Morning News: January 17, 2018
Posted by Eddy Elfenbein on January 17th, 2018 at 7:05 am

Beware the $500 Billion Bond Exodus

What Could Kill the Bitcoin Boom

Did Bitcoin Just Burst? How It Compares to History’s Big Bubbles

World’s Largest Money Manager to CEOs: You Must Do Good for Society

At Retail Trade Show, Technology is the Star

Nutella Maker to Pay $2.8 Billion for Nestle U.S. Candy Unit

IBM Forges Global Joint Venture With Maersk Applying Blockchain To ‘Digitize’ Global Trade

Why Breaking Up General Electric May Be Hard to Do

Nissan Is Turning Infiniti into an Electric Luxury Brand

Ferrari Is Planning to Bring an Electric Supercar to Market

Why New Tax Law Cost Citigroup, GM $29 Billion

Bank of America Profit Slumps on $2.9 Billion Tax Charge

Joshua Brown: What If the Price of Bitcoin Is the Least Interesting Thing About It?

Jeff Carter: Should Google, Facebook and Other Large Tech Firms be Broken Up?

Michael Batnick: Animal Spirits: Nobody Wants to Listen to Your Podcast

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Big Reversal Today
Posted by Eddy Elfenbein on January 16th, 2018 at 5:07 pm

The stock market had a big reversal today. I can’t remember the last one this big (and I’m too lazy to look it up.)

At one point this morning, the S&P 500 was up 0.76% to a new all-time high. We couldn’t hold on, and the index closed down 0.35%.

Crypto-Land had a very tough day. Bitcoin fell over $3,000 for a loss of 22%.

The S&P 500 Gets Modern
Posted by Eddy Elfenbein on January 16th, 2018 at 1:47 pm

S&P is making some important classification changes to the S&P 500, and I think it’s long overdue. I’ve never liked the Telecom sector as a stand-alone sector. The good news is that Telecom is being renamed Communication Services. They’re going to take the old Telecom stocks and add a bunch of “new media” stocks like Facebook, Alphabet, Comcast and Netflix.

I don’t know exactly how I’d classify a company like Facebook, but I suppose Communications is pretty good.

They’re also updating the Internet & Direct Marketing Retail Sub-Industry to include all “online marketplaces.” This will include companies like Alibaba and eBay.

This is going to blow a big hole in the Tech Sector (formally, the Information Technology). S&P is also going to take companies in the Internet Software & Services Sub-Industry and put then in a new Internet Services & Infrastructure Sub-Industry which will be under the IT Services Industry.

They’re going to take some companies currently labeled as Internet Software & Services and reclassify them as Application Software. This will ditch the current Internet Software & Services Industry and Sub-Industry. Good.

The new structure will have 11 Sectors, 24 Industry Groups, 69 Industries and 158 Sub-Industries.

Morning News: January 16, 2018
Posted by Eddy Elfenbein on January 16th, 2018 at 7:05 am

Bitcoin Tanks Below $12,000 as Regulators Plan New Cryptocurrency Rules

Oil Trades Near Three-Year High as Hedge Funds Increase Bullish Bets

Saudi Aramco Snubs UBS and Bank of America for Listing Roles

Inflation Falls Back For First Time Since June as Brexit Hit Wanes

This Year Looks Different for U.S. Inflation as Wall St. Braces

The Senate’s Push to Overrule the FCC on Net Neutrality Now Has 50 Votes, Democrats Say

Investors Can’t Get Enough of the Metal Used to Cut Vehicle Pollution

U.S. Lawmakers Urge AT&T to Cut Commercial Ties with Huawei

BP to Book $1.7 Billion Charge for Deepwater Horizon Claims

Chinese Carmaker May Use Fiat Chrysler for Foothold in United States

Black Rock’s Message: Contribute to Society, Or Risk Losing Our Support

Raine Takes a Stake in `Planet of the Apps’ Creator

Roger Nusbaum: Maven Recap

Cullen Roche: Will Centralized Entities Ruin the Decentralized Party?

Howard Lindzon: Group Frenzy and Hilariously Rich

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MLK’s “Street Sweeper” Speech
Posted by Eddy Elfenbein on January 15th, 2018 at 10:19 am

Dr. King was born 89 years ago today.

Ecclesiastes 9:10

Whatsoever thy hand findeth to do, do it with thy might; for there is no work, nor device, nor knowledge, nor wisdom, in the grave, whither thou goest.

Morning News: January 15, 2018
Posted by Eddy Elfenbein on January 15th, 2018 at 7:07 am

Pressure Rising on OPEC to Develop Long-Term Output Plan

These Digital Coins Soar (or Fall) With Bitcoin

China Escalates Crackdown on Cryptocurrency Trading

Hedge Funds Are Making Money From Exotic Bets

Carillion Collapses After U.K. Government Refuses Bailout

Detroit Auto Show May Be Celebrating An Era About to End

Ford Will Invest $11 Billion by 2022 To Launch 40 New Electric Cars and Hybrids Worldwide

Alibaba’s AI Outguns Humans in Reading Test

Big Bets on A.I. Open Up a New Frontier for Chip Start-Ups, Too

SoftBank Flirts With Wireless Unit IPO that Could Be Japan’s Biggest in Two Decades

Unlocking the Airbus A380 Success

Lego Plans Video Games, Social Network for Chinese Children

Jeff Miller: A Confusing Earnings Season

Jeff Carter: There Is One Bear Market

Ben Carlson: Updating My Favorite Performance Chart for 2017

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The Forgotten Bull Market 1949-1955
Posted by Eddy Elfenbein on January 14th, 2018 at 12:03 pm

Probably the least well-known bull market for the U.S. stock market is the amazing run stocks had from June 13, 1949 to September 23, 1955. The Dow more than tripled in a little over seven years, rising from 161.60 to 487.45.

What’s even more impressive is that this bull market began during the late stages of one recession and continued right through another.

I’m calling this one bull market which you can easily divide into two major runs. The first part, from June 13, 1949 to September 13, 1951 (exactly 27 months), is when the Dow raced from 161.60 to 276.37. That’s a 71% gain.

Two years and one day later, on September 14, 1953, the Dow stood at 255.49. From there, it raced 90.8% toward its peak on September 23, 1955. That run lasted two years and nine days.

The stock market was eventually spooked by President Eisenhower’s heart attack. On Monday, September 26, 1955, the Dow dropped 6.54%. That was the worst day for the market since the fall of France 15 years before.

This was a golden age for the economy. Energy was cheap. The country was having a baby boom. The rich and the poor were moving closer together. Over the 75-month period from June 1949 to September 1955, the CPI rose by 12.25% which is just 1.86% annualized.

Although I’m calling September 1955 the end of the bull market, the Dow continued to charge higher but at a reduced rate. The Dow reached a peak of 421.05 on April 6, 1956. That’s a 6.9% gain in a little over six months from the peak I’m using. The Dow wouldn’t set another new high for almost two-and-a-half years.

But here’s the important question: why isn’t this bull market better known? My guess is because it never came to a crashing end. There’s no way anyone can moralize about greedy bubbles when it never popped. The 1950s stock market continued to climb for several more years. We really didn’t experience a major crisis until the 1970s.

This is one case in which stocks really did reach a permanently high plateau, and it really was different this time.

The Duck Quacks Back
Posted by Eddy Elfenbein on January 12th, 2018 at 3:36 pm

Here’s the press release:

Statement from Aflac Incorporated regarding recent false allegations

COLUMBUS, Ga., Jan. 12, 2018 /PRNewswire/ — Recent media stories regarding Aflac contain false allegations made by a very small group of independent contractors. Aflac intends to aggressively fight these allegations beginning with filing for their dismissal. The unfounded articles allege claims including insider trading, fraudulent sales and financial manipulation. The Company has investigated these claims and found them to be without merit.

Mr. Conroy and the individuals involved with these unfounded claims are not employees of Aflac and as such can be part-time and licensed to sell with other companies as well. Mr. Conroy has formerly served as an Aflac district sales coordinator and has realized financial benefits through his association with Aflac. It should also be noted that these allegations are coming from fewer than 10 individuals among up to 70,000 independent contractors and brokers licensed to sell Aflac products. The insider trading, fraudulent sales and financial manipulation claims alleged by the individuals have been investigated by the Company and an independent special committee of the Company’s board of directors.

Aflac has a long history of operating with transparency and integrity, having been named by Fortune Magazine as one of the Best Companies to Work For for 19 consecutive years and a World’s Most Ethical Company by Ethisphere for 11 consecutive years.

From The Fly:

Aflac selloff on Intercept article an overreaction, says Evercore ISI

The Intercept’s article today on Aflac is “filled with hyperbole, which reduces the credibility of the claims being brought,” Evercore ISI analyst Thomas Gallagher tells investors in a research note. The analyst admits, however, that it is unclear to know whether the fraud allegations by former employees have any merit. Gallagher views the 8% selloff today in shares of Aflac as an overreaction. The stock is now pricing in a “reasonably high probability that there are systemic issues here,” the analyst contends. He has an In Line rating on Aflac with an $87 price target. The stock in afternoon trading is down 8%, or $7.58, to $84.11

Some tweets:

This is actually false, unless one bad regional manager did this. I'm a broker offering many carriers, along with Aflac, and they've been one of the best companies to work with–not just for agent compensation, but for client claims.

— Natasha Harmon (@ShesNatashaJean) January 12, 2018

I have been an Aflac agent for over 15 years. I have never been forced to purchase any policies. I have never been told it was an employee benefit. Disability is not even a product that agents look at purchasing in the first place due to our 1099 status.

— Brian Demarest (@brian_demarest) January 12, 2018

Inflation and Retail Sales
Posted by Eddy Elfenbein on January 12th, 2018 at 3:31 pm

This morning, the government released the CPI data for December. Last month, consumer prices rose by 0.1%. Actually, working out the decimals, the CPI was up 0.1498. In the last year, inflation was up 2.12%.

The core rate rose by 0.3%. That’s the biggest monthly increase since January 2017. For the year, core prices were up 1.77%.

Here’s an updated look at the real Fed funds rate based off core inflation:

The government also said that retail sales rose by 0.4% in December. They also raised the number for November up to 0.9%. Retail sales were up 5.4% from last December.

Fraud Allegations at AFLAC
Posted by Eddy Elfenbein on January 12th, 2018 at 10:09 am

Shares of AFLAC (AFL) are down sharply today after The Intercept ran an article detailing troubling practices by the company.

The insurance firm AFLAC Aflac has exploited workers, manipulated its accounting, and deceived shareholders and customers, according to nine former employees. This article is based on interviews with multiple current and former employees, as well as three previously unreported lawsuits.

The allegations contained in the lawsuits involve nearly every aspect of Aflac’s business and have already led to a series of investigations by state and federal regulators. But though Aflac’s top management and board of directors have known about the claims for over a year, they have not disclosed anything to shareholders in public filings with the Securities and Exchange Commission beyond generalities about unnamed pending lawsuits that they say they expect will not hurt the company’s bottom line.

I want to be careful how I word my response. The allegations, if true, are disappointing. However, nothing I’ve seen so far has me concerned for AFLAC’s future.

First, let me say that I’m hardly an independent observer. I’ve owned AFLAC’s stock for many years, and I’ve admired the company.

Also, The Intercept has a political bent to their reporting. I’m reading this with my eyes open.

But most of what I’ve read so far is what I’d call the unseemly byproduct of running a large and profitable enterprise.

For example, the sales jobs described and very tough and demanding. That’s not a surprise. Perhaps AFLAC makes the jobs seem better than they are, but that’s a long way from an Enron-type scam. It’s not difficult for them to revamp their recruitment process.

Any big company will have lawsuits brought against them. If you read what the lawyers have to say, without any explanation from the company, the picture can look quite ugly. That’s what lawyers do.

In the movie Raising Arizona, the police asked Nathan Arizona, Sr., if he had any disgruntled employees. He answered, “Hell, they’re all disgruntled. I ain’t running no damn daisy farm.”

Some of The Intercept’s language is stretched. For example:

Sharecroppers after the Civil War were famously charged endless fees and rent for farming equipment and use of the land, an arrangement that feels reminiscent for Aflac’s white-collar version.

Comparing selling supplemental life insurance to sharecropping? That’s just absurd.

Most of what’s alleged can be explained by saying that AFLAC plays to win in a tough business. The company has 10,000 full-time employees and they do more than $20 billion in annual revenue. If you talk to all the former employees, the most disaffected can surely share some ugly stories.

But AFLAC could not have grown so large by stomping on so many people. The reality is that sales jobs are not for everyone.

The Intercept says this is the first of a series. So far, I’m not exactly overwhelmed by the allegations. What’s important to me is seeing evidence of fraud or illegal behavior. I also want to see AFLAC get in front of this story.