revenues. Snowflake is going for 200 times revenue. The action has been so heavy that one highly anticipated IPO, Roblox, said they’re going to hold off their offering until next year. No one, it seems, likes to leave money on the table.

There’s no big economic news today, but the Federal Reserve meeting starts tomorrow. We’ll also get the latest report on industrial production.