Unemployment Claims Lowest Since the 1960s
Posted by Eddy Elfenbein on March 1st, 2018 at 12:00 pm

This morning the unemployment claims report came in at 210,000. This number tends to bounce around a lot so economists prefer to look at the four-week moving average. That number is down to 220,500 which is the lowest since December 27, 1969. For the raw number, it’s the lowest since December 6, 1969.

(Yeah, I know. I said lowest since the 1960s, but I’m technically right.)

We also learned that the ISM manufacturing index for February rose to 60.8. Expectations were for 58.6. That’s the highest since 2004.

I like the ISM report because it comes out on the first business day of the month. The day after the GDP report we get the personal income and spending report for the prior month. Since the GDP was revised yesterday, this morning we get personal income and spending for January. Personal income rose by 0.4% in January while spending increased by 0.2%.

Morning News: March 1, 2018
Posted by Eddy Elfenbein on March 1st, 2018 at 6:59 am

Why an Unpleasant Inflation Surprise Could Be Coming

Trump Expected to Announce Stiff Steel, Aluminum Tariffs

Powell Shoots for Soft Landing That’s Eluded Seasoned Fed Chiefs

Exxon Abandons Russian Projects Brokered by Tillerson

Walmart, Dick’s Say They Will Stop Selling Guns to Those Under 21

Lowe’s Update: After 25% Surge, Discount To Home Depot Narrowed Dramatically

Best Buy to Close Mobile-Phone Stores

Spotify Is Getting Paid to Save the Music Industry

World’s Biggest Ad Agency Suffers Worst Stock Drop Since 1999

Cryptocurrency Firms Targeted in SEC Probe

Is Bitcoin a Waste of Electricity, or Something Worse?

Bill Ackman Surrenders in His Five-Year War Against Herbalife

Cullen Roche: Tremors Was a Very Bad Movie

Roger Nusbaum: Game Planning Another Lost Decade

Ben Carlson: Questions For the Next Bear Market & The Closet Indexer

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The MOAT ETF
Posted by Eddy Elfenbein on February 28th, 2018 at 3:13 pm

There’s an ETF which focuses on competitive advantages, otherwise known as moats. The VanEck Vectors Morningstar Wide Moat ETF has the symbol MOAT.

I don’t own any shares in it but their strategy is close to what we do with our Buy List. MOAT currently has 44 stocks while we have just 25.

Here are the MOAT holdings as of January 31:

AMAZON AMZN
TWENTY-FIRST CENTURY FOX FOXA
LOWE’S LOW
EXPRESS SCRIPTS ESRX
AMERISOURCEBERGEN ABC
VEEVA SYSTEMS VEEV
SALESFORCE.COM CRM
EMERSON ELECTRIC EMR
UNITED TECHNOLOGIES UTX
VISA V
CARDINAL HEALTH CAH
VF VFC
BRISTOL-MYER SQB BMY
TRANSDIGM GROUP TDG
WELLS FARGO WFC
WALT DISNEY DIS
WESTERN UNION WU
L BRANDS INC LTD
PFIZER INC PFE
MONDELEZ INTERNATIONAL INC-A MDLZ
MONSANTO CO MON
MCKESSON CORP MCK
AMGEN INC AMGN
ZIMMER HOLDINGS INC ZMH
STARBUCKS CORP SBUX
MEDTRONIC PLC MDT
ELI LILLY & CO LLY
MERCK & CO. INC. MRK
STERICYCLE INC SRCL
COMPASS MINERALS INTERNATION CMP
BIOGEN IDEC INC BIIB
CVS CAREMARK COR CVS
ALLERGAN PLC AGN
GENERAL ELECTRIC CO GE
SCHWAB (CHARLES) SCHW
CBRE GROUP INC – A CBG
MICROSOFT CORP MSFT
GUIDEWIRE SOFTWARE INC GWRE
NIKE NKE
BANK OF NEW YORK MELLON BK
GILEAD SCIENCES GILD
WILEY (JOHN) & SONS JW-A
MICROCHIP TECHNOLOGY MCHP
POLARIS INDUSTRIES PII
AMERICAN EXPRESS AXP
PATTERSON PDCO

I can’t say I like all these names, but I see several former Buy Listers here. It’s interesting how similar strategies can yield different names.

I couldn’t find a precise methodology for the fund. Judging what’s a long-lasting competitive advantage must involve some human guesswork.

Morning News: February 28, 2018
Posted by Eddy Elfenbein on February 28th, 2018 at 5:22 am

Stock Selloff Widens After Powell Boosts Expectations of Rate Rises

Senate Democrats Push for Support to Reinstate Net Neutrality

Amazon Acquires Ring, Maker of Video Doorbells

Papa John’s Is No Longer the NFL’s Official Pizza

Takata Airbag Scandal: Australia Recalls 2.3 Million Cars

Baidu’s Netflix-Style App Marks Bumper Year for China Tech IPOs

Comcast’s Roberts Has Anti-Murdoch Card to Play in Bid for Sky

Bill Gates Says Cryptocurrency is `A Rare Technology That Has Caused Deaths in a Fairly Direct Way’

Macy’s Just Confirmed the End of Department Stores as We Know Them

Weight Watchers Looking to Expand Beyond Dieting

How Defective Guns Became the Only Product That Can’t Be Recalled

In N.R.A. Fight, Delta Finds There Is No Neutral Ground

Cullen Roche: Here’s a (Not So) Pretty Picture – Buffett vs the S&P 500

Joshua Brown: Where the S&P 500 Will Spend Their Cash This Year

Michael Batnick: Why Doesn’t More Money Make Us Happy?

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Four Rate Hikes this Year
Posted by Eddy Elfenbein on February 27th, 2018 at 7:27 pm

According to the futures market, the odds of the Fed raising interest rates four times this year is 33.5%. That’s up from 25% a week ago. In my opinion, it’s closer to 5%. Alas, I’m not on the FOMC.

I also wanted to mention that HEICO (HEI), a former Buy List all-star, reported earnings after today’s close. I like this stock a lot but I don’t like the price.

As usual, the earnings report was very good. Q1 sales rose 18% to $404.4 million, and EPS hit 45 cents per share. That’s five cents more than estimates. Last month, HEICO also split its stock 5-for-4.

HEICO is raising its full-year forecast. Before, they saw net sales and income rising by 10% to 12%. Now they see net sales rising by 12% to 14% and net income rising by 30% to 32%. That’s thanks to tax reform.

HEI is up 3.1% after hours. I would love to have HEICO back on the Buy List, but it’s way too pricey.

“A 40% Chance”
Posted by Eddy Elfenbein on February 27th, 2018 at 11:13 am

Rolfe Winkler and Justin Lahart have a biting piece in today’s WSJ on how market gurus go about making their claims non-falsifiable.

This is one of my pet peeves. You can see my Buy List all the time. My track record goes back more than a decade. Yet there are lots of famous market gurus who weasel their way out of one terrible call after another. Peter Schiff and Nouriel Roubini are prime examples.

Winkler and Lahart say that when in doubt, claim that your forecast had a 40% probability. That’s the sweet spot. If you’re right, you’re a genius. If you’re wrong, then you never said it was absolutely going to happen.

The nice thing about 40% is that you never have to say you were wrong, says Peter Tchir, a market strategist at Academy Securities. Say you predict the Dow Jones Industrial Average has a 40% chance of hitting 30000 before year-end.

“Get it right and you can say ‘See, I was telling everyone it could happen,’ ” he says. “Get it wrong and you can weasel your way out: ‘I didn’t say it was likely, I just said it was a strong possibility.’ ”

(…)

“Pundits and gurus master the art of going out on a limb without going out on limb,” says Philip Tetlock, a professor at the University of Pennsylvania who has made a career analyzing which people forecast well, and why. One of his pet peeves is how gurus use vague terms like “distinct possibility” instead of percentage odds when they describe probabilities. That makes it easy to wiggle out of, or take credit for a forecast, since it isn’t clear at all what a distinct possibility is.

But one drawback of percentage odds, Mr. Tetlock says, is that people are often unclear on what they actually mean.

(…)

Courageous contrarian calls are the best way forecasters capture the public’s attention, and get television time. New York University Professor Nouriel Roubini was dubbed “ Dr. Doom ” for correctly predicting the financial crisis. Then in 2010 he projected a 40% chance of a “double-dip recession” in the U.S. It didn’t happen.

Mr. Roubini says he doesn’t remember the projection, but that he takes pride in sticking his neck out, as with his latest call that Bitcoin is the biggest bubble in history and will go to zero.

“I would not rule out that I’ve committed the sin of the 40% rule,” said Prof. Roubini. “Everybody has done so.”

Powell Speaks and Durable Goods
Posted by Eddy Elfenbein on February 27th, 2018 at 11:01 am

We had two key economic reports this morning. The Case-Shiller Index said that home prices rose 6.3% in 2017. Also, orders for durable goods fell 3.7% compared with expectations of a 2% drop.

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.2 percent last month after declining 0.6 percent in December.

That was the first back-to-back drop in these so-called core capital goods orders since May 2016. Economists polled by Reuters had forecast these orders rising 0.5 percent last month. Orders increased 8.0 percent on a year-on-year basis.

Shipments of core capital goods edged up 0.1 percent after an upwardly revised 0.7 percent rise in December. Core capital goods shipments are used to calculate equipment spending in the government’s gross domestic product measurement. They were previously reported to have increased 0.4 percent in December.

We also learned this morning that consumer confidence hit a 17-year high.

Fed Chairman Jay Powell is testifying today on Capitol Hill. Here’s part of his testimony:

The U.S. economy grew at a solid pace over the second half of 2017 and into this year. Monthly job gains averaged 179,000 from July through December, and payrolls rose an additional 200,000 in January. This pace of job growth was sufficient to push the unemployment rate down to 4.1 percent, about 3/4 percentage point lower than a year earlier and the lowest level since December 2000. In addition, the labor force participation rate remained roughly unchanged, on net, as it has for the past several years–that is a sign of job market strength, given that retiring baby boomers are putting downward pressure on the participation rate. Strong job gains in recent years have led to widespread reductions in unemployment across the income spectrum and for all major demographic groups. For example, the unemployment rate for adults without a high school education has fallen from about 15 percent in 2009 to 5-1/2 percent in January of this year, while the jobless rate for those with a college degree has moved down from 5 percent to 2 percent over the same period. In addition, unemployment rates for African Americans and Hispanics are now at or below rates seen before the recession, although they are still significantly above the rate for whites. Wages have continued to grow moderately, with a modest acceleration in some measures, although the extent of the pickup likely has been damped in part by the weak pace of productivity growth in recent years.

Turning from the labor market to production, inflation-adjusted gross domestic product rose at an annual rate of about 3 percent in the second half of 2017, 1 percentage point faster than its pace in the first half of the year. Economic growth in the second half was led by solid gains in consumer spending, supported by rising household incomes and wealth, and upbeat sentiment. In addition, growth in business investment stepped up sharply last year, which should support higher productivity growth in time. The housing market has continued to improve slowly. Economic activity abroad also has been solid in recent quarters, and the associated strengthening in the demand for U.S. exports has provided considerable support to our manufacturing industry.

Against this backdrop of solid growth and a strong labor market, inflation has been low and stable. In fact, inflation has continued to run below the 2 percent rate that the FOMC judges to be most consistent over the longer run with our congressional mandate. Overall consumer prices, as measured by the price index for personal consumption expenditures (PCE), increased 1.7 percent in the 12 months ending in December, about the same as in 2016. The core PCE price index, which excludes the prices of energy and food items and is a better indicator of future inflation, rose 1.5 percent over the same period, somewhat less than in the previous year. We continue to view some of the shortfall in inflation last year as likely reflecting transitory influences that we do not expect will repeat; consistent with this view, the monthly readings were a little higher toward the end of the year than in earlier months.

After easing substantially during 2017, financial conditions in the United States have reversed some of that easing. At this point, we do not see these developments as weighing heavily on the outlook for economic activity, the labor market, and inflation. Indeed, the economic outlook remains strong. The robust job market should continue to support growth in household incomes and consumer spending, solid economic growth among our trading partners should lead to further gains in U.S. exports, and upbeat business sentiment and strong sales growth will likely continue to boost business investment. Moreover, fiscal policy is becoming more stimulative. In this environment, we anticipate that inflation on a 12-month basis will move up this year and stabilize around the FOMC’s 2 percent objective over the medium term. Wages should increase at a faster pace as well. The Committee views the near-term risks to the economic outlook as roughly balanced but will continue to monitor inflation developments closely.

Morning News: February 27, 2018
Posted by Eddy Elfenbein on February 27th, 2018 at 7:05 am

Dalio Says Central Banks Face Challenge After ‘Goldilocks’ Phase

After Anbang Takeover, China’s Deal Money, Already Ebbing, Could Slow Further

German Court Rules Cities Can Ban Vehicles to Tackle Air Pollution

In a Blow to AT&T, Federal Judges Have Rejected ‘The Loophole That Could’ve Swallowed the Internet’

5 Key Questions for New Fed Chair Powell That Will Be Crucial for Stocks

California Scraps Safety Driver Rules for Self-Driving Cars

Comcast Just Bid $31 Billion to Buy Sky Out From Under Rupert Murdoch and Fox

Guns: The Investment Journey

Warren Buffett Offers His ‘Strongest Argument’ Against a Practice Investors are Doing in Record Numbers

This Big Cryptocurrency Acquisition Could Create a Wall Street-Style Financial Giant

Qualcomm, Broadcom Drama Enters New Act

Sam’s Club Jumps Into Same-Day Grocery Delivery With Instacart’s Help

Ben Carlson: Now & Then

Howard Lindzon: The Market Does Not Care

Roger Nusbaum: Did Dennis Gartman Really Get Blown Up? & Hedging; Are You Doing It Wrong?

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Morning News: February 26, 2018
Posted by Eddy Elfenbein on February 26th, 2018 at 7:06 am

Lower Oil Prices Force Saudis to Widen Their Circle of Friends

How Today’s Big Supreme Court Case on Public-Sector Unions Could Lead to a Fiscal Crisis

New Fed Chairman Jerome Powell to Testify Before Congress on Capitol Hill

Supreme Court to Hear Microsoft Case on Emails, Customer Data Stored Overseas

Bitcoin Regulation: 5 Facts the SEC Wants You to Know

Warren Buffett: The New GOP Tax Law Benefits Berkshire and Acts as A ‘Huge Tailwind for Businesses’

Goldman Says Stocks May Dive 25% If 10-Year Yield Hits 4.5%

Morgan Stanley Takes on Goldman, Buffett With Bullish Bond Call

How PNB Says It Fell Victim to India’s Biggest Loan Fraud

Chairman of China’s Geely Has 9.7% Stake in Daimler

Why Companies Are Abandoning the NRA

Tortuous Sale Saga to End with Weinstein Company Bankruptcy

Joshua Brown: Rates, REITs and Utes

Michael Batnick: Risk & These Are the Goods

Cullen Roche: WealthFront’s Risk Parity Fund is a Raw Deal & Buffett’s Annual Letter – Some Key Takeaways

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National Presto
Posted by Eddy Elfenbein on February 25th, 2018 at 1:16 pm

Check out the 17-year chart of National Presto (NPK):

This is another great stock with zero analyst coverage. Also, there’s also not much media coverage. I found a Forbes article from 2009. The firm has a rather interesting history:

Presto started life in 1905 as Northwestern Steel & Iron Works, maker of 50-gallon commercial canners. Ten years later it moved into home canning and in 1939 introduced the first saucepan-style pressure cookers. World War II rationing of aluminum had it cranking out munitions. In 1944 Maryjo’s dad, Melvin S. Cohen, joined as a customer service manager; two years later he married the daughter of a large shareholder and soon shot up the ranks.

In 1960 Melvin became president just as conglomerators like Harold Geneen and James Ling were gaining admiration. He scooped up nine companies, including a door-to-door vitamin seller, a pipeline operator, a press-and-lathe refurbisher and a trucking business. Melvin’s appetite was matched by his eye for bargains. He earned praise from Benjamin Graham, who touted Presto in his value-investing bible, The Intelligent Investor.

When leveraged-buyout firms started bidding prices up in 1980s, Melvin put away his wallet and started selling. By the time Maryjo took the corner office in 1993 he had unloaded everything but the kitchen appliance business. By 1999, with the world awash in cheap money, Presto’s cash and securities came to 80% of its assets. The stock was as flat as a pancake on a Presto Tilt ‘n Drain Big Griddle.

Then things got ugly. A study by the New York Society of Security Analysts in 1999 blasted Presto for inept management. FORBES called the Cohen family rule a “farce.” Melvin took out an ad in Inventor’s Digest requesting ideas for new products into which he could pour some cash–565 came back, all rejected. In 2002 the Securities & Exchange Commission demanded that Presto register as a mutual fund company. When Melvin refused, the agency sued in federal court for violation of the Investment Company Act and won (though it lost on appeal).

Shareholders’ salvation: two stock market crashes and a menu of suddenly cheap assets that could balance out Presto’s kitchen appliance unit, which not surprisingly had to send production work abroad in order to stay competitive. After exiting the munitions business in 1992, Presto got back into it in early 2001 with the $5.6 million purchase of Amtec, maker of 40mm bullets for mk19 machines guns now used in Iraq and Afghanistan.