Initial Claims Continue to Fall
Posted by Eddy Elfenbein on September 17th, 2020 at 11:47 am

This morning’s initial claims report fell to 860,000. That’s the lowest since the lockdowns started six months ago. Economists had been expecting 875,000. Continuing claims are down to 12.628 million. Things are getting better, albeit very slowly.

Also this morning, the housing starts report for August fell to 1.416 million (that’s the annualized number). That drop was more than expected.

The housing market has outperformed the broader economy despite nearly 30 million people being on unemployment benefits. Unemployment has disproportionately affected low-wage workers, who are typically renters. The 30-year fixed mortgage rate is around an average of 2.86%, according to data from mortgage finance agency Freddie Mac.

Home building last month was pulled down by a 22.7% tumble in starts for the volatile multi-family housing segment to a pace of 395,000 units. But construction of singe-family housing units, which accounts for the largest share of the housing market, increased 4.1% to a rate of 1.021 million units.

Groundbreaking activity rose in the West and Midwest, but fell in the South and Northeast.

Permits for future homebuilding dropped 0.9% to a rate of 1.470 million units in August. Single-family building permits increased 6.0% to a rate of 1.036 million units. Multi-family building permits decreased 14.2% to a rate of 434,000 units.

The market is down today. This is the second time in the last week that the S&P 500 dipped its toe below its 50-DMA.

Morning News: September 17, 2020
Posted by Eddy Elfenbein on September 17th, 2020 at 7:03 am

Dubai, Tel Aviv to Boost Diamond Trade as UAE-Israel Links Grow

The Wild Summer of 2020 Turned Small Investors Into Whales

Americans Keep Spending, But Growth of Retail Sales Slows

Just What Is It That Judy Shelton’s Critics Are So Afraid Of?

The Simple Thing Trump Doesn’t Get About The Stock Market

Stop Expecting Life to Go Back to Normal Next Year & Yes, 2021 Could Be Worse

ByteDance’s Bid To Keep Most Of TikTok Faces Major Hurdles

Trump Casts New Doubt On Any Deal To Keep TikTok Alive In U.S.

Snowflake More Than Doubles in Debut as Wall Street Embraces Tech IPOs

The Musk Method: Learn From Partners Then Go It Alone

Hollywood Rethinks Movie Release Schedule As ‘Tenet’ Stumbles At Box Office

U.S. Is No Longer Land of Opportunity for Foreign MBA Students

Ben Carlson: Animal Spirits: Upside Down Markets

Michael Batnick: What Happens if Interest Rates Rise?

Joshua Brown: Powering Through & Berkshire in Techland

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

Here’s the Fed’s latest policy statement:

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 picked up in recent months but remain well below their levels at the beginning of the year. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Overall financial conditions have improved in recent months, 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, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth market functioning and help foster 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; Loretta J. Mester; and Randal K. Quarles.

Voting against the action were Robert S. Kaplan, who expects that it will be appropriate to maintain the current target range until the Committee is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals as articulated in its new policy strategy statement, but prefers that the Committee retain greater policy rate flexibility beyond that point; and Neel Kashkari, who prefers that the Committee to indicate that it expects to maintain the current target range until core inflation has reached 2 percent on a sustained basis.

The Fed is keeping interest rates on the floor and is apparently willing to do that for the next few years. What’s notable is that the Fed is willing to let inflation drift above 2%. Interestingly, there were two dissents.

Here are the Fed’s economic projections.

In my opinion, the projections aren’t that important. I don’t think the Fed has a good idea what will be needed in three years. Having said that, the Fed raised its estimate for Q3 GDP. The Fed also sees unemployment improving, and it raised its outlook for inflation.

As far as interest rates go, the FOMC unanimously sees rates being near 0% for this year and next. A strong majority sees rates still near 0% in 2022 and 2023. Three more years of no rate hikes.

Homebuilder Confidence Hits All-Time High
Posted by Eddy Elfenbein on September 16th, 2020 at 10:48 am

The Federal Reserve will wrap up its meeting today. Don’t expect much news, but the policy statement will be closely read for clues.

This morning, we learned that retail sales rose by 0.6% in August. In the last year, retail sales are up 2.6%.

Excluding gasoline, retail sales were up 0.6% last month. The figures for June and July were revised lower.

Core retail sales, which correspond most closely with the consumer spending component of gross domestic product, fell 0.1% last month after a downwardly revised 0.9% increase in July, the Commerce Department said on Wednesday.

This category, which excludes automobiles, gasoline, building materials and food services, was previously reported to have advanced 1.4% in July. Economists polled by Reuters had forecast core retail sales rising 0.5% in August.

In other news, homebuilder confidence rose to an all-time high.

U.S. single-family homebuilder confidence increased to a record high in September as historically low mortgage rates continue to boost the housing market despite the COVID-19 recession, which has left tens of millions of Americans unemployed.
The NAHB/Wells Fargo Housing Market Index (HMI) rose five points to an all-time high of 83 this month, data showed on Wednesday. A reading above 50 indicates that more builders view conditions as good than poor.

Wall Street Bombed 100 Years Ago Today
Posted by Eddy Elfenbein on September 16th, 2020 at 8:14 am

One hundred years ago today, at one minute past noon, a bomb exploded in Wall Street which killed 38 people and seriously wounded 143. Windows were shattered up to a half-mile away.

A horse-drawn wagon loaded with dynamite had been parked in front of the headquarters of J.P. Morgan. The dynamite was packed with 500 pounds of cast-iron slugs.

For the first time ever, trading was halted on the floor of the New York Stock Exchange because of violence. The previous day, anarchists Sacco and Vanzetti had been indicted for bank robbery and murder. At the time, it was the deadliest terrorist attack on U.S. soil.

No one knows who carried out the attack, but it was assumed to have been orchestrated by an Italian anarchist group. They had carried out a series of bombings in June 1919.

Damage from the blast is still visible on 23 Wall Street. J.P. Morgan refused to have it repaired.

The perpetrators were never caught.

Morning News: September 16, 2020
Posted by Eddy Elfenbein on September 16th, 2020 at 7:08 am

World Economy to Withstand Virus Better Than Forecast, OECD Says

UAE Signals It’ll Atone For Pumping Too Much Oil in July, August

‘Farewell, Fossil Fuels’? What Oil’s Demise Will Do To The World’s Leading Economies

Europe’s Economic Revival Is Imperiled, Raising the Specter of a Grinding Downturn

Fed Debates Next Steps After Shifting Approach to Rate-Setting

Both Candidates Support ‘Buy American’: Both Are Wrong

U.S. House Report Blasts Failures Of Boeing, FAA In 737 MAX Certification

Buffett-Backed Cloud Unicorn Snowflake Nets $3.4 Billion In Record-Breaking Software IPO

Ex-GM Executive Moonlights as Matchmaker in Deal With Startup Nikola

Movie Theaters Returned. Audiences Didn’t. Now What?

US Retailers Roll Out Foreign Toilet Paper Amid COVID-19 Pandemic

Joshua Brown: Gambling & Shorting Nikola, Most Stocks Are Terrible, The Options Trading Bubble

Michael Batnick: What Should Young Investors Read?

Ben Carlson: How To Get People To Save More Money

Nick Maggiulli: The 9 Best Income Producing Assets to Grow Your Wealth

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Industrial Production Continues to Rebound
Posted by Eddy Elfenbein on September 15th, 2020 at 3:08 pm

I wanted to mention this morning’s industrial production report. For August, it rose by 0.4%. It’s had a nice rebound after a big fall, but it’s got a long way to go to get back to normal.

Economists surveyed by The Wall Street Journal had expected a 1% increase in August.

Industrial production is still 7.3% down from its level in February, the last month before factories shut down across the country to control the spread of the coronavirus.

Manufacturing, the biggest component of production, rose 1%, a slower pace than in June and July.

In the stock market, today is another strong lead for growth over value. I still suspect that the shift to value isn’t quite over.

The Fed meeting starts today. We’ll get the policy statement tomorrow. It now looks like the Fed won’t raise rates this year, next year or the year after that.

Here’s a look at the relative strength of financial stocks. A few days ago, it dipped below the very low level it reached during the financial crisis. This is just a bad time to run a bank.

Trex and Our Track Record
Posted by Eddy Elfenbein on September 15th, 2020 at 8:18 am

For track record purposes, I assume our Buy List is a $1 million portfolio that’s equally weighted at the start of each year.

For 2020, we had 445.03783 shares of Trex (TREX) at $89.88 per share.

Due to the 2-for-1 split, that now becomes 890.07566 shares at $44.94.

The Buy Below is now $75 per share.

Morning News: September 15, 2020
Posted by Eddy Elfenbein on September 15th, 2020 at 7:07 am

Stock Market’s 7% Pullback? Get Ready For More, As A 2009-Style ‘Stair-Step’ Rally Continues, Says Wall Street Bull

Big Investors Are Dying to Know What Amateur Traders Are Doing

The Fed and the Future of America’s Debt

U.S. Restricts Chinese Apparel and Tech Products, Citing Forced Labor

TikTok’s Proposed Deal Seeks to Mollify U.S. and China

How ByteDance’s CEO Balked At Selling TikTok’s U.S. Business

Banks Balk at Fed’s $600 Billion Lifeline for Main Street Firms

Pandemic-Proof Apple To Kick Off Lineup For Critical Holiday Season

Verizon to Buy Prepaid Wireless Provider Tracfone for $6.25 Billion

For Ray Dalio, a Year of Losses, Withdrawals and Uneasy Staff

Daimler to Pay $1.5 Billion to Settle Emissions Cheating Probes

With Nissan’s Carlos Ghosn Gone, Greg Kelly Faces Trial Alone

Ben Carlson: 4 Questions I’m Pondering At the Moment

Howard Lindzon: The FinTAM Explosion

Joshua Brown: 7 Summers Ago

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20 Years Ago, Small-Cap Value Bucked the Bear
Posted by Eddy Elfenbein on September 14th, 2020 at 11:45 am

Here’s an interesting chart. The blue line is the broad market and the black line is small-cap value.

March 2000 was the start of a terrible bear market as the tech bubble popped, but small-cap value almost completely ignored the selling. Of course, value stocks had a rough time before that.

Looking for a single index to represent the entire market ignores many important trends happening beneath the surface.