Morning News: August 12, 2016
Posted by Eddy Elfenbein on August 12th, 2016 at 7:05 am

Stocks Hit New Highs, and That Could Be Just the Start

IMF Deal Boosts Egypt, Saudi Falls Despite Reform News

German Economy Grows Faster Than Expected; Italy Disappoints

Economic Doldrums? China Blames it on the Rain

EU Opens Antitrust Probe on Dow Chemical, DuPont Merger

Envisioning Bitcoin’s Technology at the Heart of Global Finance

Will Jet.com Be Enough to Move the Needle for Wal-Mart Stores Inc?

Hewlett Packard Enterprise Just Spent Millions on This Supercomputer Maker

Toshiba Reports Its First Profit in 6 Quarters

Macy’s, Kohl’s and Nordstrom’s 2Q 2016 Earnings Reports Deliver Some Positive Surprises

Electronic Marlboro Sucks Japanese Smokers Away From Japan Tobacco

Arianna Huffington to Leave the Huffington Post

Driven to Suicide by an ‘Inhuman and Unnatural’ Pressure to Sell

Josh Brown: Reaction: Jesse Livermore – Boy Plunger

Roger Nusbaum: This Is The New Normal

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Morning News: August 11, 2016
Posted by Eddy Elfenbein on August 11th, 2016 at 7:12 am

More Old Than Young: A Population Plague Spreads Around the Globe

IMF, Egypt Agree on $12 Billion Loan to Fix Ailing Economy

IEA Sees Oil Glut Easing

Australia Risks Chinese Anger Over Power Grid Sale

U.S. Budget Deficit Little Changed in July

The Bond Bubble Is About to Burst

Why the Big Three Airlines Are So Much the Same

Alphabet Unit Google’s VC Chief Bill Maris to Exit

Alibaba Results Boosted by More Users, Mobile Growth

Yelp Rises After Earnings Beat Estimates, Analysts Back Stock

Shake Shack’s Stock Gets Whacked As Investors React To Disappointing Sales

Ralph Lauren Is Losing the Battle for America’s Preppies

Valeant Under Criminal Investigation

Howard Lindzon: The NASDAQ Made America Great Again…

Josh Brown: Volatility Drives Us Mad and Steals Our Future

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Oil and Stocks Part Ways
Posted by Eddy Elfenbein on August 10th, 2016 at 11:30 am

One of the interesting developments this summer is that the previous relationship between oil and stocks seems to have broken down. For several months, the two asset classes were like waltzing partners. Wherever oil went, stocks weren’t far behind. Or maybe it was the other way around.

Either way, the relationship appeared solid. Even when both markets turned in early February, they turned together.

Lately, however, the two seem to have parted ways. It’s hard to place an exact starting point when this happened. I think something clearly broke down at the beginning of May. But by July, oil and stocks were no longer speaking.

According to the WSJ, the correlation fell to 0.77 although I’m not sure what time frame their figure indicates.

What does this all mean? That’s hard to say exactly. I think we’ve moved into an era where low oil prices are good — that is, until they’re not. There’s probably a point at which low oil is a net negative for the U.S. economy. I suspect that’s below $40 per barrel but that’s just a guess.

OPEC has noticed the lower price for oil and they’re going to hold a less-formal meeting next month. I strongly doubt they’ll come to any agreement on holding back production. The Iranians are recently off sanctions and they’re going to gun supply until they get back to pre-sanctions levels. The Saudis also don’t seem interested in cutting back production. My guess is that we’re going to see more downward pressure on oil this year.

Morning News: August 10, 2016
Posted by Eddy Elfenbein on August 10th, 2016 at 7:17 am

Japan’s Plunging Jobless Rate Is All About Aging, Not Abenomics

BOE Finds Its Brexit Warnings Coming True in Company Plans

Why Did Productivity Fall? Look To The Price of Oil and Gas

America’s Worst Borrowers Are Grabbing Credit Cards Like It’s 2006

U.S. Judge Dismisses Challenge to Seattle’s Uber, Lyft Union Law

Jefferies, Free of the Restraints of Bigger Banks Is Emboldened

Apple Said to Plan First Pro Laptop Overhaul in Years

Why Coach Is Disappearing From Some Department Stores

Yelp Raises Revenue Projection as It Swings to Quarterly Profit

Disney Bets on Streaming, Joining With Major League Baseball

Walmart, In Acquiring Jet.com, Gets More Than An Early Leg Up On Amazon

‘Self-Driving’ in Spotlight Again as China Sees First Tesla Autopilot Crash

PG&E Guilty of Safety Violations Stemming From Fatal Blast

Howard Lindzon: Big Stock Market Crash Coming … Guaranteed

Cullen Roche: What Does it Mean to be a “Modern” Monetary System?

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Morning News: August 9, 2016
Posted by Eddy Elfenbein on August 9th, 2016 at 7:07 am

China Inflation Slows Again, Giving PBOC Room for Easing

China Warns U.K. That Relations Hang on Hinkley Point

BOE’s McCafferty Says More Easing Will Likely Be Required

Valeant Says to Reorganize; Maintains Full-Year Forecast

Why Twilio Uses Two Revenue Metrics to Report Its Financials

Randstad to Buy U.S. Jobs Site Monster for $429 Million

Alibaba Cloud Computing Arm to Help Foreign Tech Firms Enter China

Barclays Agrees to Pay $100 Million Over State Libor Probes

FTC Sues 1-800 Contacts Over Online Search Advertising

Why Mattress Firm May Give Steinhoff Sleepless Nights

SFR Shares Rally as CEO Says French Price War Easing

Uber’s Deal With Didi in China Totally Sideswiped Indian Competitor Ola

Every User of This Hacked Bitcoin Exchange Is About to Lose 36% From Their Account

Josh Brown: The Jaws of Life

Jeff Carter: How to Fix Capitalism

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P/E Ratios Are Effectively Worthless
Posted by Eddy Elfenbein on August 8th, 2016 at 7:25 pm

I wanted to show you this passage from an article criticizing the Fed model as a valuation metric.

The Fed model fares poorly compared with simpler methods of judging when stocks are attractive. A study by Bank of America found that as a tool for predicting 10-year returns, P/E ratios were 10 times more accurate as an indicator of what stocks would do, while metrics like price to book value did even better. The S&P 500 trades for 20 times annual earnings, the highest P/E since 2009, and 2.9 times book, or assets minus liabilities.

In many respects, the case against the Fed model is the same as the case against any investment strategy predicated on valuation: they’re fraught with false signals. Data compiled by Bloomberg show that even the most conservative applications of price-earnings ratios as a buy or sell indicator are effectively useless for predicting how stocks will perform in the coming year.

How Good of a Predictor is the Yield Curve?
Posted by Eddy Elfenbein on August 8th, 2016 at 3:36 pm

How good of a predictor is the yield curve? Economists Michael Bordo and Joseph Haubrich dug through the data and found the answer. It depends.

The results are intriguing. They surveyed many distinct periods in U.S. financial and monetary history, from the era of the classical gold standard to the creation of the Fed to the breakdown of the gold standard, its resurrection on the international level under Bretton Woods, and its eventual collapse in 1971.

They found that the utility of the yield curve had a great deal to do with the monetary regimes of the day. In particular, they found that the yield curve worked better as a predictive tool when the monetary system was out of kilter and inflation a problem, and worse when the monetary system was predictable and inflation stable.

In other words, it would seem that the utility of the yield curve is inversely related to the credibility of the monetary regime. When the market thinks that inflation could spiral out of control because of the incompetence of policy makers, the yield curve works pretty well. But when inflation is kept in check, you can’t take the yield curve as seriously.

Which brings us to today. Although we still don’t know for certain what the yield curve is telling us, the possible answers come into sharper focus. If the market is sensing that the Fed doesn’t have a hold on inflation, then perhaps the yield curve is unequivocally signaling a recession. But if inflation isn’t a threat, then the yield curve could be giving us a misleading reading.

Right now, there’s almost no sign that inflation is about to spin out of control. And that, perhaps, is a sign that the crystal ball known as the yield curve is too cloudy to trust.

Here’s their study.

Morning News: August 8, 2016
Posted by Eddy Elfenbein on August 8th, 2016 at 7:12 am

Disappointing China July Imports Suggest Cooling Domestic Demand

German Industrial Output Stronger Than Expected in June

Fed’s Powell Urges Patience on U.S. Rates, Citing Growth Risks

OPEC to Hold Talks in September as Oil Market Takes Downturn

Amazon Japan Offices Searched on Suspicion of Antitrust Law Violations

Why Uber Couldn’t Crack China

Steinhoff Buys Mattress Firm For 115% Premium As Foreign Buyers Bet Big On The U.S. Economy

Wal-Mart’s Deal for Jet.com Said to Hinge on Keeping Its Founder

Bristol-Myers Partner Ono Plunges as Drug Fails Trial

Video Software Maker Kaltura Raises $50 Million From Goldman

UK to Probe Airbus’s Use of Third-Party Agents to Sell Planes

How a Hairdresser’s Lawsuit Could Spell Trouble for Brexit

Delta Grounds Flights Worldwide Following Computer Outage

Jeff Miller: Earnings Recession Ending Next Quarter?

Howard Lindzon: NASDAQ 10,000…What Could go Right?

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Duncan Weldon Eats His Shoes
Posted by Eddy Elfenbein on August 7th, 2016 at 5:47 pm

Q2 2016 Earnings Calendar
Posted by Eddy Elfenbein on August 5th, 2016 at 9:25 am

Sixteen of our 20 Buy List stocks reported Q2 earnings throughout the past month. Here’s a list of reporting dates, Wall Street’s consensus estimates and actual reported results: