Morning News: October 18, 2024
Posted by Eddy Elfenbein on October 18th, 2024 at 7:02 am

The Billionaire Property Queen on Death Row in Vietnam

Japan Inflation Slows in September

China’s Lackluster Growth Continues, Signaling Why Beijing Acted on Economy

How China’s Planning Its Biggest Push in Years to Cut Hidden Debt

China Moves to Support Markets After Data Showing Economy Slowed

European Luxury Stocks Rise After Chinese Economic Data Fuels Recovery Hopes

Some ECB Governors Wanted to Drop Pledge to Keep Policy Tight, Sources Say

Shoppers Spend More Freely Than Expected, Sign of Solid U.S. Economy

How Is the Economy for Black Voters? A Complex Question Takes Center Stage.

Want to Understand the U.S. Economy? Watch ‘Shark Tank.’

How Trump Would Weaponize the Justice Department

Headhunter Said to Use Fake Identities to Dupe Wall Street Traders

AmEx Quarterly Profit Exceeds Expectations on Cost Control

A Reality Check for the AI-Driven Energy Rush

Microsoft and OpenAI’s Close Partnership Shows Signs of Fraying

Amazon Pitches Merchants on Artificial Intelligence for Ads

Northvolt Closes in on $300 Million Funding Deal, Source Says

Japan Hopes Electric Cars Were Just a Bad Dream

Robotaxi Flop Leaves Tesla’s Lofty Stock Multiple Looking Shaky

Tesla ‘Full Self-Driving’ Faces Defect Probe After Fatality

P&G Earnings: Sales Slip but It Holds the Line on Prices

At the Grocery Store, Blinded by the Light of the ‘Health Halo’

Why This Pharma Boss Isn’t Chasing the Obesity Hype

CVS Ousts CEO Karen Lynch, Names Caremark Head as New Chief

What It Really Means When a 1-in-1,000-Year Rainstorm Hits

Netflix Shares Jump 7% in Premarket After Third-Quarter Earnings Beat

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Morning News: October 17, 2024
Posted by Eddy Elfenbein on October 17th, 2024 at 7:05 am

Japan Exports Fell More Than Expected in September

Eurozone Trade Surplus Declines as Exports to China Fall

China Considering Higher Tariffs on Car Imports

China’s $562 Billion Loan Push for Unfinished Homes Disappoints

A Second Trump Presidency Stands to Radically Remake World Trade

Yellen to Warn Sweeping Tariffs Would Ignite Inflation

Fed Stuck on Six-Week Data Cycle When Investors Want a Forecast

Blackstone’s Credit Arm Is Now Top Business, Fueling Profits

Tapped-Out Consumers Are Ditching Fast Shipping to Save Money

Easing Food Prices Aren’t Enough for Pinched Shoppers, Nestlé Says

Florida Homeowners Fear Soaring Insurance Cost After Hurricanes

The Math Says It’s Getting Harder to Break Into the American Middle Class

Boeing’s Strike Stalemate Leaves Mediators Hunting For Consensus

TSMC Hikes Revenue Outlook in Show of Confidence in AI Boom

Nokia Tempers Earnings Expectations After Sales Fail to Recover

BYD Is Winning the Global Race to Make Cheaper EVs

Musk’s Empire Risks Being Targeted by EU for Potential X Fines

Water Dispute Before Supreme Court Gives Rise to Unusual Alliances

Hungry for Energy, Amazon, Google and Microsoft Turn to Nuclear Power

Biofuel Boom Still Leaves US Soybean Glut

Financial Innovation for Nature Sparks Hope, Greenwashing Fears

Netflix’s 340% Rally Seen Sputtering With Sales Growth Past Peak

US ‘Click to Cancel’ Rule to Ban Subscription Traps

Disney Introduces New US Park Perk: Skip the Long Lines for $400

Jeweler Becomes Billionaire After 192-Year-Old Indian Firm’s IPO

Ski-Doo Maker BRP Looks to Shed Struggling Marine Brands

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Morning News: October 16, 2024
Posted by Eddy Elfenbein on October 16th, 2024 at 7:06 am

End of the Oil Age Beckons for Top Forecaster

Why Milei Can’t Lift Argentina’s Currency Controls Any Time Soon

Why Europe Is Unprepared to Defend Itself

What 66 Economists Say About Where the Economy Is Headed, in Charts

Trump Defends Tariff Plan While Pressing for More Fed Influence

The True Cost of Trump’s Tariff Scheme

Can Remote Workers Reverse Brain Drain?

US Mortgage Rates Climb to 6.52%, Highest Since Early August

Savers Bid a Sad Farewell to Higher Yields

Why Wall Street Is Warming to the Tokenization of Assets

Morgan Stanley’s Profit Beats Estimates on Investment Banking Windfall

U.S. Bancorp Lending Income Beat Estimates in Third Quarter

Stock Futures Flat Amid Morgan Stanley Earnings, Decline in Global Chip Stocks

Three Big Takeaways From Bank Earnings

Jamie Dimon Charts JPMorgan Expansion Plan Into Africa

Singapore Entertainment Firm Neon Is Said to Pick Banks for IPO

China’s Wild Stock Market Swings Hurt a $21 Trillion Bull Case

Global Chip Stocks Erase $420 Billion After ASML Sales Warning

California’s ‘Surgical’ Approach to Regulating AI Is Working

Hyundai’s Tarnished Alabama Plant Is Now Driving Its US Growth

Musk’s SpaceX Sues California Regulator Over Rocket Launches

Neuralink’s Top Surgeon Is the Even-Handed Counterbalance to Musk

CVS and Walgreens Are Ailing. Here’s Why

Holiday Sales Growth Expected to Normalize in an Abnormal Year

Luxury’s Last Growth Engine Has Stalled

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CWS Market Review – October 15, 2024
Posted by Eddy Elfenbein on October 15th, 2024 at 5:24 pm

(This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

The Stock Market Rally Turns Two Years Old

The bond market was closed on Monday in honor of Columbus Day, but the stock market was open, and it was a good day. The S&P 500 rallied to another all-time high. This was our 46th new high of this year. The market gave back some of those gains today, but we’re very close to more new highs.

Interestingly, we just passed the two-year anniversary of the market’s last major low. That came on October 11, 2022 when the S&P 500 closed at 3,577.03. From there to Monday’s close, the S&P 500 has gained more than 63%, not including dividends.

It’s been a remarkable rally, but what’s impressed me about the last two years, on top of the impressive gain, is how steady it’s been. To be sure, there have been bumps and turns like last August, but for the most part, this has been a smooth and steady 63% run.

I was also pleased to see several of our Buy List stocks hit new highs today like Broadridge Financial Solutions (BR), FICO (FICO), Fiserv (FI), Intercontinental Exchange (ICE) and Science Applications International (SAIC).

We’re in the early stages of earnings season and so far, the results look pretty good. According to Bloomberg, “analysts expect S&P 500 firms to report a 4.2% increase in third-quarter earnings versus a year earlier, down from a 7% forecast in mid-July.”

It’s early but so far, 30 companies in the S&P 500 have reported results. Earnings are coming in at an average of 5% better than estimates. At this time last quarter, earnings were running 3% higher than expected.

As we know, Wall Street’s usual game is to be as downbeat as possible going into earnings season thereby getting Wall Street analysts to lower expectations. Then, when earnings day comes, they announce a big earnings beat and hopefully, the stock will rally.

That’s pretty much what happened last week when the first earnings reports came out. Usually, the big banks are the first to report and that sets the tone for earnings season.

On Friday, JPMorgan (JPM) reported Q3 earnings of $4.37 per share. That easily topped the consensus of $4.01 per share. JPM is the biggest boy of a lot of big boys on Wall Street, and its results are very influential. It’s a Dow component and one of the largest companies by market value on Wall Street. If JPM is doing well, that’s probably a good sign for all banks.

JPM is particularly good at steering Wall Street’s outlook. Two months ago, the Street was expecting JPM to make $17.05 per share for next year. That’s now down to $16.73 per share.

JPM had a very good quarter for Q3, and lower rates will serve them well. More good news is that JPM said its net interest income will be about $92.5 billion this year. That’s up from its previous guidance of $91 billion. About geopolitical risks, CEO Jamie Dimon said, “Recent events show that conditions are treacherous and getting worse.”

Also on Friday, though not nearly as big, Wells Fargo (WFC) said it had particularly good results. For Q3, Wells made $1.52 per share which was 24 cents better than expected. The stock got a nice 5.6% pop on Friday, and the shares have continued to rally since then. Until a month ago, Wells looked like it was one of the weaker banks.

Thanks to the good earnings reports from many Wall Street banks, financial stocks have been doing well of late. Here’s the S&P 500 Financial Index compared with the S&P 500.

The financials hit a new high yesterday, and 36% of its members made new 52-week highs.

We had more good reports today. This morning, Goldman Sachs (GS) released a very good earnings report. For Q3, the bank’s profits increased 45% to $8.40 per share. That was above Wall Street’s consensus for $6.89 per share. Quarterly revenue was $12.70 billion. Wall Street has been looking for $11.8 billion.

Lower rates will be good for Goldman, as well. Last quarter, Goldman’s investment banking revenue rose 20% to $1.87 billion. Equities trading was up 18% to $3.5 billion.

Also on Tuesday, Bank of America (BAC) said it made 81 cents per share for its Q3. That was a four-cent beat. Compared with last year, the bank’s net income was down 12%. Revenue rose a bit to $25.49 billion.

In addition to traditional banking activity, BAC did very well last quarter with Wall Street operations like trading. BAC’s net interest income fell 2.9% to $14.1 billion.

In BlackRock’s (BLK) earnings report, the company said that its assets under management rose to $11.5 trillion. That’s staggering. In Q3, BLK had inflows of $221 billion. For the quarter, BlackRock made $10.90 per share which beat expectations by 92 cents per share.

Citigroup (C) has been trying to turn itself around, and the early results look favorable. The bank’s traders had their best Q3 performance “in at least a decade.” Revenue for its markets division rose a tiny bit to $4.82 billion. Trading revenue rose by 32%.

Citi’s credit card business is dragging along, but its other businesses are helping to make up for the weakness. CEO Jane Fraser is trying to engineer a major about-face for the Wall Street giant. While Citi is looking better, it still has a way to go to get back to full health.

Last quarter, the bank’s fees from investment banking increased 44%. Citi’s EPS fell to $1.51. Bloomberg noted that the “quarter included a provision of $2.7 billion, which was driven by the higher losses in the company’s card business.”

After today, we’ll see more of the non-banks report earnings. Wall Street is mostly optimistic.

Steer Clear of Boeing

I mentioned the turnaround efforts at Citigroup which leads me to an important lesson with investing. One kind of stock I generally steer clear of is the turnaround play. These are companies that have fallen on hard times. With the poor performance, the companies now have the latitude to make dramatic changes to right the ship.

However, in my experience, the problems usually run very deep, and the proposed changes are largely cosmetic. Turnaround stocks rarely turn.

The problem for investors is that the stocks can often appear to be value stocks. The prices are low relative to the company’s recent performance. The problem is that these ratios are backward looking, and it’s the future that’s worried the market.

A good recent example is Boeing (BA). The airplane maker has been in a mess recently. Today the company said it may turn to Wall Street to raise a heap of cash in stock or debt. Boeing said it could raise as much as $25 billion. That could stem some of the short-term financial issues, but Boeing is far from being a strong company.

In a separate filing, Boeing said it reached a $10 billion credit agreement with banks. Some of the credit agencies have warned Boeing that its credit may be downgraded. That would be very costly to Boeing.

Last week, CEO Kelly Ortberg said Boeing could lay off 17,000 workers which is about 10% of its workforce. On top of that, Boeing faces a strike from 33,000 of its machinists. S&P said the strike is costing Boeing more than $1 billion a month.

In January, a Boeing 737 Max 9 suffered “uncontrolled decompression.” A door plug flew off the airplane. Fortunately, no one was hurt but it was not favorable for Boeing. The FAA told Boeing that it’s under investigation.

Boeing’s stock is currently going for 1.24 times sales. In normal times, that could be considered cheap, but not now. Boeing has lots of problems that need to be addressed. I hope the company can turn itself around, but I caution investors that any value in Boeing may be a mirage.

This week will will be dominated by earnings news. Later this week, our first Buy List stock will report its earnings. I’m expecting more good results from our stocks.

I’ll be paying attention to the actual results, but I also want to hear what our stocks have to say about guidance. Typically, our stocks start out the year conservative with guidance and then will gradually raise guidance as the year goes on.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Morning News: October 15, 2024
Posted by Eddy Elfenbein on October 15th, 2024 at 7:06 am

China Moves to Tax the Ultra-Rich for Overseas Investment Gains

Why Taiwan’s Status Risks Igniting a US-China Clash

German Economic Expectations Climb Ahead of ECB Rate Cut

IMF Warns Rise In Government Debt Could Be Sharper Than Anticipated

US Weighs Capping Exports of AI Chips From Nvidia and AMD to Some Countries

Prediction Markets Tell a Different Story From the Polls

Can the Stock Market Keep Going Up? Market Watchers Think So.

The Battle Between Dockworkers and Robots Isn’t Over

To Lure Home Buyers, Builders Still Have to Help With High Mortgage Costs

Simple Economics Can Help Cut Health-Care Costs

The Mighty American Consumer Is Powered by Higher Earners

Some Hedge Funds Are Missing a Trick — Volume Alpha

Goldman Stock Traders Head to Record Year, Fuel 45% Profit Surge

BofA Investment Bankers, Traders Help Earnings Top Estimates

A Key to Citi’s Regulatory Woes – Staff Need Skills ‘Enhancement’

Female Leadership Suffers When Private Equity Firms Invest

Bankers Are at a Loss When It Comes to Biodiversity

IEA Trims Oil-Demand Forecast for Third Consecutive Month

TotalEnergies Expects Continued Refining Weakness, Lower Hydrocarbon Production

The Shipping Industry Can Chart a Clearer Course to Go Green

This Year’s Hottest App Is a Wildfire Tracker

Boeing to Raise as Much as $25 Billion to Boost Liquidity

VW, BMW and Mercedes Are Getting Left in the Dust by China’s EVs

Walgreens Plans to Shutter 14% of US Stores Over Three Years

How Starbucks Became a Sugary Teen Emporium

Bandai Namco Begins to Cut Headcount After Culling Game Titles

New York Times to Bezos-Backed AI Startup: Stop Using Our Stuff

What Should a Music Magazine Be in the TikTok Era? Pitchfork Alumni Have an Idea.

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Morning News: October 14, 2024
Posted by Eddy Elfenbein on October 14th, 2024 at 7:05 am

OPEC Cuts Global Oil Demand Growth Forecasts for Third Consecutive Month

Russian Oil Flows Through Western ‘Price Cap’ as Shadow Fleet Grows

China Carbon Prices Hit Record High Ahead of Compliance Deadline

China’s Clean Up Job to Tidy its Property and Local Government Mess

Killing of Japanese Boy Leaves Chinese Asking: Is This My Country?

Chinese Stocks Climb as Traders See Hope in Beijing’s Promises

Asia Watching China’s Policy Push Closely as Economies Brace for Spillover

Nobel for Economics Awarded to Authors of ‘Why Nations Fail,’ Former IMF Chief Economist

The Fed Has a Dependency Problem That Needs Fixing

CEOs and Analysts Are at Odds About S&P 500’s Earnings Outlook

Economists Say Inflation, Deficits Will Be Higher Under Trump Than Harris

Can Wall St. Help Harris Win Pennsylvania?

B. Riley Reaches Deal With Oaktree on Great American Partnership

The Harsh Reality of ‘Hurricane Insurance’

Why OpenAI Is at War With an Obscure Idea Man

Amazon Delivers Fewer Big Swings, Lower Costs in the Jassy Era

US Tech Firms to Invest $8.2 Billion in UK Data Centres

GM, Barclays Sign Long-Term Credit Card Partnership Agreement

Rivian: The Sinking Ship Of The EV Revolution

aBoeing’s Endless Doom Loop Gives No Respite to CEO Ortberg

Why Lasers Could Be Kryptonite for Drones

Lundbeck to Buy Longboard Pharma in $2.6 Billion Deal

Starbucks Scales Back Discounts Under New CEO

The Secretive Dynasty That Controls the Boar’s Head Brand

Attention Kmart Shoppers: It’s Closing Time

The Perils of Personalizing Your $500,000 Ferrari

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Morning News: October 11, 2024
Posted by Eddy Elfenbein on October 11th, 2024 at 7:02 am

Global Trade Grows but Remains Vulnerable to War and Geopolitics

China Investors Expect $283 Billion of New Stimulus This Weekend

Hurricanes and Other Disasters Will Help Shape Our Future Cities

Amazon Prefers Solar and Wind Energy to Nuclear Power in Asia

Middle East Conflict Creates a Volatile Moment for Oil Markets

Big Oil Gives a Reminder of the Market’s Weak Foundations

Bank of Korea Cuts Rate, Joining Global Wave of Policy Easing

A Record $6.47 Trillion Is Piling Up in US Money-Market Funds

Inflation Is Finally Losing Its Power Over Markets

The Market Has Been Fabulous, Maybe Excessively So

Wall St. Profits Surge Despite Questions About the Economy

BlackRock Hits $11.5 Trillion of Assets With Private-Market Push

JPMorgan Profit Beats Estimates on Investment Banking Strength, Higher Interest Income

Wells Fargo Profit Beats Forecasts as Provisions Shrink, Shares Rise

BNY Q3 Profit Rises as Assets Under Custody and Administration top $50 Trillion

The IPO Slump Is Fine Unless You’re Jamie Dimon

Boeing Hardens Tone With Union, Laments ‘Bad Faith Bargaining’

How Uber and Lyft Used a Loophole to Deny NYC Drivers Millions in Pay

Noel Tata Is New Tata Trusts Head to oversee $165 Billion Group

Musk Shows Tesla Cybercab, Sees Sub-$30,000 Cost and 2026 Production

Polestar CEO Says EV Maker Must Start ‘Actively Selling Cars’

Stellantis Shares Fall as Executive Shake-Up Fails to Calm Nerves

Nippon Steel to Sell Stake in Calvert JV to ArcelorMittal in Push for U.S. Steel Deal

Sanofi in Talks to Sell Controlling Stake in Consumer Health Arm to CD&R

Butter Made From CO2 Is Coming as Startups Chase New Fat Sources

For Student Athletes in Missouri, Playing at Home Is Lucrative

Lego Leaps Into Documentaries, With Pharrell Williams as the Subject

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Morning News: October 10, 2024
Posted by Eddy Elfenbein on October 10th, 2024 at 7:04 am

Top African Lithium Producer, Zimbabwe Plans Incentives to Encourage Mineral Processing

China’s Central Bank Launches Swap Facility to Boost Stock Market

China Wages End Two Quarters of Gains, Adding Deflationary Risks

Hedge Funds Sold Record Chinese Stocks on Tuesday, Goldman Says

Multilateral Banks Could Lend Up to $480 Billion More Before Rating Downgrades, Fitch Says

Hurricane Milton and the Economy

Inflation Is Expected to Cool

US CPI Data Will Likely Show Further Disinflation in September

For Bond Traders, It’s Wait Till Next Year (Again)

Lina Khan Is Just Getting Started (She Hopes)

This Election Marks a New Low for Fiscal Fakery

Interest Rates Will Be Higher in the Future, Especially if Trump Is President

Kamala Harris Win May Boost US Effort to Rein In ‘Junk Fees’ Levied on Consumers

Why Budgeting is Terrible Advice for Lower-Income People

The Endless Downfall of a Crypto Power Couple

Amazon Could Be Forced to Treat Drivers as Employees

Tesla’s ‘Dream Premium’ Faces Moment of Truth at Robotaxi Reveal

China Detains Four Taiwanese Employees at Apple’s ‘iPhone City’

Deutsche Telekom Looks to AI to Boost Revenue Growth, Trim Costs

Brookfield Outbids Segro With $728 Million Deal to Buy Tritax EuroBox

Delta’s Guidance Misses Estimates After Summer Upheaval

Unilever Sells Russian Business

7-Eleven Owner Plans Revamp of Noncore Businesses Amid Buyout Interest From Couche-Tard

Uniqlo Owner Posts Record Annual Earnings

Givaudan Reaffirms 2025 Targets After Sales Growth

While N.B.A. Plays in Abu Dhabi, Critics Cry ‘Sportswashing’

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Morning News: October 9, 2024
Posted by Eddy Elfenbein on October 9th, 2024 at 7:07 am

Chinese Stocks Tumble Most Since 2020 on Stimulus Skepticism

China Has Only Begun Its Long Road Toward Economic Revival

How a Series of Blunders Ruined a Latin American Socialist Success Story

Renewables Growth Set to Surge by 2030 But Falls Short of U.N. Climate Goal, IEA Says

Why the Market Shrugs Off the Mother of All Oil Shocks

Rio Tinto to Acquire Arcadium Lithium for $6.7 Billion

Reinsurers Prepare For a Historic Loss

Michigan State Channels Warren Buffett to Beat Ivy League Funds

Wall Street Salaries Decline Further From Pandemic Heights

Wall Street Bonuses Projected to Rise More than 7% in 2024, NY Comptroller Says

‘I’m Not Going to Wait’: Young Chinese Jump Into Stock Frenzy

Why Robinhood Is Seeking Merry Traders Overseas

Should You Refinance Your Mortgage Now as Rates Drop?

Amazon’s Costly Space Race Is Grounding Profit Margin Hopes

US Weighs Google Breakup in Historic Big Tech Antitrust Case

How to Say No to Our A.I. Overlords

US Debates Who Should Be Able to Buy American AI Chips

OpenAI Says China-Linked Group Tried to Phish Its Employees

Some of the Web’s Sketchiest Sites Share an Address in Iceland

Boeing Withdraws Contract Offer as Union Talks Break Down

Healthcare Premiums Are Soaring Even as Inflation Eases, in Charts

Nobel Prize in Chemistry Goes to 3 Scientists for Predicting and Creating Proteins

How Shame, Blame and the Internet Eroded Trust in Science

Abortion Rights Get New, Wealthy Backer in Melinda French Gates

Boehringer Open to Deals While ‘Laser-Focused’ on Obesity Drug

Disneyland Raises Prices by About 6% for Most Popular Days

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CWS Market Review – October 8, 2024
Posted by Eddy Elfenbein on October 8th, 2024 at 5:32 pm

(This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

The Economy Created 254,000 Jobs Last Month

Last Monday, the stock market closed out the quarter and month at an all-time high. Through September, this year’s market is on pace for being the strongest market in a presidential election year since 1928.

This has happened despite numerous reasons for investors to be scared. Nevertheless, the stock market keeps on climbing.

There’s an important lesson for investors in this. The long-term trend is very much in your favor. To be a good investor means you simply have to wait out bad times.

Wall Street then got a big shock on Friday when the Labor Department reported that the U.S. economy created 254,000 net new jobs last month. That was well above expectations for a gain of 150,000 new jobs. The unemployment rate ticked down to 4.1%.

I looked at the decimals, and the unemployment rate was technically 4.051%. In other words, the jobless rate came very close to rounding down to 4.0%.

The unemployment rate is lower today than it was in every single month from February 1970 to November 1999. (To be transparent, they have changed the methodology on that data several times.)

Wall Street liked the news. On Friday, the stock market rallied close to 1%. The market was up another 1% today.

Many of the details in the report are quite good. For example, the labor force participation rate for prime working-age adults is near a multi-decade high.

The jobs gain data for August were revised higher to 159,000. July’s number was increased by 55,000 to a monthly gain of 144,000.

I was very happy to see that average hourly earnings increased by 0.4%. That was 0.1% ahead of expectations. Over the last year, average hourly earnings are up by 4% which is ahead of inflation, but not by much. Still, it’s good to see that workers are finally getting a raise. One concern is that the average workweek fell by 0.1 hours to 34.2 hours.

Here are some details:

Restaurants and bars led job creation for the month, with the hospitality industry adding 69,000 positions in September after averaging just 14,000 over the previous 12 months.

Health care, a consistent leader in job growth, contributed 45,000, while government grew by 31,000. Other gainers included social assistance (27,000) and construction (25,000).

A more encompassing measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons dropped to 7.7%. The share of the workforce either working or looking for work, known as the labor force participation rate, held steady at 62.7%.

One interesting detail in Friday’s report is that many full-time positions were created last month. The number of part-time jobs decreased by 95,000 while fulltime employment increased by 414,000.

Where does this leave the Federal Reserve? That’s a good question. The Fed has made it clear that it wanted to lower rates before the economy skidded off the road and plowed into a ditch. Now it appears that the economy is doing well. Or at least, well enough. So are all these cuts needed?

The answer is probably yes. The Fed meets again early next month, just after the election. The futures market thinks the Fed will go ahead with another 0.25% rate cut, and that’s probably right. Some think the Fed will hit us with another 0.5% but I’m a doubter.

As I’ve said before, the best way to view these rate cuts is as the Fed undoing its aggressive rate hikes from 2022 to 2023.

However, the big news before the Fed meeting will be this Thursday’s CPI report. The last few CPI reports have shown benign inflation, but that was with weaker jobs growth.

For September, Wall Street expects inflation of 0.1% and core inflation of 0.2%. If that’s right, it means that both core and headline inflation are slowly moving to the Fed’s target of 2%.

Some people have suggested that the good jobs numbers will alter the Fed’s course. I think it’s too early to say. Remember the basic formula: lower rates are good for value and higher rates are good for growth stocks. Interestingly, growth stocks have done well over the last few days so there’s been some impact on the mind of the market.

Yesterday, the yield on the 10-year Treasury broke above 4%. This got a lot of attention, and it’s an important psychological level, but the yield is lower than it was during much of this summer.

The overall outlook is that rates are headed lower. The only question now is about speed. The futures market expects the Fed to cut by 0.25% at its December meeting as well. For 2025, traders think the Fed will cut rates by 1%. If inflation continues to fade away, that could be the correct policy.

Tomorrow, the Fed will release the minutes from its last meeting. These are usually pretty dull affairs, but this time could be an exception. For one, the Fed decided to cut rates by 0.5%. Also, there was one dissenting vote. The Fed has made it clear that rates are going down.

Stock Focus: Public Storage

As I’ve said, when rates are headed down, you want to make sure you have some high-yielding stocks in your portfolio. These means sectors like utilities and REITs which brings me to one of my favorite REITs.

Let’s say your boss offers you a big raise and a promotion, but the catch is that the job requires you to move out of the country. You love to see the world, so you jump at the chance.

But there’s one nagging question: what do you do with all your stuff?

Nowadays, there’s an easy answer. You rent a storage unit. There are lots of these facilities all over the country. If you look long enough, you’re bound to come across Public Storage (PSA).

Public Storage is the largest self-storage real estate investment trust (REIT) in the United States. There are currently more than 3,000 Public Storage locations around the world. The company is based in Glendale, CA.

If you’re not familiar with a REIT, it’s basically the landlord of some real estate. If the REIT pays out almost all of its income to shareholders, then it gets preferential tax treatment. As a result, REITs often have good dividend yields. It’s a great way to invest in real estate.

Public Storage was founded in 1972 by B. Wayne Hughes and Kenneth Volk Jr. During a trip to Texas, Hughes saw that local real estate developers had made, in effect, mini storage units, so he decided to bring the idea to Southern California. It was a brilliant idea because he could charge as much as apartments in term of price per square foot. The difference is that the upkeep costs were far less.

The business quickly took off and by 1989, it had grown to 1,000 locations. PSA officially became a REIT in 1995. Today it has a market cap of $61 billion, and PSA is one of the largest REITs around.

More than 90% of PSA’s revenue comes from its self-storage business. The company does a lot more than just provide the space. They also provide a broad range of services for their clients. PSA offers insurance and packing products. The company also has a subsidiary that provides boxes and truck rentals.

It’s an interesting business because the storage lots tend to be located in unforgiving parts of large cities. They’re often located in dense clusters near freeways and intersections. It’s also interesting that PSA has relatively few employees. The lots are automated so customers can access their units at any time.

As any fan of the TV show Storage Wars knows, abandoned units are auctioned off. (Despite what you may have heard, most abandoned or unpaid lots contain useless junk.)

PSA has been a tremendous business over the years.

Thirty years ago, you could have picked up one share of PSA for $7. Since then, the stock has increased by 50-fold. And that doesn’t include dividends. If you include dividends, then PSA gained over 500-fold. All from renting storage units.

I really like PSA’s dividend. The company currently pays out a quarterly dividend of $3 per share, or $12 for the year. Think of it this way: If you had bought PSA 20 years ago, you’d now be yielding over 20% based on your original purchase price.

I also like that PSA is the dominant player in the industry. The company buys up smaller companies all the time. There hasn’t been much self-storage building recently. That means there’s been a scramble to buy out smaller storage companies. There are lots of small operators and they’re happy to sell to PSA.

Public Storage currently yields 3.5% which isn’t that far below the current 10-year Treasury’s yield. The next earnings report is due out in three or four weeks.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy