Morning News: October 16, 2015
Posted by Eddy Elfenbein on October 16th, 2015 at 6:23 am

China’s Economy May Be Even Bigger Than You Think

Putin Allies Said to Be Behind Scrutinized Deutsche Bank Trades

Gold Stages Comeback, Erasing 2015 Losses on View Fed May Delay

Why Can’t Something Be Done About Our Broken Home Mortgage System?

Ford China Venture to Recall 220,000 SUVs Over Risk of Fuel Leak

AT&T Writes Down $1.1 Billion on Venezuelan Adjustment

Deutsche Wohnen Rejects Vonovia’s Takeover Offer as Inadequate

Nestle Reduces Sales Outlook Amid Weakness in Chinese Market

AMD Reports a Loss on 26% Revenue Decline

Citigroup Profit Jumps on Lower Legal Expenses

Yum Rises After Naming Activist Investor Meister to Board

Not Lovin’ It! McDonald’s Franchisees Say All-Day Breakfast Has Been a Nightmare

Cash Drops and Keystrokes: The Dark Reality of Sports Betting and Daily Fantasy Games

Joshua Brown: Now Vs. 1929

Cullen Roche: Thinking About Bonds and Benchmarks

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Fewest Jobless Claims in 42 Years
Posted by Eddy Elfenbein on October 15th, 2015 at 11:15 am

Wall Street is reconciling itself to the fact that there probably won’t be an interest rates hike this year. So far, the market is relieved.

The major data point in favor of an improving jobs market has been the initial jobless claims report. Today we learned that jobless claims fell by 7,000 to 255,000. That ties the number from July 18 which is the lowest point since 1973.

The weekly jobless claims number tends to bounce around a lot so economists prefer to look at the four-week moving average. That average is also at its lowest level since 1973. Generally speaking, it’s a good sign when jobless claims are running below 300,000.

We also got the inflation report for September, and it showed more deflation. Consumer prices fell 0.2% last month. In other words, by doing nothing, the Fed is actually tightening money. It’s not just about commodities. The core rate for September rose by 0.2%.

Morning News: October 15, 2015
Posted by Eddy Elfenbein on October 15th, 2015 at 6:40 am

China Economic Growth Seen Slowing Despite Policy Easing

Euro Falls as ECB Seen Upping the Ante on Missed Inflation Goals

Gold Steadies Off 3-1/2 Month High as Dollar Recovers

Millions of Social Security Recipients to Learn COLA Fate

Burberry Shares Dive on Weaker Asian Demand

Wal-Mart Heirs See $11 Billion Vanish in a Day on Share Fall

UnitedHealth Beats Street 3Q Forecasts

Netflix Blames Weak U.S. Subscriber Adds on New Chip-Based Cards

Uber Debuts On-Demand Delivery Service For Small Businesses In NYC, San Fran And Chicago

Bristol-Myers, Five Prime Enter Licensing Deal of Up to $1.74 Billion

Bank of America Beats as Legal Bills Plummet, Trading Hangs On

Nike Expects Sales to Hit $50 Billion by 2020

The 129 Finance People You Have to Follow on Twitter

Joshua Brown: Now Vs. 1929

Cullen Roche: Thinking About Bonds and Benchmarks

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Walmart Drops 10%
Posted by Eddy Elfenbein on October 14th, 2015 at 2:48 pm

Shares of Walmart (WMT) are having their worst day in 15 years. The stock is currently down 10% today. That’s a market cap loss of about $20 billion.

Walmart has 3.21 billion shares outstanding but the float is only 1.37 billion shares. The heirs of Sam Walton still own a gigantic amount of the company. According to Bloomberg, the family has lost $9 billion today, and $39 billion this year.

The billionaire Waltons — Christy, Jim, Alice and Rob — have a combined $122 billion fortune, according to the Bloomberg Billionaires Index, with the bulk of their wealth in the shares they inherited from Wal-Mart founder Sam Walton. The four shareholders, three children of Sam and Christy, the surviving spouse of a fourth sibling, are among the year’s worst-performing billionaires, losing a total of $39 billion since Jan. 1.

It’s not just today; the stock has been lagging the market all year. The Walmart heirs started the year with $169 billion. They’re now down to their last $122 billion.

The catalyst for today’s selloff was the company warning that its earnings for the next fiscal year (ending January 2017) may fall as much as 12%. Wall Street had been expecting a small gain. Obviously, Walmart is a gigantic enterprise. On average, Walmart brings in $15,000 of revenue every second.

The S&P 500 Touched a Seven-Week High
Posted by Eddy Elfenbein on October 14th, 2015 at 11:31 am

This morning, the Census Bureau reported that retail sales rose 0.1% last month, but if you don’t count gasoline, then retail sales were up 0.4%. Sales were up 2.4% in the last year. Today’s report matched expectations; however, the August number was revised from 0.2% growth to unchanged. Not great, but some improvement.

The VIX rose yesterday after falling for 10-straight sessions. In two weeks, the VIX nearly got cut in half. When I went on Bloomberg a few weeks ago, I said that the VIX was too high given the market’s current behavior. I think I was right on that.

The S&P 500 has fallen back below 2,000 but I don’t expect that to last long. The Dow is currently a hair below 17,000. It’s interesting how the market has zeroed in on this 8.5-to-1 ratio between the Dow and the S&P 500. Seven years ago, during the height of the financial crisis, the Dow was ten times the S&P 500. That was a 40-year high. (To be clear, we’re talking nominal index value not total market cap.)

I’m not a technical analysis guy, but it’s interesting how the S&P 500 has been toying with “resistance levels.” For example, the market’s recent high and low are almost perfectly equidistant from 2,000.

On August 24, the S&P 500 bounced off 1,867.01. It tested that level again on September 29 when the index reached a low of 1,871.91. The market held and we went on to rally but found new resistance points.

On September 17, the S&P 500 got as high as 2,020.86. This past Friday, we got up to 2,020.13. I don’t think that’s an accident. Yesterday, we pierced the high and got up to 2,022.34. That was a seven-week high, and we’ve slid back ever since.

Wells Fargo Beats by a Penny
Posted by Eddy Elfenbein on October 14th, 2015 at 10:23 am

Earnings season is underway for our Buy List. This morning, our first Buy List earnings report came out. For Q3, Wells Fargo (WFC) earned $1.05 per share which topped Wall Street’s estimate by one penny per share. The bank’s revenue rose to $21.88 billion which beat estimates by $120 million.

Wells Fargo’s loan activity picked up during the quarter. Total loans at the end of the quarter were $903.23 billion, a 7.7% increase from $838.88 billion in the same period a year ago. Commercial and industrial loans, which make up one of the largest parts of the bank’s total portfolio, were $292.23 billion, up 15% from $254.2 billion in the same period last year.

That’s pretty good. The downside is that Wells’s net interest margin came in a tad below 3% which isn’t where I’d like it. The bank has also been squeezed by dud loans to the energy sector. There’s been a lot of careless jabber on Wall Street that large banks are much more vulnerable to bad energy loans than people realize. Truthfully, it’s an issue, but it’s not an earnings killer. Last quarter, Wells didn’t release a dime in loan loss reserves.

Loans to energy companies comprised about 2% of Wells Fargo’s overall portfolio, but the bank said after its second-quarter earnings report that there was a risk of delinquency on $508 million in those balances, or around four times its estimate for the first quarter.

In the third quarter, Wells Fargo set aside $703 million to cover loans that could potentially turn bad in the future. That compares with $368 million in the third quarter of 2014 and $300 million in the second quarter. The bank lost $703 million to loan defaults, or 0.31% of its overall portfolio, compared with a 0.32% charge-off rate in the third quarter a year ago.

More importantly, Wells is profiting from the slowly-recovering consumer.

Overall profits at Wells Fargo’s community banking division, which includes its consumer operations, were $3.69 billion, a 6.5% increase from the $3.46 billion it earned in the third quarter of 2014. Wells Fargo’s wholesale banking division recorded profits of $1.77 billion, down 8.1% from the $1.93 billion it reported in the same quarter last year. The bank’s wealth, brokerage and retirement unit posted profits of $606 million, a 10% increase from the $550 million it earned in the third quarter of 2014.

Costs increased 1.2% to $12.4 billion. Expenses as a share of revenue was 56.7%, within the range of 55% to 59% that Wells Fargo targets for its so-called “efficiency ratio.”

Wells Fargo’s mortgage business, the largest in the U.S. by volume, earned $1.59 billion in fees in the quarter, down 2.7% from the $1.63 billion it earned in same period a year ago. The bank extended $55 billion in home loans between the end of June and the end of September, compared with $48 billion in the third quarter of 2014 and $62 billion in the second quarter of this year.

A large piece of Wells Fargo’s growth strategy this year has involved acquiring assets and businesses that General Electric Co.’s finance arm was shedding as part of the manufacturer’s retreat from banking. Within the past two weeks the bank announced it was acquiring the conglomerate’s railcar leasing and commercial lending and leasing businesses, and earlier this year it purchased $9 billion of GE’s property loans.

Wells started off the year quite well for us, but it’s been lagging the market for the past two months. It’s been especially bad since the market turned towards cyclicals about two weeks ago. This isn’t so much a problem for Wells as it has been for the entire financial sector. The shares are down about 1% this morning, but it’s not something to worry about.

Morning News: October 14, 2015
Posted by Eddy Elfenbein on October 14th, 2015 at 7:09 am

U.K. Unemployment Unexpectedly Drops to Least Since 2008

China Third-Quarter Growth Seen Dipping to 6.8%, Weakest Since 2009

Brazil’s Next Big Crisis Is Scaring Bankers and Wiping Out Jobs

Cyberspace Becomes Second Front in Russia’s Clash With NATO

Gold Hits 3-Month High on Talk of Delay in Fed Rate Hike

A 2nd Fed Governor Opposes Raising Rates This Year, Breaking With Yellen

Mounting Full-Time Employment Shows Less Slack for Yellen’s Fed

Why Angus Deaton Deserved the Economics Nobel Prize

Wells Fargo to Buy $32 Billion GE Assets, Add 3,000 Workers

Mega Beer Deal Offers Molson Coors a Bigger Swig of U.S. Market

Twitter to Cut Up to 8% of Workforce

Intel Q3: Cloud, Memory Chips Shine, Enterprise Weakens

BofA Posts Quarterly Profit as Expenses Fall

Joshua Brown: Why the Stock Market Has to Go Down

Howard Lindzon: Stocktoberfest 2015- Robinhood, Stocktwits and SparkFin

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Big Move for Wells Fargo
Posted by Eddy Elfenbein on October 13th, 2015 at 2:20 pm

Just ahead of their Q3 earnings report, Wells Fargo (WFC) announced they’re buying $32 billion in assets from General Electric (GE). Wells will take on 3,000 GE employees.

The sale includes commercial-distribution and vendor-finance units, and a portion of the corporate-finance business, from GE Capital, San Francisco-based Wells Fargo said Tuesday in a statement that didn’t include additional terms. The transaction is expected to be completed in the first quarter of 2016 and would allow the finance unit to return about $4.2 billion of capital to its parent, GE said in a separate statement.

Wells Fargo has been one of the biggest buyers of GE assets. In September, the lender agreed to purchase the bulk of a railcar- and locomotive-leasing unit from the company, and earlier this year, Wells Fargo said it would acquire GE real estate assets.

“This acquisition is an outstanding opportunity for Wells Fargo to deepen relationships and strengthen our presence in key commercial lending markets,” Tim Sloan, head of the wholesale banking division, said in the statement.

Morning News: October 13, 2015
Posted by Eddy Elfenbein on October 13th, 2015 at 7:09 am

Global Stocks Lower as China Concerns Deepen

Pound Falls to Five-Month Low as Inflation Rate Turns Negative

Switzerland Said to Impose 5% Leverage Ratio on Big Banks

Oil Surplus to Persist in 2016 as IEA Sees Demand Growth Slowing

Fed’s Brainard Urges Patience in Raising Rates Amid Global Risk

The Truth About Stock Sectors

AB InBev, SABMiller Brew Up $100 Billion Deal

Dell to Buy EMC in Biggest Tech Takeover, a Year in the Making

Etihad Airways Signs $700 Million Deal With IBM

Barclays Set to Name Jes Staley As Chief Executive

Investors Joining Messaging Startup Symphony, to Tune of $100 Million

Orlen Buys Oil and Gas Assets in Canada, Poland for $392 Million

Eli Lilly Abandons Heart Disease Drug in Final Stage of Trials

Shell Is Reeling After Pulling Out of the Arctic

Cullen Roche: Game Theory Thinking – Mets/Dodgers Edition

Roger Nusbaum: The Zinc Rally?

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Dell to Buy EMC for $67 Billion
Posted by Eddy Elfenbein on October 12th, 2015 at 10:55 am

This morning we got the news that Dell is going to buy EMC (EMC) for $67 billion. This is the largest tech deal ever.

For those of you who remember the 1990s, you certainly remember these two stocks. EMC was the #1 performing stock on the 1990s. The shares gained 80,575% in that decade.

Not only was EMC the top performer of the decade, but that’s the best return of any stock in any decade in NYSE history. Shares of EMC gained, on average, 1% every 5.43 calendar days for 10 straight years.

In seven years, EMC split 2-for-1 an amazing five times. EMC went public on April 4, 1986 at $16.50 per share. Adjusted for splits, that comes to 23 cents per share. Today, it’s around $28 per share. Of course, the stock fell from $104.94 in 2000 down to $3.67 in 2002.

EMC has one of the more interesting long-term charts you’ll see: