Morning News: October 18, 2019
Posted by Eddy Elfenbein on October 18th, 2019 at 7:03 am

China’s Economy Slows on Weak Investment, Testing Global Growth

China’s GDP Growth Grinds to Near 30-Year Low as Tariffs Hit Production

Russia’s Thawing Permafrost May Cost Economy $2.3 Billion a Year

After Hemorrhaging $100 Billion, Europe Stages a Comeback

How A Small Aluminum Maker Won U.S. Trade Protection

Defiant Zuckerberg Says Facebook Won’t Police Political Speech

Boeing C.E.O., Already Set for House Hearing, Is Likely to Face Senate, Too

GM Transforms Who Wins, Who Loses in the Future of Work

Credit Suisse to Start Charging Wealthy Clients for Cash Deposits

Juul Halts Online Sales of Some Flavored E-Cigarettes

Johnson & Johnson to Pay $117 Million Over Surgical Device Marketing

Coca-Cola Stock Jumps as Strong Sales of Coke Zero Sugar Continue to Drive Revenue Growth

Ben Carlson: A Eulogy for the 60/40 Portfolio

Michael Batnick: Trading Behavior

Roger Nusbaum: Is The 60/40 Portfolio Really Dead?

Be sure to follow me on Twitter.

Signature Bank Beat Estimates
Posted by Eddy Elfenbein on October 17th, 2019 at 11:57 am

This morning, Signature Bank (SBNY) reported Q3 earnings of $2.75 per share. Net interest margin on a tax-equivalent basis was 2.68%. Total deposits rose to $39.06 billion. Wall Street had been expecting $2.70 per share.

Here are some details from the press release:

Net Income for the 2019 Third Quarter Was $148.7 Million, or $2.75 Diluted Earnings Per Share, Versus $155.4 Million, or $2.84 Diluted Earnings Per Share, Reported in the 2018 Third Quarter.

The Bank Declared a Cash Dividend of $0.56 Per Share, Payable on or After November 15, 2019 to Common Stockholders of Record at the Close of Business on November 1, 2019.

During the 2019 Third Quarter, the Bank Repurchased 629,503 Shares of Common Stock For a Total of $75.0 Million. Thus Far, the Bank Has Repurchased $189.7 Million of Common Stock From Its $500 Million Authorization.

Total Deposits in the Third Quarter Grew $1.52 Billion to $39.06 Billion; Total Deposits Have Grown $2.97 Billion, or 8.2 Percent, Since the End of the 2018 Third Quarter. Average Deposits Increased a Record $1.75 Billion in the 2019 Third Quarter.

In Line with the Bank’s Strategy to Increase Floating Rate Assets and Reduce Its Commercial Real Estate Concentration, the Bank Decreased Commercial Real Estate Loans by $873.1 Million. Conversely, Commercial & Industrial Loans Grew by $885.4 Million During the Quarter. Therefore, For the 2019 Third Quarter, Loans Increased $4.9 Million to $37.94 Billion. Since the End of the 2018 Third Quarter, Loans Have Increased 8.0 Percent, or $2.81 Billion.

Non-Accrual Loans Were $32.5 Million, or 0.09 Percent of Total Loans, at September 30, 2019, Versus $41.3 Million, or 0.11 Percent, at the End of the 2019 Second Quarter and $134.2 Million, or 0.38 Percent, at the End of the 2018 Third Quarter. Excluding Taxi Medallion Loans, Non-Accrual Loans Were $22.9 Million, or Six Basis Points of Total Loans.

Net Interest Margin on a Tax-Equivalent Basis was 2.68 Percent, Compared with 2.74 Percent for the 2019 Second Quarter and 2.88 Percent for the 2018 Third Quarter. Core Net Interest Margin on a Tax-Equivalent Basis Excluding Loan Prepayment Penalty Income Decreased Five Basis Points to 2.66 Percent, Compared with 2.71 Percent for the 2019 Second Quarter. Excess Cash Balances From Significant Deposit Flows Lead to Four Basis Points of the Core Net Interest Margin Decline.

Tier 1 Leverage, Common Equity Tier 1 Risk-Based, Tier 1 Risk-Based, and Total Risk-Based Capital Ratios were 9.66 Percent, 11.91 Percent, 11.91 Percent, and 13.16 Percent, Respectively, at September 30, 2019. Signature Bank Remains Significantly Above FDIC “Well Capitalized” Standards. Tangible Common Equity Ratio was 9.51 Percent.

Morning News: October 17, 2019
Posted by Eddy Elfenbein on October 17th, 2019 at 7:03 am

EU and U.K. Reach Agreement to Put Brexit Within Boris Johnson’s Grasp

China Says it Hopes to Reach Phased Trade Pact with U.S. as Soon as Possible

G.M. and U.A.W. Reach Deal That Could End Strike

‘Stranger Things’ Helps Netflix Increase Subscribers

Drug Giants Close In on a $50 Billion Settlement of Opioid Cases

WeWork Owner Creates Committee to Decide on Financing Lifeline

Barneys Enters Deal to Sell Assets to Authentic Brands, B. Riley for $271 Million Cash

Nestle to Return $20 Billion to Investors

Ex-Credit Suisse Banker Says He Hid $45 Million in Bribes

Amazon Holiday Toy List Slots Can Cost Brands Up to $2 Million

IBM Reports Messy Results

Ken Fisher Client Exodus Nears $1 Billion as Boston Divests

Howard Lindzon: Don’t Cry For Me – Commission-Free Brokers & Vaping and The Vice Matrix

Joshua Brown: Barry and Michael on the Endowment Model Circa 2019 and Beyond

Michael Batnick: Passive Products and Active Users

Be sure to follow me on Twitter.

Vox Misleads on Share Buybacks
Posted by Eddy Elfenbein on October 16th, 2019 at 9:03 pm

There’s been a lot of criticism lately of share buybacks. Some politicians even want to ban them.

I think there’s some confusion as to what buybacks are and what they can do. Some folks think buybacks are sinister and that they’re responsible for all sorts of terrible things. This isn’t the case. Ultimately, buybacks act very much like dividends. Buybacks are an odd scapegoat.

Vox recently put out this video on share buybacks and there were a few misleading statements.

Let me run through them.

0:22. The video seems to suggest that share buybacks were started after the market crash in 1929. That’s not right. Share buybacks are as old at the NYSE. Jason Zweig gives the example of the Germantown & Reading Turnpike Road Co. In 1798, its charter specified share buybacks.

0:46. The video says of buybacks, “But with this, corporations had discovered a kind of magic trick. They could jack up their stock price without really doing anything.” The corporation had already done something. It had earned the profit to fund the buyback. It would be like saying a company could pay out a dividend without doing anything.

This one may be nitpicking but at 3:12, the video quotes Ronald Reagan saying, “government is not the solution to our problem; government is the problem.” The video leaves out the first four words, “In this present crisis.” Reagan was talking about inflation.

3:43. “For the first time since the 1930s, companies could buy back shares of their own stock from investors.” You’ll often hear people say that buybacks were illegal prior to 1982. Again, this is misleading.

Buybacks were legal but there were restrictions and the rules were somewhat vague. As a result, many companies avoided them, but not all. Teledyne, Crown, Cork and Seal and Dairy Queen all used share buybacks and were known to do so.

In his 1980 shareholder letter, Warren Buffett extolled the virtues of buybacks (although he later criticized companies paying too much for the shares.) In 1982, the SEC ditched the rules.

The video also blames share buybacks for the growth of inequality. That seems to be a stretch. I think the video confuses a tool with how it can be used.

Eagle Bancorp Earned $1.08 per Share for Q4
Posted by Eddy Elfenbein on October 16th, 2019 at 4:36 pm

EagleBank announced quarterly net income of $36.5 million for the three months ended September 30, 2019, a 6% decrease from $38.9 million net income for the three months ended September 30, 2018.

Net income per basic common share for the three months ended September 30, 2019 was $1.07 compared to $1.14 for the same period in 2018.

Net income per diluted common share for the three months ended September 30, 2019 was $1.07 compared to $1.13 for the same period in 2018.

Earnings in the third quarter of 2019 were impacted by two significant non-recurring expense items.

The Company recorded $2.0 million of accelerated shared based compensation expense due to the resignation of certain directors of the Company and Bank.

Secondly, as a result of the FDIC Deposit Insurance Fund exceeding 1.38% of insured deposits at June 30, 2019, EagleBank recognized a $1.1 million credit to its FDIC assessment expense in the third quarter of 2019.

Excluding these two non-recurring items, net income for the third quarter of 2019 would have been $37.1 million ($1.08 per diluted share).

Notwithstanding the negative impact that very low interest rates and a flat yield curve are having on our revenues and net interest margin, we are pleased to report a continued quarterly trend of both loan and deposit growth, together with solid asset quality and favorable operating leverage. Additionally, our capital base remains very strong, with ratios well in excess of the requirements for well capitalized status,” noted Susan G. Riel, President and Chief Executive Officer of Eagle Bancorp, Inc. Ms. Riel added that “period end loan growth in the quarter was 2.3%, and average loans were 13% higher in the third quarter 2019 as compared to the third quarter of 2018. For the third quarter of 2019, period end deposit growth was a very strong 6.5% and average deposits were 13% higher as compared to the same period in 2018. Total revenue for the third quarter of 2019 was $87.3 million compared to $86.9 million for the third quarter of 2018 and was 4% higher for the first nine months of 2019 over the same period in 2018.

Here’s the bit about legal expenses:

Legal, accounting and professional fees and expenses for the three months ended September 30, 2019 increased to $3.6 million from $2.1 million for the same period in 2018, a 70% increase. Legal, accounting and professional fees and expenses for the nine months ended September 30, 2019 increased to $8.1 million from $7.3 million for the same period in 2018, an 11% increase. The increased expenses for both the quarter to date and year to date 2019 periods were primarily associated with government agencies investigations previously disclosed in the second quarter 2019 earnings press release. The Company expects to incur elevated levels of legal and professional fees and expenses for at least the remainder of 2019 as it continues to cooperate with these investigations. Other than these increased costs, we do not believe at this time that the resolution of these investigations will be materially adverse to the Company. As a result of these ongoing investigations, there have been no regulatory restrictions placed on the Company’s ability to fully engage in its banking business as presently conducted. We are, however, unable to predict the duration, scope or outcome of these investigations.

Retail Sales Fell Last Month
Posted by Eddy Elfenbein on October 16th, 2019 at 12:35 pm

This morning’s retail sales report showed a surprising decline for September. This could indicate weakness in consumer spending. This was the first drop for retail sales in seven months,

For September, retail sales fell by 0.3%. Economists had been expecting a gain of 0.3%. On the bright side, the figure for August was revised up from 0.4% to 0.6%.

Auto sales fell 0.9% in September, the most in eight months, while receipts at service stations fell 0.7% in what likely reflects cheaper gasoline.

Withholding automobiles, gasoline, building materials and food services, retail sales were little changed in September after climbing 0.3% in August. The so-called core figure corresponds more closely to the consumer spending component of U.S. economic activity.

Last month’s drop and August’s unedited gain in core sales hint at a marked slowdown in consumer spending in the third quarter that economists had been anticipating after a surge in the prior quarter. Consumption, which comprises about 66% of the U.S. GDP activity, increased at a 4.6% annualized rate in the second quarter, the most in 1½ years.

At the end of October, we’ll get our first look at Q3 GDP.

Morning News: October 16, 2019
Posted by Eddy Elfenbein on October 16th, 2019 at 7:12 am

ECB Should Consider a Better Inflation Measure, S&P Says

Undercover Entrepreneurs: Fearful Mexican Tech Startups Shun Spotlight

Turkish Markets Sell Off After U.S. Charges Bank With Money Laundering

What’s Really in the Trade Deal Trump Announced With China

U.S. ‘Deeply Concerned’ About Untrackable China Ships Carrying Iran Oil

Citigroup Offers Rare Pound Bond as Brexit Deal Prospects Fade

Google, Reddit Defend Tech Legal Protections Ahead of Congress Hearing

Barneys Bidding Starts, and It’s a Bet on the Future of Shopping

Ad Giant Wins Over Disney With Big Data Pitch

MGM to Sell Bellagio, Circus Circus Resorts for About $5 Billion

Overrun by Tourists, American Cities Are Taking Aim at Hotels

Goldman Profit Drops 26% as Deals Slow, Tech-Stocks Struggle

Nick Maggiulli: Money Blinders

Michael Batnick: Look Away & Animal Spirits: The Undies Indicator

Roger Nusbaum: Another Crypto ETP…To Be Wary Of

Be sure to follow me on Twitter.

Ross Stores Opens 42 New Locations
Posted by Eddy Elfenbein on October 15th, 2019 at 10:21 am

Good news from Ross Stores (ROST). The company is opening 42 new locations.

Ross Stores, Inc. announces the recent opening of 30 Ross Dress for Less® (“Ross”) and 12 dd’s DISCOUNTS® stores across 19 different states in September and October. These new locations complete the Company’s store growth plans for fiscal 2019 with the addition of 98 new stores.

“This fall, we continued to expand our Ross and dd’s footprints across our existing markets as well as expansion in our newer market – the Midwest. The 42 locations we added this fall included nine stores in our newer Midwest markets of Illinois, Indiana, Kentucky, Nebraska, and Ohio. In addition, dd’s DISCOUNTS entered the state of Virginia with the opening of one new store and now operates in 19 states,” said Jim Fassio, President and Chief Development Officer. “Looking ahead, we remain confident in our ability to grow to 2,400 Ross Dress for Less and 600 dd’s DISCOUNTS locations over time.”

Together, Ross Dress for Less® and dd’s DISCOUNTS® currently operate 1,811 off-price apparel and home fashion stores in 39 states, the District of Columbia, and Guam.

For fiscal Q3 (ending in October), Ross expects earnings of 92 to 96 cents per share. For Q4 (ending in January), which is their biggest, Ross sees earnings of $1.20 to $1.25 per share. That adds up to full-year guidance of $4.41 to $4.50 per share.

Alpha Trader Podcast
Posted by Eddy Elfenbein on October 15th, 2019 at 8:38 am

I was the guest of the premiere episode of Alpha Trader, the new podcast from Seeking Alpha. Check it out.

Morning News: October 15, 2019
Posted by Eddy Elfenbein on October 15th, 2019 at 7:12 am

A Swiss Bank Keeps Cropping Up in Venezuelan Corruption Cases

Swiss Talk of Annexing Italy’s Former CIA Spy Nest Roils Rome

U.S. Pension Funds Took Positions in Blacklisted Chinese Surveillance Company

Wall Street’s Sky-High Expectations Are About to Collide With Reality

How Amazon.com Moved Into the Business of U.S. Elections

WeWork Prefers JPMorgan Lifeline to a Rescue by SoftBank

The New Makers of Plant-Based Meat? Big Meat Companies

AMC Theater Chain Gets Into Streaming With On-Demand Movies

She Fined Tech Giants Billions of Dollars. Now She Wants Sharper Tools.

Inside a Brazen Scheme to Woo China: Gifts, Golf and a $4,254 Wine

No Choice But to Invest in Oil, Shell CEO Says

Elite M.B.A. Programs Report Steep Drop in Applications

Ben Carlson: Terrible Business Plans, Wonderful Businesses & Re-Kindled: Malcolm Gladwell

Jeff Carter: Economics of Patents & Regulators Jointly Speak Out About Crypto

Joshua Brown: BAML’s Trade War Tracker & Here’s How the Brokers Will Make Money Now That Trading is Free

Be sure to follow me on Twitter.