CWS Market Review – April 9, 2021
Posted by Eddy Elfenbein on April 9th, 2021 at 7:08 am

“You should definitely get a one-year subscription to Eddy’s newsletter. It’s only $200!” – Napoleon

Before I start, I want to thank everyone for your support. Earlier this week, I decided to make CWS Market Review a paid newsletter, and your response has been overwhelming.

This week’s issue is open to everyone, but going forward, you’ll need to be a paid subscriber. You can sign up here.

Don’t worry, I’m keeping the price fairly modest. It’s $20 per month, or $200 for the whole year. I’ll probably raise that soon, but I want to give my loyal readers a discount.

I’ll continue to send out periodic updates to free subscribers, but fuller analysis will only be available on the paid service. I won’t give you the hard sell. This is the newsletter. It is what it is. I give you my honest take on the markets each week. I hope you continue with us.

Now, on to business.

We’re on the doorstep of the first-quarter earnings season. Things will really get going on Monday when several of the major banks are due to report. Our first Buy List earnings report looks to be Abbott Labs on Tuesday, April 20. After that, the reports will come in a blizzard. We’re going to get 22 earnings reports in about three weeks. Buckle up.

This is a key earnings season for several reasons. The most important is that Wall Street has made a big bet that corporate America will have good news to report. That’s why the indexes have been rising, and bond yields have crept higher.

Since late October, the S&P 500 has gained more than 25%. In retrospect, the rally didn’t seem that strong, perhaps because it came in little steps. In this week’s issue, I’ll discuss some recent economic news, including last week’s jobs report, and I’ll have some Buy List updates. The S&P 500 just made a new all-time high, and so have many of our Buy List stocks.

Since the financial news has been somewhat light lately, I thought I’d dig into my views on gold. I’m often asked about the yellow metal, so this is a good opportunity to share my perspective. Before we get to that, though, let’s look at last Friday’s big jobs report.

Best ISM Services Report on Record

Last Friday, the stock market was closed for Good Friday, but the Labor Department was open. The federales said that the U.S. economy created 916,000 net new jobs in March. That’s a huge number. Wall Street had been expecting a gain of only 675,000. The unemployment rate dropped to 6.0%.

In simple terms, the jobs situation has gone from a disaster to merely poor. So it’s an improvement, but we have to keep it in context. The details of the report were quite good. The private sector added 780,000 jobs, while the government added 136,000. The labor-force participation rate rose to 61.5%. That’s below the 63.3% we had in February 2020, but it’s a lot better than where it was a few months ago. Very roughly speaking, I’d say the U.S. economy is about eight or nine million jobs from full employment.

The jobs news suggest that the upcoming corporate-earnings news will be good. Again, in a relative sense. We hit a rough patch in February due to the weather, but it looks like Q1 was solid. It’s not just me saying the jobs outlook has improved; Federal Reserve Chairman Jay Powell also said as much this week. He said he wants to see a string of months of one million new jobs.

The IMF said it expects to see the U.S. economy grow by 6.4% this year. It also said that it expects to see world economic growth of 6%. That would be the strongest pace in four decades. Here’s a metaphor for the economy: we’re driving around in a broken truck, but it used to be stuck in the ditch. Check out this interesting 25-year chart of the stock market in black and the unemployment rate in red. The message is to buy when things are bad.

On Wednesday, the Fed released the minutes from its last meeting. As expected, the Fed didn’t make any changes to interest rates or its bond-buying policy. The minutes indicated that the Fed is willing to go all out to help the U.S. economy recover.

Specifically, the minutes said, “Participants noted that it would likely be some time until substantial further progress toward the Committee’s maximum-employment and price-stability goals would be realized and that, consistent with the Committee’s outcome-based guidance, asset purchases would continue at least at the current pace until then.” That’s Fedspeak for “dude, we’re not even close to done.”

Wall Street liked what it heard. On Thursday, the S&P 500 closed at 4,097.17, which is yet another all-time high.

Last week I told you how we had the best ISM Manufacturing Index report in 37 years. On Monday, we got even better news. The ISM Services Index report was the strongest one in its history. I believe that series goes back to 1997. For March, the ISM Manufacturing Index was 63.7.

The economy’s improvements have led to concerns about inflation. That’s sparked a debate about gold. Let me share my thoughts on the issue.

What to Make of Gold’s Slide?

With the Federal Reserve committed so strongly to helping the U.S. economy get back on its feet, some investors are concerned that we’ll see a resurgence of inflation. The recent movement in the gold market, however, has baffled some people. That’s because gold has dropped sharply over the last eight months.

If inflation is such a threat, shouldn’t gold be moving higher? This is a big topic on the minds of many investors in the gold corner of the market. I have to confess that I have slightly heterodox views on gold. (Prepare for a long-winded essay.)

There’s an old joke that there are exactly two people in the world who understand the price of gold. They both work for the Bank of England and they disagree.

Gold is an interesting but complex topic, so I’ll need some space to address it fully. For one, I don’t believe that gold responds to inflation. Rather, gold responds to real short-term interest rates. By this I mean interest rates adjusted for inflation. Inflation is part of the equation, but it’s not the only thing.

Basically, as long as real short-term rates are low, then you can expect gold to do well, but there’s a small caveat to this statement. Real short-term rates need to be low relative to the “natural interest rate.”

What do we mean by the natural interest rate? Now things get a little interesting. That’s the idea that there’s one magic interest rate that hangs over the entire world. The natural rate is sometimes called the Wicksellian rate in honor of the Swedish economist Knut Wicksell (1851-1926). You can’t see it, touch it or feel it. Nor does any media outlet report on what it closed at, but the natural rate covers the world, and everyone is impacted by it.

If the Fed brings rates below the natural rate, it’s helping the economy. If the Fed brings rates above the natural rate, it’s putting on the brakes. The problem is, no one knows exactly what the natural rate is.

Wherever the natural rate is, there seems to be widespread belief that in recent years the natural rate has declined. I’m in that camp as well. As a result, lower real rates haven’t had the impact on gold that they used to. Last summer, an ounce of gold cracked $2,000. Recently, it dipped below $1,700 per ounce.

I’m generally not much of a fan of investing in gold. That’s not an economic take or even a political view. Rather, it’s based on the view that gold is simply a rock. It doesn’t do anything. It just sits there. Gold has some industrial uses, but not many. In the long run, equity is a better and safer bet than assets.

For some reason, gold has bewitched man for millennia. There are some people, not all, who are quite simply unreasonably attracted to gold. They make Goldfinger look like an amateur. Maybe one day some cognitive scientist will find a connection between our brains and gold.

For example, gold never rusts. You can take the gold out of an Egyptian pyramid and stick it in a cavity in a tooth (though you might want to clean it first). It’s also non-toxic. And it’s also incredibly soft. One ounce can be stretched for 50 miles. It can be pounded down to a few millionths of an inch thickness. And gold is very heavy. Despite what you see in The Treasure of the Sierra Madre, gold dust can’t be blown away.

Gold has been found on every continent on earth. Gold has also had strong religious connections. It’s mentioned in the Bible more than 400 times. Marx writes of commodity fetishism, a term that’s meant to have a religious connotation.

A large part of the goldbug community is wedded to the idea of the gold standard and that civilization has been imperiled ever since the gold standard was left behind. Eh…maybe, but I’m more interested in finding things that make money. Some of the fervor may have migrated to the crypto world.

Also, gold tends to move in big price spikes. It’s either all or nothing. I understand why people might be attracted to gold, and I’m not unsympathetic. For me, however, I think the best way to build long-term wealth is to buy superior stocks and then do as little as possible. Now let’s look at news from our Buy List stocks.

Buy List Updates

Ansys (ANSS) is one of my favorite tech stocks. The company helps engineers see how their ideas look on a computer simulation. The stock got hit hard during the tech crunch in February, even though Ansys reported outstanding earnings for Q4. The stock has since reversed course and is up 23% in the last month. This week, I’m lifting my Buy Below price on Ansys to $375 per share. Look for another solid earnings report soon.

Several of our Buy List stocks have hit new highs lately or come very close. Middleby (MIDD) has gained 280% on a little over a year. On Thursday, shares of Ross Stores (ROST) rallied to a new 52-week high. I’m a big fan of Ross, but even I’ve been impressed with this stock’s resiliance lately. Along with Disney, this has become a favorite of the “reopening trade.” Ross Stores is a buy up to $130 per share.

Stryker (SYK) also hit a new high on Thursday. The company is due to report on April 27. Wall Street is looking for $1.99 per share. Stryker is a buy up to $260 per share.

That’s all for now. Looking at next week, we’ll get an update on the Federal budget on Monday. Then on Tuesday, the government releases its inflation stats for March. We still aren’t seeing much in the way of broad-based inflation, but that may soon change. Thursday will be crowded. We’ll get reports on retail sales and industrial production, plus the regular jobless-claims report. Then on Friday, we’ll get reports on housing starts and building permits. 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. Don’t forget to sign up for a premium subscription: $20 per month or $200 for the whole year!

Morning News: April 9, 2021
Posted by Eddy Elfenbein on April 9th, 2021 at 7:03 am

Biden Faces Key Test on EV Battery Trade Dispute

A Hidden Bond-Market Problem

Beyond Pandemic’s Upheaval, a Racial Wealth Gap Endures

Are NFT Purchases Real? The Dollars Are.

China’s Forced-Labor Backlash Threatens to Put N.B.A. in Unwanted Spotlight

China Set to Clear Tencent’s $3.5 Billion Sogou Deal Subject to Data Security Conditions

Amazon Takes 2-1 Lead in Union Election; Count Continues Friday

McDonald’s Is Closing Hundreds of Its Walmart Restaurants

‘Satan Shoes’ to Be Recalled as Nike Agrees to Settle Lawsuit

The Forgotten Shipping Pallet Is Staging a Pandemic-Era Rally

Ben Carlson: Why This is Not Another Housing Bubble

Michael Batnick: Animal Spirits: Listener Mailbag

Cullen Roche: Three Things I Think I Think – Housing Bubble 2.0, Passive Investing and Hyperinflation

Joshua Brown: Why Copper Is Crushing Gold

Howard Lindzon: Jens Hilgers, ESports Veteran and Founding General Partner of BITKRAFT Ventures, Joins Me on Panic with Friends to Discuss the Future of Gaming

Be sure to follow me on Twitter.

Stocks Rally Despite Higher Jobless Claims
Posted by Eddy Elfenbein on April 8th, 2021 at 11:18 am

April 15 is traditionally Tax Day, although not this year. In my opinion, April 8 is a better representation of the power of government versus the people. There were three key events that defined government power that happened on April 8.

On April 8, 1895, the Supreme Court ruled Congress’s income tax unconstitutional. This decision was later overruled by the 16th Amendment.

On April 8, 1952, President Truman nationalized the steel industry. Most Americans don’t realize this happened. Once again, the Supreme Court overruled the decision.

Perhaps the biggest one came in 1943. That’s when FDR froze wages and prices, prohibited workers from changing jobs unless the war effort would be aided thereby, and barred rate increases by common carriers and public utilities.

Now, onto the stock market. The S&P 500 got as high as 4,093.87. This morning’s jobless claims came in at 744,000 which was 50,000 higher than expected. The post-pandemic low was two weeks ago at 658,000.

Earnings season is almost here. On Monday, a few of the big banks – JPMorgan, Wells Fargo, and Goldman Sachs – are set to report earnings. The other big banks will follow later in the week. Right now, it looks like Stepan will be our first Buy List stock to report this season, on Tuesday, April 20. We don’t have all the earnings dates just yet.

Morning News: April 8, 2021
Posted by Eddy Elfenbein on April 8th, 2021 at 7:08 am

Europe Should Invest in Chip Design, Not A Mega-Fab

Drought in Taiwan Pits Chip Makers Against Farmers

Inflation Has Gone K-Shaped in the Pandemic Like Everything Else

As Investors Switch to ETFs, So Do Managers

As Talk Turns to Inflation, Some Investors Look to Gold

Biden Tax Plan Targets Fossil Fuel Subsidies Worth $35 Billion

Fixing the Credit Catch-22: How Biden Wants to Make Credit Scores Fairer

Silicon Valley Is Flooding Into A Reluctant Austin

Best Buy Launches A New $200 Membership Program to Fight Amazon

Hours After CEO Decried Inequality, JPMorgan Seeks to Quash Call for Racial-Equity Audit

Bill Hwang Had $20 Billion, Then Lost It All in Two Days

Online Scammers Have a New Offer For You: Vaccine Cards

How Trader Jeff Yass Parlayed Poker And Horse Race Handicapping Into A $12 Billion Fortune

Joshua Brown: Jamie Dimon: Dear Shareholder

Ben Carlson: Animal Spirits: Housing Bubble 2.0?

Michael Batnick: The Bubble Burst

Be sure to follow me on Twitter.

Fed Minutes Boost the Market
Posted by Eddy Elfenbein on April 7th, 2021 at 2:32 pm

The Fed released the minutes from its last meeting. The Fed has been pretty clear that it intends to hold down interest rates for as long as it can.

At the meeting, the Federal Reserve’s monetary policymaking arm voted to keep short-term borrowing rates anchored near zero and to continue buying at least $120 billion in bonds each months.

In addition, the committee raised its outlook for economic growth and inflation ahead. The median outlook for GDP tin 2021 went to 6.5%, a big upgrade from the 4.2% expectation in the December projections.

Officials also indicated that the unemployment rate could fall to 4.5% by the end of the year and inflation could run to 2.2%, slightly above the Fed’s traditional 2% target.

The market is holding up well and we’re looking at a new all-time high close.

Morning News: April 7, 2021
Posted by Eddy Elfenbein on April 7th, 2021 at 7:02 am

High Stakes at Sea in Global Rush for Wind Power

A K-Shaped Recovery, This Time on a Global Scale

Millions Are Tumbling Out of the Global Middle Class in a Historic Setback

Hong Kong Courts the Rich as China Tightens Its Grip

U.S. Jobs Progress Still Far Short of Fed’s ‘Substantial’ Tripwire

Dimon Says ‘Fintech and Big Tech Are Here’ as Banks Lose Ground

Is ‘Femtech’ the Next Big Thing in Health Care?

Jeff Bezos Says Amazon Supports Biden’s Proposed Corporate Tax Hike

Intel’s Latest Hail Mary Is a $20 Billion Bet on American Manufacturing

CEO Mary Barra Bets GM Can Grow Beyond Cars and Trucks

Toshiba Gets Deal Proposal That Could Be Worth More Than $20 Billion

Joshua Brown: Buyers of the Lost ARKK & Most Definitely Not Boring

Howard Lindzon: Momentum Tuesday…Momentum Monday Was Not Enough

Michael Batnick: Animal Spirits: Housing Bubble 2.0? & The Roaring 20s

Ben Carlson: How Many Months’ Worth of Spending Do You Need in Your Emergency Fund?

Nick Maggiulli: Why You Shouldn’t Pick Individual Stocks

Be sure to follow me on Twitter.

CWS Market Review – April 6, 2021
Posted by Eddy Elfenbein on April 6th, 2021 at 3:40 pm

I have special announcement. I’ve decided to make CWS Market Review a paid subscription service. This decision has been a long time coming, and now that day is here.

Don’t worry. It will be the same service you know and love. What’s happened is that the newsletter has grown so large and has become such a time commitment on my part, I think it’s fair to ask for some compensation. I never dreamed it would become this popular.

For my long-time readers, you can lock in our early subscription price. That will be $20 per month, or $200 for a full year.

I love doing the newsletter and bringing my thoughts to investors. I hope you join me and give me your support. You can subscribe here.

Thank you – Eddy

Slow Morning After Yesterday’s ATH
Posted by Eddy Elfenbein on April 6th, 2021 at 11:46 am

There’s not much going on in the market this morning. Stocks are mixed to mildly higher after yesterday’s all-time high. Most sectors are up a little but a lot of banks are in the red. The BLS said that job openings rose to 7.4 million in February. CoreLogic said that home prices rose 10.4% in the 12 months ending in February.

On our Buy List, Miller Industries (MLR), Moody’s (MCO) and Sherwin-Williams (SHW) are all at new highs. I’m impressed to see SHW rally after its recent split.

Morning News: April 6, 2021
Posted by Eddy Elfenbein on April 6th, 2021 at 7:02 am

Why Shortages of a $1 Chip Sparked Crisis in Global Economy

China Asks Banks to Curtail Credit for Rest of Year

Global Brands Find It Hard to Untangle Themselves From Xinjiang Cotton

As China Targets H&M and Nike, Local Brands See Their Chance

Google’s Free Piracy Pass

Is Big Business the Democrats’ New Best Friend?

The Fed Is Making Wall Street Forecasters Pay Attention to Black Unemployment

Credit Suisse Overhauls Management As It Takes $4.7 Billion Hit on Archegos

LG Electronics Fans Bemoan End of Era As Firm Exits Smartphone Business

DoorDash Drivers Game Algorithm to Increase Pay

Tim Cook Says He Has ‘Great Admiration And Respect’ For Tesla As He Drops Hints On Apple Car

Ben Carlson: The Growth-Value Cycle

Michael Batnick: They’re Not F*cking Leaving

Howard Lindzon: Momentum Monday – Homebuilders (Tik Tok Basement Studios and Influencer Rooms), Semiconductors and Crypto Lead The Way

Joshua Brown: Why the “Fintech Disruption” Threat to Banks Might Be Overdone & Niall Ferguson on China’s Digital Currency Ambitions

Be sure to follow me on Twitter.

The ISM Services Index Hits All-Time High
Posted by Eddy Elfenbein on April 5th, 2021 at 11:42 am

With Good Friday last week, the stock market wasn’t able to respond to the jobs report until this morning. Apparently, Wall Street liked what it saw. The averages are up nicely this morning. The S&P 500 has been as high as 4,074.72, which is another all-time high.

Tech stocks are leading the way and the Nasdaq is doing much better than the S&P 500. On our Buy List, Moody’s (MCO) and Miller Industries (MLR) are both at new highs. There’s not much economic news out this week, but the Fed will release the minutes from its last meeting. The Dow is also at a new all-time high. It wasn’t on Friday.

One report that came out this morning was the ISM Services index. That hit an all-time high of 63.7 in March.