The Trading Year Ends
Posted by Eddy Elfenbein on December 29th, 2017 at 6:39 pm

The 2017 trading year has come to a close. It was a good year for the stock market, and it was a historically calm year for stocks.

All told, the S&P 500 gained 19.42%. Including dividends, it was up 21.83%.

Our Buy List gained 20.58% on the year. With dividends, it was up 21.79%.

Morning News: December 29, 2017
Posted by Eddy Elfenbein on December 29th, 2017 at 7:01 am

Rivals Erode Bitcoin’s Store of Value

China Offers Tax Incentives to Persuade U.S. Companies to Stay

Why Shenzhen Is the Big 2017 Loser

As MiFID Nears, This Risk Officer Is Looking Forward to February

Trump Stretches Meaning of Deregulation in Touting Achievements

Last-Minute Rush to Prepay Taxes Gives Way to Confusion and Anger

SoftBank Succeeds in Tender Offer for Large Stake in Uber

General Electric: What To Look For In 2018

India’s Richest Man Bails Out Brother Fueling Record RCom Rally

Airbus Confirms $50 Billion Jet Order, One of the Biggest Aviation Deals in History

Apple Apologizes After Outcry Over Slowed iPhones

Ben Carlson: The First Rule of Personal Finance

Roger Nusbaum: What It Means To Be An Advisor

Mark Hines: Do You Know When to Fold Your Trades?

Cullen Roche: 2017 Fixed Income Review – Bond Permabears Wrong Again

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Wall Street’s Year-End Forecasts
Posted by Eddy Elfenbein on December 28th, 2017 at 2:09 pm

The chart above is from Bespoke Investment Group, and it lists Wall Street’s consensus for the market’s return over the coming year compared with how well the market actually did.

As you can see, Wall Street’s track record ain’t that good. On average, Wall Street has missed by 13.1%. If you simply said 9% every year, you would have beaten that.

Looking at the chart, it’s interesting how narrow Wall Street’s predictions are. Most of the projections listed above are between +5% and +10%. None was negative. The standard deviation of the market’s actual returns is four times that of the forecasts.

Here’s a scatterplot. The Y-axis is Wall Street’s forecasts and the X-axis is what really happened. The r-square is 0.01.

They kept the data ranges the same for both axes to show you how narrow Wall Street’s forecasts are.

Now here’s the same scatterplot but with one crucial difference. I set the coming year’s forecast against the just-completed year. The correlation is semi-strong (r-square of 0.59), but what’s striking is that the slope is negative.

What this means is that Wall Street’s forecasts don’t tell you much about the coming year, but they say a decent amount about the year that just ended. The downward slope means that historically, analysts have predicted a bad year will be followed by a mildly good one, and a good one will be followed by a mildly bad one.

In other words, these folks get paid tons of money to predict simple regression to the mean. What the equation means is that to be a Wall Street analyst, start with 10% as your baseline prediction. Then take whatever the market did last year and divide it by 5. Now subtract that from 10%, and presto, you now have your expert forecast (or at least 58% of the way there)!

Update on BCR/BDX
Posted by Eddy Elfenbein on December 28th, 2017 at 11:10 am

This should happen tomorrow. Here’s a press release from this morning:

BD (Becton, Dickinson and Company) (BDX), a leading global medical technology company, issued the following statement regarding today’s clearance by the Ministry of Commerce of the People’s Republic of China (MOFCOM) for BD to acquire C. R. Bard (BCR), contingent on BD divesting its soft tissue core needle biopsy product line:

“MOFCOM clearance was the final regulatory approval needed to complete the Bard acquisition,” said Vincent A. Forlenza, chairman and CEO of BD. “We look forward to closing the transaction and welcoming Bard’s products and associates to the BD family.”

The proposed acquisition remains subject to the satisfaction of customary closing conditions. BD and Bard currently expect the proposed acquisition to close on Friday, Dec. 29.

Separately, BD’s proposed divestiture of its soft tissue core needle biopsy product line to Merit Medical is conditioned on MOFCOM approval of Merit as the purchaser.

Morning News: December 28, 2017
Posted by Eddy Elfenbein on December 28th, 2017 at 7:05 am

Once a Cash Cow, Venezuela’s Oil Company Now Verges on Collapse

South Korea Clamps Down on Bitcoin Trading Amid Market Frenzy

Bitcoin Tumbles Over Exchange-Closure Fears

Dollar Touches 1-Month Low as It Heads for Worst Year Since 2003

Flattening U.S. Yield Curve Nears Decade Lows in Final 2017 Push

Bond Giants Lay Out Their Top Trades for 2018

Shell, Barclays Detail Billions in Charges Related to U.S. Tax Changes

Prepaying Your Property Taxes? I.R.S. Cautions It Might Not Pay Off

Here’s What Retailers Have to Prove in 2018

Apple and Amazon in Talks to Set Up in Saudi Arabia

Is Airbus Finally Ready To Shut Down A380 Production?

Tesla, Inc. to Announce Vehicle Deliveries Next Week

Howard Lindzon: So Excited for 2018…

Jeff Carter: The New Trump Tax Law and REITs

Josh Brown: Three Things That Will Never Change in Wealth Management & Who Are You Competing With? & 50 Phrases to Run From

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Morning News: December 27, 2017
Posted by Eddy Elfenbein on December 27th, 2017 at 7:08 am

Oil Falls From 2015 Highs as Rally Runs Out of Steam

Copper Rallies to Three-Year High as China Plant Halts Output

Bitcoin Rebounds to Surpass $16,000 as Five-Day Selloff Ends

World’s Wealthiest Became $1 Trillion Richer in 2017

Frenzied Shopping Season, Record Hangover

Barclays Takes $1.3 Billion One-Time Charge From U.S. Tax Bill

Uber Working on Deal to Sell Xchange Leasing to Fair

Tesla’s Elon Musk Promises Pick-up Truck and New Features

China’s Geely Accelerates Global Growth With Volvo Truck Stake

How Big Tech Is Going After Your Health Care

’Nobody Thought It Would Come to This’: Drugmaker Teva Faces a Crisis

Prosecutors Affirm Push for Samsung Heir to Get 12-Year Sentence

Ben Carlson: Stock Market Valuations Won’t Predict the Next Crash

Michael Batnick: One Final Puff

Roger Nusbaum: New Cannabis ETF

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Last Year’s Sells
Posted by Eddy Elfenbein on December 26th, 2017 at 12:49 pm

I’m going to violate one of my rules in this post. I often tell investors not to fret about what happens to a stock that they sold.

Sure, it can keep going up. They won’t time everything perfectly. The point is to not worry about something that’s already done.

Having said that, let’s look at the five stocks we sold from the Buy List last year.

Ford +4.12
Biogen +22.32%
Stericycle -11.33%
Wells Fargo +11.69%
Bed Bath & Beyond -44.81%

Those are YTD numbers as of midday today. Three are up, two are down. Poor Bed Bath has been clobbered. Only one of the five has beaten the S&P 500 this year.

Here’s what I wrote a year ago:

Bed Bath & Beyond was one of the most frustrating stocks to own. They had a long-time reputation for being a well-run outfit. Unfortunately, they fell behind the times. I simply stayed in this one for too long. I waited for a turnaround that never came. This week, the company released yet another poor earnings report. It’s time to let it go.

There’s a lot I like about Ford. Overall, I think the company did a good job managing its way through the recession. Ford was never bailed out. They also made an impressive change to aluminum-body trucks. I also liked Ford’s generous dividend, plus their special dividend payment. Unfortunately, the outlook for Ford isn’t as rosy as I had assumed.

I’m sad to part with Biogen. There’s a lot to like about this biotech, but I think they need to make some big changes first. Sales of Tecfidera have slowed down dramatically, and their broader pipeline is weak. Next year’s spinoff of Bioverativ is a good start. Despite its terrible name, Bioverativ could turn into a winner. I need to see results first, however.

Stericycle was a mistake from the beginning. I simply missed how poorly organic sales had been performing. Management tried to mask these issues with a series of unwise rollups. This was a massive loser for us this year.

There’s not much else to be said about Wells Fargo that hasn’t been said before. Fundamentally, WFC is a sound bank, but it’s been tainted by its indefensible behavior. At least, the stock has been a terrible performer this year.

Sorry, We Don’t Take Cash
Posted by Eddy Elfenbein on December 26th, 2017 at 11:47 am

From the New York Times on places that no longer accept cash:

The other day at Dig Inn, a just-opened lunch spot on Broadway and 38th Street in Midtown Manhattan, Shania Bryant committed a consumer faux pas. She placed her order for chicken and brown rice and yams, and when she got to the register, she held out a $50 bill.

“Sorry,” the cashier told her. “We don’t take cash.” Not, “We don’t take $50s.” No cash. Period.

“What?” Ms. Bryant asked.

The cashier patiently explained. Credit and debit cards were fine, as was the easy-to-download Dig Inn phone app. But the almighty dollar was powerless.

“I’ve never experienced that before,” said Ms. Bryant, 20, an assistant to a designer. “I guess we’re in new times.”

Indeed. Cashless businesses were once an isolated phenomenon, but now, similarly jarring experiences can be had across the street at Sweetgreen, or two blocks up at Two Forks, or next door to Two Forks at Dos Toros, or over on 41st Street at Bluestone Lane coffee. In Midtown and some other neighborhoods across New York City, cashless is fast on its way to becoming normal.

I’m not sure what would happen if you refused to pay in anything but cash. If a store took legal action against you, I would assume you’d be entitled to settle in cash “legal tender for all debts, public and private”.

New Home Sales and Personal Income
Posted by Eddy Elfenbein on December 26th, 2017 at 11:30 am

I wanted to highlight some good economic reports that came out on Friday.

The first said that new home sales rose to an annual rate of 733,000 in November. That’s a 10-year high and it’s an increase of 17.5% over October.

We also learned that personal income rose 0.3% last month while spending rose by 0.6%. Both are good numbers although it means our savings rate dipped a little.

Finally, durable goods orders rose 1.3% in November which was below estimates of 2%.

These are pretty good numbers we’re seeing.

Morning News: December 26, 2017
Posted by Eddy Elfenbein on December 26th, 2017 at 7:20 am

China to Overtake U.S. Economy by 2032 as Asian Might Builds

China’s New Lenders Collect Invasive Data and Offer Billions. Beijing Is Worried.

Bitcoin Rises 10%, Recovers From Last Week’s Brutal Selloff

Morgan Stanley Says the True Price of Bitcoin Might Be Zero

QuickTakes Explain the Year Ahead

General Electric: An Excellent Long-Term Investment

Apple Suppliers Drop on Report of iPhone X Demand; Analysts’ Views Mixed

Hyundai Heavy Industries Group to List Oilbank, Issue $1.2 Billion Rights Shares

Material World: Movie Theaters Want You Back, So They’re Rushing to Modernize

In a Year of Nonstop News, a Batch of Business Books Worth Reading

Steven Cohen Plans a New Hedge Fund. Investors Are Wary.

Big Tech Succeeded in Getting Bigger in 2017 — But Its Failures to Society Became Much More Apparent

Jeff Miller: Which Stocks are the Tax Cut Winners (or Losers)?

Jeff Carter: Regulating Bitcoin

Howard Lindzon: Predictions for 2018 – Supply, Supply, Supply!

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