Our Buy List Through November 18
Posted by Eddy Elfenbein on November 18th, 2015 at 5:43 pm

Through today’s trading, our Buy List is up 4.09% for the year while the S&P 500 is up 1.20%. Those numbers don’t include dividends but I will calculate those in our final performance numbers. Very roughly, dividends will add about 2% to the full-year return for the S&P 500, and about 1% for our Buy List.

I’m pleased that our Buy List is beating the market this year, but I wanted to point out that our lead has eroded since the summer. On August 20, our Buy List was up 5.21% on the year while the S&P 500 was down by 1.13%.

Since August 20, the S&P 500 is up 2.35% while we’re down 1.07%. Again, sans dividends. That’s hardly earth-shattering underperformance, but I always want to present the complete picture of our performance.

So what’s been dragging us down? It’s pretty easy to identify because four stocks stand out. Since August 20, Bed Bath & Beyond is down 13.84%, Ross Stores is off by 15.98%, Wabtec is down 19.76% and Qualcomm is down 20.20%. Ouch! Outside those four, the rest of the portfolio has been doing well.

I’m confident that we’ll beat the market again this year, but we’ve lagged a bit over the last three months.

The Fed Minutes Are Out
Posted by Eddy Elfenbein on November 18th, 2015 at 2:52 pm

The Fed just released the minutes from their October meeting. Here’s the important part:

During their discussion of economic conditions and monetary policy, participants focused on a number of issues associated with the timing and pace of policy normalization. Some participants thought that the conditions for beginning the policy normalization process had already been met. Most participants anticipated that, based on their assessment of the current economic situation and their outlook for economic activity, the labor market, and inflation, these conditions could well be met by the time of the next meeting. Nonetheless, they emphasized that the actual decision would depend on the implications for the medium-term economic outlook of the data received over the upcoming intermeeting period. Some others, however, judged it unlikely that the information available by the December meeting would warrant raising the target range for the federal funds rate at that meeting.

A number of participants pointed to various reasons why the Committee should avoid a delay in policy firming. One concern was that such a delay, if the reasons were not well understood by market participants, could increase uncertainty in financial markets and unduly magnify the perceived importance of the beginning of the policy normalization process (I’m sorry but that’s just silly – Eddy). Another concern mentioned was the increasing risk of a buildup of financial imbalances after a prolonged period of very low interest rates. It was also noted that a decision to defer policy firming could be interpreted as signaling lack of confidence in the strength of the U.S. economy or erode the Committee’s credibility (Oh, please – Eddy). Some participants emphasized that progress toward the Committee’s objectives should be assessed in light of the cumulative gains made to date without placing excessive weight on month-to-month changes in incoming data.

Several participants indicated that, despite lessening concerns about the implications of recent global economic and financial developments for domestic economic activity and inflation, appreciable downside risks to the outlook remained. They were concerned about a potential loss of momentum in the economy and the associated possibility that inflation might fail to increase as expected. Such concerns might suggest that the initiation of the normalization process may not yet be warranted. They also noted uncertainty about whether economic growth was robust enough to withstand potential adverse shocks, given the limited ability of monetary policy to offset such shocks when the federal funds rate is near its effective lower bound, and concern that the beginning of policy normalization might be associated with an unwarranted tightening of financial conditions. They believed that in these circumstances, risk-management considerations called for a cautious approach. They judged it appropriate to wait for additional information providing evidence of further improvement in the labor market and increasing their confidence that inflation was on a path to return to 2 percent over the medium term before raising the target range for the federal funds rate. In addition, a couple of participants cited concerns that a premature tightening might damage the credibility of the Committee’s inflation objective if inflation stayed below 2 percent for a prolonged period.

Several participants indicated that, in the current low interest rate environment, it would be prudent for the Committee to consider options for providing additional monetary policy accommodation if the outlook for economic activity were to weaken to a degree that seemed likely to undermine continued progress in labor market conditions and impede the movement of inflation back to the Committee’s 2 percent objective over the medium term. It was also noted that the Committee would need to reformulate its communications regarding the near-term outlook for monetary policy if the economic outlook weakened significantly.

During their discussion of the likely path for the federal funds rate after the time of the first increase in the target range, participants generally agreed that it would probably be appropriate to remove policy accommodation gradually. Participants also indicated that the expected path of policy, rather than the timing of the initial increase, would be the more important influence on financial conditions and thus on the outlook for the economy and inflation, and they noted the importance of underscoring this view at the time of liftoff. It was noted that beginning the normalization process relatively soon would make it more likely that the policy trajectory after liftoff could be shallow. It was also emphasized that, while participants’ most recent economic projections suggested that a gradual increase in the target range for the federal funds rate will likely be appropriate to support progress toward the Committee’s dual objectives, monetary policy adjustments ultimately would be dependent on economic and financial developments. These adjustments thus could be either more or less gradual than the Committee currently anticipates, responding to the Committee’s assessment of the implications of incoming information for the medium-run outlook.

South Korea Looks to Fine Qualcomm
Posted by Eddy Elfenbein on November 18th, 2015 at 1:01 pm

Yes, there’s even more bad news for Qualcomm (QCOM). More anti-trust issues. This time from South Korea:

Qualcomm Inc. said the staff of South Korea’s antitrust agency has alleged that some of the U.S. chip maker’s patent-licensing practices are illegal and recommended that the company be fined.

The company, which has battled antitrust cases in multiple countries, said a case examiner’s report generated by the staff of the Korea Fair Trade Commission, known as the KFTC, also recommended modifications to its business practices. A Qualcomm spokeswoman said the company hasn’t been informed of the size of any potential fine

The shares, which were already down 29% going into today, are down another 8.5% today. What a mess!

The Plunge in Silver
Posted by Eddy Elfenbein on November 18th, 2015 at 12:47 pm

The decline in silver has managed to do something impressive — it’s gotten even worse. The price of silver has fallen for the last 15 days in a row, and it looks to make it #16 today.

I once heard that slot machines are specifically designed to fall in the psychological sweet spot for the human brain. You win just often enough to keep playing but lose just enough to make the game a loser for you. I think commodity investing works the same way. Commodity investing seems to be defined by very large spikes followed by long, slow declines.

Check out the silver chart going back to 1970:

Thirty-five years after the Hunt brothers tried to corner the world silver market, the metal is still going for much less than it did at its peak in 1980.

Morning News: November 18, 2015
Posted by Eddy Elfenbein on November 18th, 2015 at 7:06 am

Security Jitters Drive European Investors Back to Safe Havens

Greece and Eurozone Creditors in Deal to Unlock $13 Billion

Iran to Boost Oil Exports After Sanctions Are Lifted

South Africa Inflation Rate Rises to 4.7%, in Line With Estimate

Another AIG-Style Fed Bailout Is About to Become Less Likely

Amazon Ups the Ante on Black Friday With Deals Every Five Minutes

Marriott Merger Has Starwood Lovers Nervous

ConAgra Foods (CAG) Will Separate into Two, Pubicly-Traded Companies

ON Semiconductor to Buy Fairchild Semiconductor for $2.4 Billion

Lowe’s Profit Tops Estimates as Home-Price Gains Spur Sales

Lyft’s $1B Gross Run Rate In Context

How Airgas More Than Doubled By Fighting A Takeover

Square IPO Pricing Will Test Investors’ Appetite for Unicorns

Jeff Carter: A Discussion on Bitcoin/Blockchain

Roger Nusbaum: Wait, What Happened to the Rally?

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Will Utility Stocks Rebound?
Posted by Eddy Elfenbein on November 17th, 2015 at 9:13 pm

Utilities have not been doing well this quarter nor this year. Part of the reason is that investors have factored in an interest rate increase from the Federal Reserve. Investors flock to utility stocks for their generous dividends, but with higher rates, utes will be somewhat less attractive.

Many utilities have also had to spend a large amount of money upgrading their systems. That ain’t cheap. The problem is that the utes have faced a lot of pushback from regulators when they’ve attempted to pass those costs on to their customers. In a low inflation environment, it’s hard to justify those higher costs. Today’s industrial production report showed a 2.5% drop for utility production.

If that’s not enough, utilities are starting to face real competition from solar. Some utilities are trying to diversify and many are moving into solar as well. Whenever a sector has pricing difficulty, you often see the push for mergers. A few weeks ago, Duke Energy (DUK) said it’s going to buy Piedmont Natural Gas for $4.9 billion in cash.

I was on CNBC earlier today to discuss the outlook for utility sector.

October IP = -0.2%
Posted by Eddy Elfenbein on November 17th, 2015 at 11:09 am

One negative report this morning came from the Federal Reserve. Industrial production for October dropped by 0.2%. Wall Street had been expecting an increase of 0.1%. On the plus side, the numbers for August and September were revised higher.

The stock market is largely unchanged today. We’re seeing some strength in homebuilding-related areas. Home Deport and Lowe’s, for example, are solid gainers today. Walmart is also up. The giant retailer beat estimates by five cents per share.

Interestingly, the Walmart earnings report might as well be a quarterly government report on consumer spending and inflation.

October CPI = +0.2%
Posted by Eddy Elfenbein on November 17th, 2015 at 10:24 am

The government reported today that consumer prices rose 0.2% last month. This is important because it’s more argument for the Federal Reserve to start raising interest rates next month. Some people thought that the terrible events in Paris might serve as convenient cover for the Fed to delay some more.

The “core rate,” which excludes volatile food and energy prices, also rose by 0.2%. Food and energy prices have significantly weighted on inflation in the past year. Consider that over the last 12 months, headline inflation is up by a mere 0.17%. But core inflation is up by 1.91%.

Here’s a look at the monthly core rate in annualized terms:

The odds of a rate hike next month are now up to 73.6%. The next big test will be the November jobs report.

Morning News: November 17, 2015
Posted by Eddy Elfenbein on November 17th, 2015 at 7:09 am

What Wall Street’s Return to Central Banking May Mean for Policy

Oil Approaching $40 Deepens Investor Pessimism on Recovery

Druckenmiller, Bacon Among Top Managers Cutting Back U.S. Stocks

Encrypted Messaging Apps Face New Scrutiny Over Possible Role in Paris Attacks

Microsoft, Once Infested With Security Flaws, Does an About-Face

Amazon’s Holiday Shopping Target: The Procrastinator

Valeant’s Newest Problem: The Female Libido Pill Isn’t Selling

For-Profit College Operator EDMC Will Forgive Student Loans

Wal-Mart Earnings Beat Expectations

Home Depot Same-Store Sales Beat Estimates

Billionaire’s Supersonic Jet Advances With Factory Plans, Airbus

Joshua Brown: The Riskalyze Report: Advisors ♥ Small Caps

Cullen Roche: ISIS is About to Make the Euro Crisis a Lot More Challenging

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Morning News: November 16, 2015
Posted by Eddy Elfenbein on November 16th, 2015 at 7:08 am

France Widens Crackdown at Home as Bombs Rain on Islamic State

Putin Goes From G-20 Pariah to Player at Obama Turkey Talk

Japan Falls Into Recession for Second Time Under ‘Abenomics’

Inflation Returned to Eurozone in October

After Outcry, Ireland Adjusts Its Corporate Tax Draw

Efforts to Rein In Arbitration Come Under Well-Financed Attack

Weak Retail Sales Suggest Moderate Fourth-Quarter Economic Growth

Oil Theft Soars as Downturn Casts U.S. Roughnecks Out of Work

Americans’ New Shopping Habit Hurting Some Retailers

Marriott to Buy Starwood to Create World’s Biggest Hotel Chain

China’s Tsinghua Unigroup to Invest $47 Billion to Build Chip Empire

German Watchdog Investigates Apple and Amazon Audiobooks Agreement

Microsoft, Code.org Will Use Minecraft to Teach Kids Programming

Jeff Carter: Are You For Free College? Free Drugs? High Minimum Wage?

Jeff Miller: What is the Message from Falling Commodity Prices?

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