Morning News: December 16, 2016
Posted by Eddy Elfenbein on December 16th, 2016 at 7:04 am

Japan Overtakes China as Largest Holder of U.S. Treasuries

Another Socialist Economic Innovation – Cuba Reinvents Barter With Rum for Czech Republic

Cash-Recall Chaos Means Venezuela’s New Bills May Be Delayed

Lagarde Case is `Weak,’ French Prosecutor Says, Raising Chances of Acquittal

How Frackers Beat OPEC

Dollar Surges as U.S. Prepares for Higher Rates

Facebook Now Flags and Down-Ranks Fake News With Help From Outside Fact Checkers

Hacked Yahoo Data Is For Sale on Dark Web

The Inside Story of Apple’s $14 Billion Tax Bill

Oracle Earnings Fall; Co-CEO Catz to Join Trump Transition Advisory Team

Lockheed Martin Takes Stake in Chip Designer

DeVry University Will Pay $100 Million for Students’ Loans and Tuition

States Sue Generic-Drug Companies Over Price-Fixing Allegations

Josh Brown: Reacting to the Fed’s Expectations is a Clown Show

Jeff Miller: Stock Exchange: Does the Symbolism of Dow 20K Affect Technical Analysis?

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Morning News: December 15, 2016
Posted by Eddy Elfenbein on December 15th, 2016 at 7:07 am

SNB Joins Draghi in Warning of Dread for Politics Next Year

Japan Legalizes Casino Gambling Despite Final Stalling Tactics From Opposition

Dollar Climbs to Strongest Since 2003 on Fed Path; Bonds Drop

Dollar Peg Trumps Economic Woes as Gulf Follows Fed’s Rate Rise

After Fed, Eyes Turn to China for Emerging-Market Currency Fate

Should The U.S. Roll Out A 50-Year Treasury Bond?

’I’m Here to Help,’ Trump Tells Tech Executives at Meeting

Why Google Is Fumbling While Tesla Is Sprinting Toward Driverless Cars

With Netflix and Stan Running The Show, Is There Any Room For Amazon?

Yahoo Says 1 Billion User Accounts Were Hacked

Iran Finalizes Deal For Seven Airbus Planes

U.S. Generic Drug Probe Seen Expanding After Guilty Pleas

American In Russia Returns to Face US Charges in JP Morgan Hacking Case

Roger Nusbaum: No, This Time Is Not Different

Jeff Carter: What Are the New Norms in FinTech?

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The Two-Year Yield Highest Since 2009
Posted by Eddy Elfenbein on December 14th, 2016 at 2:36 pm

The yield on the two-year Treasury is at its highest since November 2009. This security is often the most sensitive to the Fed’s policies.

for the record, I strongly doubt the Fed will need to raise rates three times in each of the next three years.

The Fed Hikes
Posted by Eddy Elfenbein on December 14th, 2016 at 2:03 pm

For the second time in the last decade, the Federal Reserve has raised interest rates. The vote was unanimous.

Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year. Job gains have been solid in recent months and the unemployment rate has declined. Household spending has been rising moderately but business fixed investment has remained soft. Inflation has increased since earlier this year but is still below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation have moved up considerably but still are low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further. Inflation is expected to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1/2 to 3/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Esther L. George; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo.

Here are the projections. The FOMC members see three rate hikes next year. Another three in 2018. And three more in 2019.

Express Scripts Gives 2017 Guidance
Posted by Eddy Elfenbein on December 14th, 2016 at 1:18 pm

Today, Express Scripts (ESRX) reiterated their 2016 EPS guidance of $6.36 to $6.42 per share. The company also said they expect 2017 EPS to range between $6.82 and $7.02. Wall Street had been expecting $6.93.

The stock is down about 4% so far today.

Ahead of the Fed
Posted by Eddy Elfenbein on December 14th, 2016 at 12:53 pm

The Fed’s statement is due out at 2 pm, and they’ll almost certainly raise rates.

Earlier today, we had two key economic reports.

The first is that retail sales rose by 0.1% last month. Excluding gasoline, retail sales also rose by 0.1%.

Industrial production dropped by 0.4% last month. Part of that was due to warmer weather impacting utilities.

Josh Saves the Mutual Fund Industry
Posted by Eddy Elfenbein on December 14th, 2016 at 12:39 pm

My pal, Josh Brown has six ideas on how to save the mutual fund industry. If the industry were smart (if!), they’d implement these immediately. I’ll summarize them.

Idea One: Don’t play no game that you can’t win. There should be an industry-wide moratorium on new large-cap US stock funds.

Idea Two: Exclusivity sells. Everyone wants what they can’t have.

Idea Three: Ask more of your investors. Behavior is the single biggest determinant of investor success – not manager tenure or how many analysts you have or how many Morningstar stars you accumulate.

Idea Four: Benchmarks are bullsh*t. Benchmarks are not handed down from God on Mount Sinai and they do not appear in nature.

Idea Five: (Read it for yourself).

Idea Six: Shrink! There’s been some consolidation among the big asset management firms and fund families. There should be more. Bill Miller said that 70% of all managers are essentially benchmark-huggers.

Read the whole thing.

Morning News: December 14, 2016
Posted by Eddy Elfenbein on December 14th, 2016 at 7:10 am

Japan, EU in Talks Seeking Free-Trade Deal By Year-End

Japan, Looking for Money, Is Poised to Legalize Casino Gambling

Finance Titans Face Off Over $5 Trillion London Gold Market

Dow Flirts With 20,000 as Stocks Rise, Gold Falls Ahead of Fed

Having Addressed Supply, Oil Markets Face New Threat: Demand

Fed Expected to Raise Interest Rates: What to Watch

Trump’s Threat Damps Companies’ Plans to Move U.S. Jobs Abroad

Donald Trump Tweets And Investors Cringe — But Some Make Money

Aramco Keeps Building Oil Rigs Even as Saudis Agree to Pump Less

Goldman Sachs to Name David Solomon, Harvey Schwartz to Succeed Gary Cohn

Wells Fargo’s ‘Living Will’ Plan Is Rejected Again by Regulators

Maersk, DONG Oil And Gas Merger Talks Stall

Big Banks Fight to Block Crisis-Era Lawsuits From Continuing

Cullen Roche: The Best Value Vacations This Winter

Howard Lindzon: All-Time Highs, Dow 20,000 and the Hangover that Awaits…

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HEICO Earns 65 Cents per Share for Q4
Posted by Eddy Elfenbein on December 13th, 2016 at 4:32 pm

HEICO (HEI) just reported fiscal Q4 earnings of 65 cents per share. That’s up from 56 cents per share for last year’s Q4. Wall Street had been expecting 62 cents per share. This was a very good quarter and fiscal year.

For the year, HEICO earned $2.29 per share. In their Q3 report, HEICO said they forecast net income to rise by 13% to 15%. Since they made $1.97 per share last year, that works out to a range of $2.23 to $2.27 per share. As it turns out, their net income increased 17% this year to a record $156.2 million, or $2.29 per share.

For the year, net sales rose 16% to $1.3763 billion. Impressively, their operating margin was 19.3% both this year and last year.

Laurans A. Mendelson, HEICO’s Chairman and CEO, commented on the Company’s full fiscal year and fourth quarter results stating, “Our record full year and fourth quarter of fiscal 2016 results in consolidated net sales, operating income and net income reflect the impact of our profitable fiscal 2016 and 2015 acquisitions, as well as continued increased demand for the majority of HEICO’s products.

Cash flow provided by operating activities was very strong, increasing 44% to a record $249.2 million in the fiscal year ended October 31, 2016, representing 160% of net income, as compared to $172.9 million in the fiscal year ended October 31, 2015.

Our net debt to shareholders’ equity ratio was 39.6% as of October 31, 2016, with net debt (total debt less cash and cash equivalents) of $415.3 million principally incurred to fund acquisitions in fiscal 2016 and 2015. We have no significant debt maturities until fiscal 2019 and plan to utilize our financial flexibility to aggressively pursue high quality acquisition opportunities to accelerate growth and maximize shareholder returns.

As I mentioned earlier, HEICO announced a 13% dividend increase. The company also said they’re looking forward to a stock split next year.

Considering the impact of cash dividends, prior stock splits and stock dividends, one share of HEI worth $8.38 in 1990 has become worth on a combined basis approximately $1,417, representing an increase of approximately 169 times the 1990 value and a compound annual growth rate of approximately 22%.

Not bad.

For 2017, HEICO sees net sales growth of 5% to 7%, and net income growth of 7% to 10%. That works out to an EPS range of $2.45 to $2.52. Wall Street had been expecting $2.53 per share.

The S&P 100 Breaks 1,000
Posted by Eddy Elfenbein on December 13th, 2016 at 11:25 am

While most eyes are on the Dow approaching 20,000, there’s another milestone we just had. For the first time ever, the S&P 100 broke 1,000 today.

The S&P 100 is the top 100 stocks in the S&P 500. Despite its small sample size, the S&P 100 is a pretty decent index. The market cap of the S&P 100 is about 62% of the S&P 500.

One of the least understood points about the public markets is how disproportionate it is. The largest stocks are vastly larger than most other stocks. You can buy hundreds of small-cap stocks and their combined value would still be smaller than only a few mega-caps.