Morning News: May 28, 2019
Posted by Eddy Elfenbein on May 28th, 2019 at 7:12 am

Vietnam’s Economy Could Soon Be Bigger Than Singapore’s

How the Fiat-Renault Mega-Merger Came Together

China’s First Bank Seizure in 20 Years Sets Investors on Edge

iPhone Profits Will Crash If China Seeks Huawei Revenge

Amazon Is Poised to Unleash a Long-Feared Purge of Small Suppliers

How Much for a China-Made Model 3?

McKinsey Said Disclosure Rules Were Confusing. It Ignored Its Own Primer.

Apple and Nike Brace for China’s Wrath After Huawei Ban

Alibaba Plans Bumper $20 Billion HK Listing to Boost Investment War Chest

Occidental to Sell Parts of Anadarko After Debt-Fueled Acquisition

Sports Illustrated, the Brand, Is Sold for $110 Million

Brexit Is Sending Students Packing, Straining Private Schools on Both Ends

Michael Batnick: Talk Your Book: Help With Your Down Payment From Unison

Ben Carlson: Wealth Is The Stuff You Can’t See

Jeff Carter: Capitalisn’t

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Morning News: May 27, 2019
Posted by Eddy Elfenbein on May 27th, 2019 at 5:48 am

Bitcoin Climbs to Highest in a Year Amid Cryptocurrency Comeback

What Are Frontier Markets and Why Invest in Them?

Trump Presses Japan Over Trade Gap, Expects ‘Good Things’ From North Korea

Japan to Limit Foreign Ownership of Firms in Its IT, Telecom Sectors

Huawei’s CEO Talks Trump, Apple And Whether His Company Can Still Survive

Cisco Will Benefit From U.S. Attack On Huawei

Trump’s Throttling of Huawei Could Backfire on U.S. Tech

Fiat Chrysler Submits Proposal for a Merger with Renault

First Opiodal Trial Takes Aim at Johnson & Johnson

Craft Brewers Lighten Up and Take Aim at the ‘Sweaty Consumer’

It’s Never Been Easier to Be a C.E.O., and the Pay Keeps Rising

Blackstone’s Schwarzman Recalls the Advice That Changed His Life

Jeff Carter: The SEC and Crypto

Roger Nusbaum: The Wisdom of Others

Joshua Brown: Behold, the Power of Compounding! And Fall to Your Knees in the Presence of Its Invincibility!

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Morning News: May 24, 2019
Posted by Eddy Elfenbein on May 24th, 2019 at 7:05 am

Theresa May, Britain’s Prime Minister, Resigns

Singapore Chases Tech ‘Jedi Masters’ for Silicon Valley Ambitions

Foreign Investors Hope India Dials Back Policy Shocks After Modi Win

Trump Sparks Oil Rally With Iran Spat, Then Rout With Trade War

Trump Gives Farmers $16 Billion in Aid Amid Prolonged China Trade War

China Denounces U.S. ‘Rumors’ and ‘Lies’ About Huawei Ties to Beijing

Huawei’s European Customers Are Put on Hold by U.S. Ban

Huawei Has Enough Inventory to ‘Weather’ US Blacklist for Months

To Get Boeing 737 Max Flying, Global Consensus Will Be Hard

‘We Have the Meatless?’ Never, Vows Arby’s President

Tesla Stock Is in Trouble and Elon Musk Has Gone From Iron Man to Inspector Gadget

Amazon Shares May Be Worth $3,000 in Two Years, Piper Says

Ben Carlson: My Personal Finance Mentor

Michael Batnick: What I Learned from Doing a Financial Plan

Cullen Roche: Is Vanguard Better at Predicting Future Returns?

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Ross Stores Earned $1.15 per Share
Posted by Eddy Elfenbein on May 23rd, 2019 at 4:40 pm

Ross Stores (ROST) just released its first-quarter earnings report. The company earned $1.15 per share. Previously, the deep-discounter had given us an earnings range of $1.05 to $1.11 per share. As usual, their guidance was conservative. Comparable store sales were up 2%.

Barbara Rentler, Chief Executive Officer, commented, “For the first quarter, we delivered sales gains at the high end of our guidance as well as better-than-expected earnings per share growth despite continued underperformance in Ladies apparel. While operating margin of 14.1% was down from the prior year, it was above plan mainly due to higher merchandise margin. As expected, this improvement was more than offset by increases in freight and wage costs and the timing of packaway-related expenses that benefited the prior year period.”

For Q2, Ross sees comparable store sales growth of 1% to 2%. For EPS, the company sees the exact same as Q1, $1.05 to $1.11 per share. Wall Street had been expecting $1.14 per share.

The company also updated its full-year guidance. Ross now sees earnings of $4.38 to $4.52 per share. That includes seven cents per share thanks to a favorable tax benefit. The previous range was $4.30 to $4.52 per share. Adjusting for that, in effect, ROST’s guidance range narrowed thanks to a one-cent increase at the low end and a five-cent decrease at the high end.

The stock is down about 2.5% after hours.

Hormel Foods Earned 46 Cents per Share
Posted by Eddy Elfenbein on May 23rd, 2019 at 7:06 am

This morning, Hormel Foods (HRL) reported fiscal Q2 earnings of 46 cents per share. That beat expectations by one penny per share.

Hormel lowered its fiscal 2019 outlook. They now see sales of $9.5 billion to $10 billion. The previous guidance was $9.7 billion to $10.2 billion. They also lowered their EPS guidance to $1.71 to $1.85. The previous range was $1.77 to $1.91 per share.

Here’s the executive summary:

Volume of 1.2 billion lbs., up 1%

Record net sales of $2.3 billion, up 1%

Pretax earnings of $318 million, up 7%

Diluted earnings per share of $0.52

Excluding one-time gain on the divestiture of CytoSport, adjusted diluted EPS of $0.46 per share

Effective tax rate of 11.1% compared to 20.0% last year

Operating margin of 13.3% compared to 12.9% last year

Year-to-date cash flow from operations of $366 million, down 18% due to higher working capital

Fiscal 2019 earnings guidance decreased to $1.71 to $1.85 per share from $1.77 to $1.91 per share

COMMENTARY

“We achieved record sales this quarter as three of our four segments delivered volume and sales growth,” said Jim Snee, chairman of the board, president and chief executive officer. “Many of our innovative product lines such as Hormel® Bacon 1TM cooked bacon, Hormel® Fire BraisedTM products, Hormel® Natural Choice® snacks and Herdez® salsa delivered double-digit sales growth. We also grew core product lines such as Hormel® pepperoni, Dinty Moore® stew and Austin Blues® authentic barbeque products.”

“In spite of record sales, second quarter earnings did not meet our expectations,” Snee said. “African swine fever in China started to impact global hog and pork markets this quarter, which led to rapidly increasing input costs. In response, we have announced pricing action across our branded value-added portfolio in the Grocery Products, Refrigerated Foods and International segments.”

“Jennie-O Turkey Store profits declined due to a combination of plant startup costs and lower retail sales,” Snee said. “We made a large investment to automate our whole-bird facility in Melrose, Minn., and the startup was more difficult than anticipated. We made excellent progress through the quarter and are now on track to deliver the production efficiencies we expected. Retail sales declined for the quarter, but we are reactivating promotional activity and advertising in order to regain distribution.”

“We finalized the sale of CytoSport this quarter and used the proceeds to pay down the remaining debt from the Columbus Craft Meats acquisition and build our cash position,” Snee said. “We will use our strong balance sheet to continue to grow our company through disciplined and strategic investments, including acquisitions and capacity expansion projects.”

OUTLOOK

“Over the past three years, the intentional actions we have taken as part of Our Path Forward, which include evolving to a broader global branded food company, accelerating our foodservice business, modernizing our supply chain and divesting nonstrategic assets, has made our company stronger,” Snee said. “Our experienced management team, leading brands, focus on innovation, strong balance sheet and diversified businesses allow us to manage through times of uncertainty and volatility, as we are currently experiencing with African swine fever.”

The company’s revised fiscal 2019 earnings guidance range is based on the input cost increases experienced in the second quarter and a forecast for volatile domestic pork prices in the second half of fiscal 2019. The company has a proven ability to operate in elevated market conditions but expects short-term margin compression as branded value-added pricing actions lag input cost increases. Additionally, expectations for Jennie-O Turkey Store have been lowered as the company reinvests in the Jennie-O® brand in order to regain retail distribution.

Update: Shares of HRL fell 6.3% this morning, but later rallied back. The stock closed down 0.91% today which was less than the overall market’s drop of 1.19%.

Morning News: May 23, 2019
Posted by Eddy Elfenbein on May 23rd, 2019 at 7:04 am

China Crushed By Debt

Full-Blown Trade War Is Quickly Shifting From Risk to ‘Baseline’

Mobile Carriers in Britain and Japan Begin to Turn Away From Huawei

If Huawei Loses ARM’s Chip Designs, It’s Toast

Amazon Shareholders Reject Facial Recognition Ban as Concern Grows in U.S. Congress

DOJ Attorneys Reportedly Ready to Block T-Mobile/Sprint Merger

Qualcomm’s Day of Reckoning May Have Arrived

iPhone Fights Apple’s Embarrassing Problem

Apple Secretly Tried to Buy Tesla, and It All Fell Apart for a Truly Stunning Reason

One of Tesla’s Biggest Bulls Just Turned Around and Trashed the Company on a Private Call with Wall Street

Deutsche Bank CEO Readies Investment Bank Cuts as Stock Hits Low

The Wealth Detective Who Finds the Hidden Money of the Super Rich

Roger Nusbaum: Retirement Reading Roundup

Jeff Miller: Throwing In The Towel At Exactly The Wrong Time?

Joshua Brown: What Are Your Thoughts: The $47 Trillion Question

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Highlights from Today’s Fed Minutes
Posted by Eddy Elfenbein on May 22nd, 2019 at 2:15 pm

The Fed just released the minutes of their last FOMC meeting. It appears the central bank is in no hurry to raise or lower interest rates.

Here’s the part of the discussion dealing with the Fed’s outlook for the economy:

Staff Economic Outlook

The projection for U.S. economic activity prepared by the staff for the April–May FOMC meeting was revised up on net. Real GDP growth was forecast to slow in the near term from its solid first-quarter pace, as sizable contributions from inventory investment and net exports were not expected to persist. The projection for real GDP growth over the medium term was revised up, primarily reflecting a lower assumed path for interest rates, a slightly higher trajectory for equity prices, and somewhat less appreciation of the broad real dollar. The staff’s lower path for interest rates reflected a methodological change in how the staff sets its assumptions about the future path for the federal funds rate in its forecast. Real GDP was forecast to expand at a rate above the staff’s estimate of potential output growth in 2019 and 2020 and then slow to a pace below potential output growth in 2021. The unemployment rate was projected to decline a little further below the staff’s estimate of its longer-run natural rate and to bottom out in late 2020. With labor market conditions still judged to be tight, the staff continued to assume that projected employment gains would manifest in smaller-than-usual downward pressure on the unemployment rate and in larger-than-usual upward pressure on the labor force participation rate.

The staff’s forecast for inflation was revised down slightly, reflecting some recent softer-than-expected readings on consumer price inflation that were not expected to persist along with the staff’s assessment that the level to which inflation would tend to move in the absence of resource slack or supply shocks was a bit lower in the medium term than previously assumed. As a result, core PCE price inflation was expected to move up in the near term but nevertheless to run just below 2 percent over the medium term. Total PCE price inflation was forecast to run a bit below core inflation in 2020 and 2021, reflecting projected declines in energy prices.

The staff viewed the uncertainty around its projections for real GDP growth, the unemployment rate, and inflation as generally similar to the average of the past 20 years. The staff also saw the risks to the forecasts for real GDP growth and the unemployment rate as roughly balanced. On the upside, household spending and business investment could expand faster than the staff projected, supported by the tax cuts enacted at the end of 2017, still strong overall labor market conditions, favorable financial conditions, and upbeat consumer sentiment. On the downside, the softening in some economic indicators since late last year could be the leading edge of a significant slowing in the pace of economic growth. Moreover, trade policies and foreign economic developments could move in directions that have significant negative effects on U.S. economic growth. Risks to the inflation projection also were seen as balanced. The upside risk that inflation could increase more than expected in an economy that was still projected to be operating notably above potential for an extended period was counterbalanced by the downside risks that recent soft data on consumer prices could persist and that longer-term inflation expectations may be lower than was assumed in the staff forecast, as well as the possibility that the dollar could appreciate if foreign economic conditions deteriorated.

Participants’ Views on Current Conditions and the Economic Outlook

Participants agreed that labor markets had remained strong over the intermeeting period and that economic activity had risen at a solid rate. Job gains had been solid, on average, in recent months, and the unemployment rate had stayed low. Participants also observed that growth in household spending and business fixed investment had slowed in the first quarter. Overall inflation and inflation for items other than food and energy, both measured on a 12-month basis, had declined and were running below 2 percent. On balance, market-based measures of inflation compensation had remained low in recent months, and survey-based measures of longer-term inflation expectations were little changed.

Participants continued to view sustained expansion of economic activity, with strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes. Participants noted the unexpected strength in first-quarter GDP growth, but some observed that the composition of growth, with large contributions from inventories and net exports and more modest contributions from consumption and investment, suggested that GDP growth in the near term would likely moderate from its strong pace of last year. For this year as a whole, a number of participants mentioned that they had marked up their projections for real GDP growth, reflecting, in part, the strong first-quarter reading. Participants cited continuing strength in labor market conditions, improvements in consumer confidence and in financial conditions, or diminished downside risks both domestically and abroad, as factors likely to support solid growth over the remainder of the year. Some participants observed that, in part because of the waning impetus from fiscal policy and past removal of monetary policy accommodation, they expected real GDP growth to slow over the medium term, moving back toward their estimates of trend output growth.

In their discussion of the household sector, participants discussed recent indicators, including retail sales and light motor vehicle sales for March, which rose from relatively weak readings in some previous months. Taken together, these developments suggested that the first-quarter softness in household spending was likely to prove temporary. With the strong jobs market, rising incomes, and upbeat consumer sentiment, growth in PCE in coming months was expected to be solid. Several participants also noted that while the housing sector had been a drag on GDP growth for some time, recent data pointed to some signs of stabilization. With mortgage rates at their lowest levels in more than a year, a few participants thought that residential construction could begin to make positive contributions to GDP growth in the near term; a few others were less optimistic.

Participants noted that growth of business fixed investment had moderated in the first quarter relative to the average pace recorded last year and discussed whether this more moderate growth was likely to persist. A number of participants expressed optimism that there would be continued growth in capital expenditures this year, albeit probably at a slower pace than in 2018. Several participants observed that financial conditions and business sentiment had continued to improve, consistent with reports from business contacts in a number of Districts; however, a few others reported less buoyant business sentiment Many participants suggested that their own concerns from earlier in the year about downside risks from slowing global economic growth and the deterioration in financial conditions or similar concerns expressed by their business contacts had abated to some extent. However, a few participants noted that ongoing challenges in the agricultural sector, including those associated with trade uncertainty and low prices, had been exacerbated by severe flooding in recent weeks.

Participants observed that inflation pressures remained muted and that the most recent data on overall inflation, and inflation for items other than food and energy, had come in lower than expected. At least part of the recent softness in inflation could be attributed to idiosyncratic factors that seemed likely to have only transitory effects on inflation, including unusually sharp declines in the prices of apparel and of portfolio management services. Some research suggests that idiosyncratic factors that largely affected acylical sectors in the economy had accounted for a substantial portion of the fluctuations in inflation over the past couple of years. Consistent with the view that recent lower inflation readings could be temporary, a number of participants mentioned the trimmed mean measure of PCE price inflation, produced by the Federal Reserve Bank of Dallas, which removes the influence of unusually large changes in the prices of individual items in either direction; these participants observed that the trimmed mean measure had been stable at or close to 2 percent over recent months. Participants continued to view inflation near the Committee’s symmetric 2 percent objective as the most likely outcome, but, in light of recent, softer inflation readings, some viewed the downside risks to inflation as having increased. Some participants also expressed concerns that long-term inflation expectations could be below levels consistent with the Committee’s 2 percent target or at risk of falling below that level.

Participants agreed that labor market conditions remained strong. Job gains in the March employment report were solid, the unemployment rate remained low, and, while the labor force participation rate moved down a touch, it remained high relative to estimates of its underlying demographically driven, downward trend. Contacts in a number of Districts continued to report shortages of qualified workers, in some cases inducing businesses to find novel ways to attract new workers. A few participants commented that labor market conditions in their Districts were putting upward pressure on compensation levels for lower-wage jobs, although there were few reports of a broad-based pickup in wage growth. Several participants noted that business contacts expressed optimism that despite tight labor markets they would be able to find workers or would find technological solutions for labor shortage problems.

Participants commented on risks associated with their outlook for economic activity over the medium term. Some participants viewed risks to the downside for real GDP growth as having decreased, partly because prospects for a sharp slowdown in global economic growth, particularly in China and Europe, had diminished. These improvements notwithstanding, most participants observed that downside risks to the outlook for growth remain.

In discussing developments in financial markets, a number of participants noted that financial market conditions had improved following the period of stress observed over the fourth quarter of last year and that the volatility in prices and financial conditions had subsided. These factors were thought to have helped buoy consumer and business confidence or to have mitigated short-term downside risks to the real economy. More generally, the improvement in financial conditions was regarded by many participants as providing support for the outlook for economic growth and employment.

Among those participants who commented on financial stability, most highlighted recent developments related to leveraged loans and corporate bonds as well as the current high level of nonfinancial corporate indebtedness. A few participants suggested that heightened leverage and associated debt burdens could render the business sector more sensitive to economic downturns than would otherwise be the case. A couple of participants suggested that increases in bank capital in current circumstances with solid economic growth and strong profits could help support financial and macroeconomic stability over the longer run. A couple of participants observed that asset valuations in some markets appeared high, relative to fundamentals. A few participants commented on the positive role that the Board’s semi-annual Financial Stability Report could play in facilitating public discussion of risks that could be present in some segments of the financial system.

In their discussion of monetary policy, participants agreed that it would be appropriate to maintain the current target range for the federal funds rate at 2-1/4 to 2-1/2 percent. Participants judged that the labor market remained strong, and that information received over the intermeeting period showed that economic activity grew at a solid rate. However, both overall inflation and inflation for items other than food and energy had declined and were running below the Committee’s 2 percent objective. A number of participants observed that some of the risks and uncertainties that had surrounded their outlooks earlier in the year had moderated, including those related to the global economic outlook, Brexit, and trade negotiations. That said, these and other sources of uncertainty remained. In light of global economic and financial developments as well as muted inflation pressures, participants generally agreed that a patient approach to determining future adjustments to the target range for the federal funds rate remained appropriate. Participants noted that even if global economic and financial conditions continued to improve, a patient approach would likely remain warranted, especially in an environment of continued moderate economic growth and muted inflation pressures.

Participants discussed the potential policy implications of continued low inflation readings. Many participants viewed the recent dip in PCE inflation as likely to be transitory, and participants generally anticipated that a patient approach to policy adjustments was likely to be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective. Several participants also judged that patience in adjusting policy was consistent with the Committee’s balanced approach to achieving its objectives in current circumstances in which resource utilization appeared to be high while inflation continued to run below the Committee’s symmetric 2 percent objective. However, a few participants noted that if the economy evolved as they expected, the Committee would likely need to firm the stance of monetary policy to sustain the economic expansion and keep inflation at levels consistent with the Committee’s objective, or that the Committee would need to be attentive to the possibility that inflation pressures could build quickly in an environment of tight resource utilization. In contrast, a few other participants observed that subdued inflation coupled with real wage gains roughly in line with productivity growth might indicate that resource utilization was not as high as the recent low readings of the unemployment rate by themselves would suggest. Several participants commented that if inflation did not show signs of moving up over coming quarters, there was a risk that inflation expectations could become anchored at levels below those consistent with the Committee’s symmetric 2 percent objective—a development that could make it more difficult to achieve the 2 percent inflation objective on a sustainable basis over the longer run. Participants emphasized that their monetary policy decisions would continue to depend on their assessments of the economic outlook and risks to the outlook, as informed by a wide range of data.

Free Webinar Today
Posted by Eddy Elfenbein on May 22nd, 2019 at 10:01 am

Join me at 4 pm ET for a free webinar. I’ll be joined by John Schindler, a national security expert. It should be a great discussion. You can register here.

Morning News: May 22, 2019
Posted by Eddy Elfenbein on May 22nd, 2019 at 7:06 am

U.S. Weighs Blacklisting Up to Five Chinese Surveillance Firms

The Economy Is Strong and Inflation Is Low. That’s What Worries the Fed.

U.S. Existing-Home Sales Continued to Falter in April

Apple’s China Business Faces Another Blow From Trump’s Huawei Ban

The Trump Administration Is Selling Out Hundreds of Millions of Cell-Phone Users

U.S. Judge Rules Qualcomm Practices Violate Antitrust Law

Walmart to Make First Direct Pitch to Big Corporate Ad Buyers at New York Event

Huawei Unwanted: Asian Shops Shun Phone Trade-Ins on Google Suspension Worries

Wow Air Collapse Decimates Iceland’s Economy

TransferWise is Now Europe’s Most Valuable Fintech Start-Up, With a $3.5 Billion Valuation

New Coke Was a Debacle. It’s Coming Back. Blame ‘Stranger Things.’

Belgian Monastery Will Brew Beer Again, After A 220-Year Pause

Nick Maggiulli: Stop the Financial Pornography!

Joshua Brown: The Only Two Scarce Resources Left on Wall Street

Howard Lindzon: Lindzanity – Doug Horlick Worked At Goldman Sachs and I Like Him

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The Growing Divergence
Posted by Eddy Elfenbein on May 21st, 2019 at 7:56 am

Over the last month, there’s been a growing divergence in the stock market. The more volatile stocks of the High Beta sector have done poorly whereas the conservative stocks of the Low Vol group have barely budged. In fact, they’re up some.

Check out this chart of High Beta (in blue) versus Low Vol (in red) over the last month.

Typically, this represents a market that’s become nervous. When in doubt, investors flock toward safety. At least, perceived safety.