Signature Bank Earns $1.90 per Share
Posted by Eddy Elfenbein on July 20th, 2016 at 10:18 am

Shares of Signature Bank (SBNY) are down about 7% this morning. The bank reported Q2 earnings of $1.90 per share which was eight cents below expectations. Their net interest margin for Q2 was 3.18%.

“There are many uncertainties in the current global environment – political, economic and regulatory, among others. However, the one constant is our conviction to depositor safety. In times of turmoil, volatility and market disruption, we rely on the strength and success of Signature Bank’s highly focused depositor-first model to sustain our growth. This deposit first-and-foremost strategy continues to allow us to not only weather storms, but also to seize opportunities arising from changing market conditions,” explained Joseph J. DePaolo, Signature Bank President and Chief Executive Officer.

(…)

Non-interest income for the 2016 second quarter was $13.1 million, up $3.4 million when compared with $9.8 million reported in the 2015 second quarter. The increase was due to a $4.4 million increase in net gains on sales of securities.

Non-interest expense for the second quarter of 2016 was $92.3 million, an increase of $7.4 million, or 8.7 percent, versus $84.9 million reported in the 2015 second quarter. The increase was primarily a result of the addition of new private client banking teams, as well as an increase in costs in our risk management and compliance related activities.

Morning News: July 20, 2016
Posted by Eddy Elfenbein on July 20th, 2016 at 7:18 am

U.S. Targets $1 Billion in Assets in Malaysian Embezzlement Case

Justice Dept. Will Seek to Block Two Health Insurance Mergers

Roger Ailes is Negotiating His Departure as Chairman of Fox News

Pimco’s New Turnaround Man: Manny Roman

For Berkshire Hathaway’s Latest Multibillion-Dollar Deal, Warren Buffett Goes Back to Insurance

Unilever Buys Dollar Shave Club for $1 Billion

United Profit Exceeds Analysts’ Estimates on Cost Reductions

Discover Financial Loans Rise 4%

BHP Says 2017 Iron Ore Output May Be Flat, Cuts Oil Spending

Don’t Count Out Philip Morris

EMC Shareholders Voted to Approve the Multi-Billion Dollar Merger With Dell

Inside the High-Profile Downfall of a $8 Billion Hedge Fund

Hyperloop One Files $250 Million Countersuit In Response To ‘Failed Takeover Attempt’

Jeff Carter: Financial Statements and Valuation

Roger Nusbaum: So Now Brexit Is Good For Markets?

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Microsoft Earns 69 Cents per Share
Posted by Eddy Elfenbein on July 19th, 2016 at 8:34 pm

A very good earnings report from Microsoft (MSFT). The software giant earned 69 cents per share which was 11 cents better than expectations.

Microsoft Corp. remains a distant second to Amazon.com Inc. in cloud computing, but the software giant’s latest quarterly results suggest that it is effectively managing the transition from selling software licenses to selling on-demand computing services.

In its fiscal fourth quarter, sales of the Redmond, Wash., company’s Azure cloud computing service more than doubled, offsetting a decline in the segment that includes its flagship Windows operating system and its struggling mobile-phone business.

The strength of Microsoft’s cloud business surprised investors. The company beat expectations for both sales and profit, which spurred a 4% rise in Microsoft’s shares in after-hours trading.

Microsoft has proved especially adept at selling its cloud services to existing customers, taking advantage of longstanding relationships with companies that have run its software in their own data centers.

“They are effectively getting their customers to transition to the cloud,” Stifel Nicolaus & Co. analyst Brad Reback said.

Microsoft’s transition to the cloud comes with an important cost: eroded margins. When the company relied on software licenses sold to companies every few years, it registered fat profits. But margins on cloud services, which are sold by subscription, are slimmer.

For the quarter, gross margins slid 14% to $12.64 billion.

The stock was up 4.2% in after hours trading.

Morning News: July 19, 2016
Posted by Eddy Elfenbein on July 19th, 2016 at 7:06 am

Crude Oil: Is A Gasoline Glut Emerging?

German ZEW Investor Sentiment Deteriorates in Brexit Aftermath

EU to Fine Truck Makers Over Price-Fixing and Other Collusion

SoftBank’s Quest for ARM Spanned Turkish Coast to No. 10 Downing Street

D.C. Decision, Expected In Fall, Could Reverse CFPB’s Actions, Change Structure
Yahoo Revenue Falls 15% and Profit Drops 64%

Thanks to Pokémon Go, Nintendo’s Market Cap Just Doubled to $42 Billion

Investor Challenges Baidu on Sale of Video Service to CEO

UnitedHealth Profit Beats on Optum Unit Strength

Wal-Mart Escalates Fight With Visa, Blocks Cards at Three Canadian Stores

Monsanto and Bayer Move Closer to a Deal

Novartis Says Profit Could Dip as It Boosts Investment in Heart Drug Entresto

Netflix Disappoints Wall Street as Subscriber Growth Slows

Josh Brown: Middle Out Compression

Cullen Roche: There Are No “Bond Kings” in This Bond Market

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On Vacation
Posted by Eddy Elfenbein on July 18th, 2016 at 3:47 pm

I’m relaxing in Canada this week so posting will be light. We have a busy week for Buy List earnings, so I’ll provide updates for those.

Morning News: July 18, 2016
Posted by Eddy Elfenbein on July 18th, 2016 at 7:01 am

The Coup Failed, But Erdogan’s Wrath Keeps Investors on Edge

Ireland Hits Brexit Alarm in Biggest Foreign Crisis in 50 Years

EU Said to Eye ‘Nuclear Option’ to Force May’s Hand on Exit

My Venezuela Nightmare: A 30-Day Hunt for Food in a Starving Land

Rate-Starved U.S. Banks Happily Gobble Mortgage Business

Bank of America’s Profit Slides But Tops Estimates

SoftBank to Buy ARM, a Mobile Chip Designer, for $32 Billion

Alibaba Buying Yahoo Would Make The Most Sense For Everyone

Artificial Intelligence Swarms Silicon Valley on Wings and Wheels

3 Things That Can Go Wrong for Netflix on Monday Afternoon

Even the Losers May Win as Exxon Outbids Partner for PNG Gas

How Coca-Cola Can Make Soda A Growth Market Again

With Pokémon Go, Nintendo Seeks to Salvage Lost Opportunity

Rate-Starved U.S. Banks Happily Gobble Mortgage Business

Jeff Carter: Scaling Your Portfolio

Jeff Miller: What Might Derail the Stock Market Rally?

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Three Economic Reports Today
Posted by Eddy Elfenbein on July 15th, 2016 at 12:45 pm

We had a few important economic reports today. The government said that the CPI rose by 0.2% last month. That was below expectations of 0.3%. The core rate also rose by 0.2%.

The government also reported that retail sales rose 0.6% last month. The rise for May was pared back to 0.2% from the original 0.5%. Excluding autos, retail sales were up 0.7% in June.

Finally, the Fed said that industrial production rose by 0.6% in June. Expectations were for an increase of 0.4%.

Now for some charts. Here’s the monthly change in seasonally adjusted core inflation:

Here’s retail sales:

Here’s industrial production. IP trended down since late 2014, but it may have turned a corner.

Wells Fargo Earns $1.01 per Share
Posted by Eddy Elfenbein on July 15th, 2016 at 9:25 am

Wells Fargo (WFC) just reported Q2 earnings of $1.01 per share which matched Wall Street’s expectations.

Wells Fargo & Co., the world’s most valuable bank, said second-quarter profit fell 2.8 percent as more energy loans soured, expenses rose and revenue from mortgage lending declined.

Net income slid to $5.6 billion, or $1.01 a share, from $5.72 billion, or $1.03, a year earlier, the San Francisco-based company said Friday in a statement. That matched the average estimate of 30 analysts surveyed by Bloomberg. Mortgage banking revenue declined 17 percent from a year earlier to $1.41 billion, falling short of the $1.8 billion estimate of Oppenheimer & Co.’s Chris Kotowski.

Revenue rose 4 percent to $22.2 billion, in line with analysts’ estimates, while expenses climbed 3.2 percent to $12.9 billion on higher employee compensation and benefits. Provisions for credit losses more than tripled to $1.07 billion from a year earlier on expanded losses in the oil and gas portfolio, the bank said.

Chief Executive Officer John Stumpf has sought to keep costs in check while amassing more deposits and expanding the bank’s loan portfolio with by purchasing assets from firms including General Electric Co. The bank has used derivatives to lock in higher income by converting floating rates into fixed payments as the Federal Reserve delays raising interest rates.

CWS Market Review – July 15, 2016
Posted by Eddy Elfenbein on July 15th, 2016 at 7:08 am

“Don’t confuse brains with a bull market.” – Humphrey B. Neill

After 14 months of not making any new highs, the S&P 500 finally burst through to record territory on Monday. In fact, the index continued to make new records on Tuesday, Wednesday and Thursday. So much for all those predictions of gloom and doom!

It’s hard to believe that three weeks ago, the financial world got rocked to its core by the stunning Brexit vote in Britain. The experts didn’t see that coming. Not only that, but they were also wrong on the effects of their own incorrect forecasts. Stocks and bonds are up and volatility is way down. In the last twelve days, the stock market has closed higher ten times!

I’m always reminded of the story Jack Bogle tells of being a young broker. An old-timer took him aside and told him, “nobody knows nothing!” I have to think that guy was onto something.

In this week’s CWS Market Review, I’ll take you through the latest drama on Wall Street. I’ll also preview a slew of Buy List earnings report for next week. Here’s a fun fact that shows you just how strange Wall Street can be. Thanks to something called Pokémon Go, Nintendo’s market cap rose by $9 billion in two days. That’s about half the market value of Deutsche Bank, which is a 146-year-old company. Trading in Nintendo was so heavy that it accounted for 17% of all the volume on the Tokyo Exchange.

Yep. Nobody knows nothing!

The S&P 500 Soars to an All-Time High

Last Friday, the U.S. government reported that the economy created 287,000 net new jobs last month. That crushed expectations by over 120,000 jobs. That was the biggest “jobs beat” in seven years!

The jobs report was especially good considering that it came after a lousy report for May. Truthfully, the long-term trend of roughly 220,000 jobs per month is still largely intact. The monthly volatility masks how persistent the underlying trend has been.

Last week’s jobs report will have minimal impact on the Fed. The central bank gets together in two weeks, and it’s very doubtful they’ll touch interest rates. In fact, it’s doubtful they’ll touch interest rates for the rest of the year. The futures market doesn’t expect a rate hike until next June, and even then, the odds are far from overwhelming. We have to get used to the fact that we’re living in a low-rate world.

I want to elaborate on an important point that I think confuses too many investors: the importance of the Federal Reserve. This may surprise a lot of folks, but the Fed isn’t nearly as powerful as is sometimes presented. I notice a lot of undue hostility towards the Fed. While I’m hardly one to jump to their defense, especially on policy grounds, I think much of the criticism goes towards areas outside the Fed’s control.

I think it’s better to see the Fed as another player on the field chasing after the ball. While they currently have interest rates very low, it’s difficult for me to believe that they have rates very far from equilibrium. If they did, we should see far greater distortions like inflation or a recession.

No matter what the Fed does, it will have some financial market consequences. That’s why I’m baffled by so much commentary that says the stock market is merely a Fed-induced bubble that’s about to burst. We’ve been hearing this for several years now, and nothing’s burst so far.

Going by most valuation measures, the stock market is about where you’d expect. Except for the worst parts of the Financial Crisis, the dividend yield for the S&P 500 hasn’t strayed very far from 2% for over a decade. Through Thursday, the S&P 500 is up 5.9% for the year, while dividends were up 5% for the first half. That’s hardly a bubble.

Simply put, the Fed isn’t forcing interest rates this low. Instead, they’re following interest rates this low. I think there have been some important changes in the structure of the world economy that makes low rates the new normal. For example, population growth has slowed down in much of the developed world, and that’s going to be an important part of nominal GDP growth. I think it’s interesting that Japan was the first country to deal with ultra-low and negative rates, and they’re experiencing a declining population.

The economist Scott Sumner has pointed out that the tech economy isn’t as capital-dependent as the old economy. Unlike, say, a steel plant, Google and Facebook don’t need enormous amounts of money to keep their operations running. As such, there’s less demand to rent capital, and that means lower rates. I’m not sure if that’s right but it highlights an important fact that the world has changed. This wasn’t all the Fed’s doing.

I’m guilty of getting caught up in overemphasizing the importance of the Fed. In reality, the stock market is responding to underlying strength in the economy and productivity. The stock market celebrated the strong June jobs report by rallying 1.5% to just below its all-time high. Interestingly, the market’s gain last Friday matched the 10-year Treasury’s annualized yield.

Second-quarter earnings season began on Monday, and we’ve had enough momentum to carry us to a few more new highs. Since the stock market’s low in March 2009, the S&P 500 is up 225%. While other people have waited for it all to crash, we’ve been riding the trend. Now let’s take a look at some earnings reports coming our way next week.

Seven Buy List Earnings Reports Due Next Week

Wells Fargo (WFC) is due to report earnings later today. The consensus is for $1.01 per share. That sounds about right. The bank recently passed the Fed’s latest stress test with flying colors.

We have seven more Buy List earnings reports coming next week; five of them are due on Thursday. Here’s our Earnings Calendar for the second quarter:

On Tuesday, July 19, Microsoft (MSFT) is scheduled to report its fiscal fourth quarter earnings. The software giant had a surprise earnings miss three months ago. But that was a rare misstep for a company that’s been on the right track under a new CEO.

Last month, Microsoft announced a major acquisition of LinkedIn. That’s the biggest deal in their history. Critics are right to point out that many of Microsoft’s recent acquisitions haven’t gone well, but I would chalk that up to Steve Ballmer, not Satya Nadella, who seems to prefer a more cautious approach.

Signature Bank (SBNY) is also due to report earnings on Tuesday. I like this bank a lot but its shares have become unusually volatile recently. SBNY dropped from $147 in April to less than $115 in June. The bank has reported record earnings for 26 quarters in a row. I have little doubt they’ll make it #27 on Tuesday. The consensus on Wall Street is for earnings of $1.97 per share. That’s up 20 cents from last year’s Q2.

I’ll be particularly interested to see where SBNY’s net interest margin is. I’m expecting something around 3.25%. I also want to see if they have any updates on their medallion loans which have taken a bite off their bottom line. Fortunately, the damage doesn’t appear to be too severe.

Thursday is going to be a very busy day for us. Alliance Data Systems, Biogen and Snap-on are due to report before the opening bell. Stryker and Wabtec are due to report after the closing bell.

In January, shares of Alliance Data Systems (ADS) got crushed after a lousy earnings report. The stock fell again in April after another earnings report. The loyalty rewards company actually topped expectations in April, but the outlook for Q2 was below the Street. ADS said they see Q2 earnings of $3.58 per share which was 20 cents below Wall Street’s consensus. Interestingly, they kept their full-year estimate at $16.75 per share. The stock got a boost this week when ValueAct Capital, an activist fund, announced that it had taken a 6.8% position in ADS.

While the biotech sector has had a rough time lately, I was pleased to see Biogen (BIIB) report very good earnings three months ago. The shares started to rally, but that got abruptly halted after the company said that one of its experimental drugs performed poorly during mid-stage tests.

In just three weeks, BIIB went from $290 per share to $223. Look for another good earnings report. The consensus on Wall Street is for earnings of $4.69 per share.

I have to admit that Snap-on (SNA) is a fairly dull company (hydraulic lifts!!), which is one of the reasons why I like it. In April, the company beat expectations by nine cents per share. The stock was punished very harshly at the start of the year. At one point in February, SNA was a 22% loser on the year (and the year had barely started). Fortunately, the shares have since rebounded. Wall Street is targeting Q2 earnings of $2.23 per share. I think that’s very doable. I’m expecting full-year earnings of $9 per share.

Stryker (SYK) has had a very impressive run in 2016. It’s our #1 stock this year with a gain of 31.6%. In April, the orthopedic company reported earnings of $1.24 per share which was four cents better than expectations.

For Q2, Stryker said they see earnings coming in between $1.33 and $1.38 per share. They should have little trouble hitting that range. For the entire year, Stryker sees earnings ranging between $5.65 and $5.80 per share. I’ll be curious to see how much the strong dollar has impacted SYK’s earnings.

Wabtec (WAB) has thrown us for a head-fake recently. In April, the company had a very good earnings report, and the stock popped to a new high. Since then, however, the stock has been a kind of a dud. On Thursday, shares of WAB settled at $71.47, which is over 17% below its April high.

I’m expecting another good earnings report. Wall Street expects $1.08 per share. The company also recently raised its modest dividend by 25%. The good news for us is that Wabtec has reaffirmed its full-year earnings of $4.30 to $4.50 per share.

That’s all for now. Next week will be dominated by earnings reports. Most of the media will be focused on the Republican National Convention in Cleveland. The convention runs from Monday to Thursday, and the economic reports will be fairly light. Building permits and housing starts will come out on Tuesday. The report on sales of existing homes will come out on Thursday. Also on Thursday will be initial jobless claims. The recent jobless claims reports have been just above 43-year lows. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

Morning News: July 15, 2016
Posted by Eddy Elfenbein on July 15th, 2016 at 7:01 am

Global Stocks Flat as Attack in France Weighs on Sentiment

China Growth Steadies on Consumer, Dimming Stimulus Expectations

As China’s Economy Slows, Beijing’s Growth Push Loses Punch

Taiwan Seeks Two Russian Suspects in $2 Million ATM Malware Heist

U.K.’s June Car Sales Feel Brexit Pinch as EU Rises

Why Warren Buffett Won’t Invest in Self-Driving Cars

Be Patient On The Line

Is Facebook Ready to Be the World’s Live News Network?

Developer of Nintendo’s Pokémon GO Aiming For Rollout to 200 Markets Soon

MasterCard Expands Masterpass Digital Platform to Include In-Store Payments

Monsanto’s Choice: Live the Dream With BASF, or Just Cash Out

BP Raises Deepwater Horizon Spill Liability by $5.2 Billion

CFPB Fines Santander $10 Million as Regulator Tightens Scrutiny of Overdraft Fees

Josh Brown: I Can’t.

Roger Nusbaum: Don’t Just Do Something, Stand There

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