Morning News: January 19, 2017
Posted by Eddy Elfenbein on January 19th, 2017 at 6:51 am

China Says Can Resolve Trade Disputes With New U.S. Government

As E.C.B. Meets, Monetary Policy Faces Complications Worldwide

May’s Speech to the 2017 World Economic Forum

Treasury Yields Rise on Yellen’s Hawkish Tone

A Border Adjustment Tax Threatens Disruption For U.S. And Its Neighbors

Safran to Buy Zodiac for $10 Billion in All-French Aero Deal

Goldman Exodus Isn’t Just About Trump

How Deutsche Bank Made −€367 Million Disappear

Here’s Why Netflix’s Share Price Just Hit a New All-Time High

Australia to Welcome Back Vegemite, a Surprisingly American-Owned Spread

JPMorgan Hit With Pair of Bias Claims in Obama’s Final Hours

Mallinckrodt Will Pay $100 Million to Settle Price-Hike Suit

Student Loan Collector Cheated Millions, Lawsuits Say

Jeff Miller: Neglected Investment Ideas

Roger Nusbaum: Tweets & Press Conferences

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Industrial Production and Inflation
Posted by Eddy Elfenbein on January 18th, 2017 at 3:24 pm

Two econ reports to pass along.

The first is that the Fed said that industrial production rose by 0.8% in December. That’s a strong number. It was the best in two years.

Manufacturing output, the biggest component of industrial production, climbed 0.2% in December, led by gains for primary metals and autos.

Factory activity had been stagnant for much of 2016 but appears to have perked up a little in the final month of 2016. Still, a long stretch of lackluster growth left December output only 0.2% ahead of the same month a year ago.

A separate gauge of manufacturing finished 2016 at its highest mark in two years. The Institute for Supply Management earlier this month said its purchasing managers index rose amid stronger household demand for goods and a brighter consumer outlook following November’s presidential election.

This caused some pain for the long-end of the bond market, and I think that’s a good thing. A month ago, the 10-year yield broke above 2.6%. It’s now back around 2.4% but I’d like to see it rise again.

At the shorter end, inflation continues to be quite tame. The government said that the CPI rose by 0.3% last month while the core rate rose by just 0.2%. For the year, the CPI rose by 2.1%. That’s the highest rate since 2011, but that’s because the other years were so low.

With today’s CPI report we have some final numbers for 2016:
S&P 500 +9.54%
S&P 500 Total Return Index +11.96%
CPI +2.07%
Real S&P 500 +7.31%
Real Total Return Index +9.68%

Morning News: January 18, 2017
Posted by Eddy Elfenbein on January 18th, 2017 at 5:47 am

The Risks of ‘Brexit Means Brexit’

Loonie in Hottest Streak Since 1970 as U.S. Dollar Retrenches

Brainard Joins Fed Chorus Warning About Fiscal Stimulus Risks

Why Trump’s Tariff Threats Get Taken So Seriously

Treasury Pick Steven Mnuchin, Like His Would-Be Boss Donald Trump, Followed His Own Rules

Land Rush in Permian Basin, Where Oil Is Stacked Like a Layer Cake

Reynolds Board Accepts Increased BAT Offer of $49.4 Billion

HPE to Acquire Data-Storage Startup SimpliVity for $650 Million in Cash

Deutsche Bank CEO Looks to Future After Mortgages Settlement

Restaurant Chain Chuck E. Cheese Prepares IPO

Sears Clings to Catalog Thinking in an Online World

Bad Behavior Database Aims to Stop Rogue Traders Before They Act

Compounding Snowballs

Jeff Carter: If You Don’t Understand Blockchain Or Think It Won’t Apply To You; Read This

Howard Lindzon: The Dumb Multitasker?

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Two Buy List Updates
Posted by Eddy Elfenbein on January 17th, 2017 at 2:16 pm

There are two Buy List items to mention today.

Moody’s (MCO) has agreed to pay $864 million to settle with the government over its ratings leading up to the financial crisis. The agreement calls for Moody’s to pay $437.5 million to DOJ and $426.3 million to the states.

This is a big relief for the stock. The shares have been up as much as 3.9% today.

Alliance Data Systems (ADS) said it maintains its 2016 FY forecast of $16.90 per share in core earnings on revenue of $7.2 billion. That translates to Q4 guidance of $1.9 billion in revenue and core EPS of $4.64. The stock is currently down more than 3% today.

Understanding the Cycle
Posted by Eddy Elfenbein on January 17th, 2017 at 12:31 pm

I wanted to post this chart of Walmart’s relative strength going back more than 25 years. In other words, this is WMT’s share price divided by the S&P 500.

The reason this chart is interesting is that you can clearly see the cycles at work. Walmart either outperformed or underperformed the market for years at a time. The hard part, of course, is knowing when the cycle flipped.

For the most part, WMT did well against the market during tough times, and it lagged against the market in better times. That’s what you can expect from a large-cap blue chip such as Walmart.

As I look at the market, WMT is currently the #1 performer in the S&P 100. That’s also a good sign that today is a more defensive day for Wall Street.

The Dow’s Narrow Range
Posted by Eddy Elfenbein on January 17th, 2017 at 12:22 pm

Over the last few weeks, the Dow has traded within a very, very narrow range. The vertical axis distorts this, but the gap between the high and low is a little over 1%. This is one of the tightest ranges in history.

Trump Wrecks the Dollar
Posted by Eddy Elfenbein on January 17th, 2017 at 12:15 pm

If you’re ever curious if a stock you own is a defensive stock, a quick test would be to see if it rallied on January 17, 2017. If it did, then there’s a good chance it is.

What we’re seeing today is a classic rotation pattern. Financial stocks are down the most, while Staples and Income stocks are up the most. As always, there are some outliers. For example, Healthcare is dragging a bit today.

Overall, this would be a Quadrant III day (see here).

The U.S. dollar is down today after President-Elect Trump said the greenback was too strong. “It’s killing us,” to be precise. That kind of news is generally bad for an investment.

British American Tobacco said it will buy out the remainder of Reynolds American (RAI) it doesn’t own. RAI is a former Buy List stock. We had a great run in the stock, but in retrospect, we sold way too early. The BAT deal comes to $59.64 per share. We sold four years ago at $20.72. (Ugh!)

Morning News: January 17, 2017
Posted by Eddy Elfenbein on January 17th, 2017 at 7:01 am

Simple Redistribution From The Wealthiest Won’t Fix Income Inequality

OPEC Sees Market Stability in 2017, Venezuela Aims For $70 Price

Xi Bangs the Drums for China at Davos

Britain’s May Expected To Promise Clean Break From Europe in Brexit Speech

IMF Upgrades U.S. Growth Forecast as Donald Trump Reshapes Global Outlook

Here’s How Trump Could Try to Kill Carried-Interest Tax Break

British American Tobacco to Take Over Reynolds American in $49 Billion Deal

General Motors Plans at Least $1 Billion in Fresh U.S. Investment

Microsoft Veteran Will Help Run Chinese Search Giant Baidu

Trump Attacks BMW and Mercedes, but Auto Industry Is a Complex Target

Can Snapchat’s Culture of Secrecy Survive an IPO?

Billionaire Luxottica Founder Secures Legacy in Essilor Deal

With Guilty Plea, Takata Clears Way for a Likely Global Rescue

Cullen Roche: Paul Krugman Is Right (For The Wrong Reasons)

Josh Brown: A Very Bad Idea

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MLK “Street Sweeper” Speech
Posted by Eddy Elfenbein on January 16th, 2017 at 9:12 am

Dr. King would have been 88 years old on Sunday.

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 16, 2017
Posted by Eddy Elfenbein on January 16th, 2017 at 7:32 am

As OPEC Acts on New Year’s Resolution, U.S. Shale Pumps Away

Pound Sags Amid `Hard Brexit’ Signals Ahead of May Speech

German Ministers Reject Trump Remarks on Car Tariffs

China’s Xi Says Chinese Economy to Keep Growing Steadily

Stark Inequality: Oxfam Says 8 Men as Rich as Half the World

Firms Could Get a $12 Trillion Boost by Meeting These Goals, Davos Group Says

Living Standards Better Growth Gauge Than GDP, Davos Forum Says

JPMorgan Upgrades Indonesia, Lifting Call That Riled Jakarta

Allianz’s El-Erian Says Strong U.S. Dollar Biggest Risk In 2017

South Korea’s Samsung in Rough Patch With Arrest Request, Recalls

China’s Baidu Opens Augmented Reality Lab to Boost Waning Profits

Merger of Luxottica, Owner of Ray-Ban, and Essilor to Create Eyewear Giant

Li Ka-Shing Sweetens Deal for Australian Energy Company

Roger Nusbaum: Investors Say No To GMOs?

Jeff Miller: Will Q4 Earnings Confirm Recent Economic Strength?

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