Happy Fed Day!
Posted by Eddy Elfenbein on June 17th, 2015 at 9:28 am

Today looks to be an interesting day for the markets. The stock market is poised to open higher this morning. Later, the Federal Reserve wraps up it two-day meeting today. In the afternoon, Janet Yellen will hold a press conference. Don’t expect any rate hike yet, but the Fed may drop clues for its plans. There’s an emerging consensus that the Fed will raise rates in September or December. Personally, I think the market tends to over-read Fed policy statements.

The mess in Greece continues. Now the Greek central bank is warning of dire consequences unless the government gets what they want. Imagine that. Alexis Tsipras, the Prime Minister, said he’s ready to shoot down a bad deal. Honestly, I don’t think he’s going to get a better one.

Just to give you an idea of how it is in Greece, here’s a chart of the National Bank of Greece (NBG). The shares have declined from $700 to $1. The stock has had two reverse splits, 1-for-5 and 1-for-10.

Oracle (ORCL) will report earnings after today’s close. Yesterday, the shares closed at their highest level since late April.

Morning News: June 17, 2015
Posted by Eddy Elfenbein on June 17th, 2015 at 7:23 am

Tsipras: Greece Ready to Give ‘Big No’ to Bad Agreement

Greek Exit Would Shake, but Most Likely Not Shatter, Eurozone

BOE Sees Inflation Drag Fading as U.K. Wage Growth Accelerates

Failure of Obama’s Trans-Pacific Trade Deal Could Hurt U.S. Influence in Asia

Who Wins, Who Loses When Fed Raises Rates

You’ve Been Warned: Central Bankers Turning Less Market-Friendly

FedEx Posts Flat Quarterly Profit, Misses Expectations

Under Armour Announces Creation Of New Non-Voting Class C Common Stock

Starbucks to Close Its La Boulange Pastry Shops

Botox Owner Allergan to Buy Maker of Double-Chin Treatment

Target Seeking Higher Traffic & Business Consolidation With CVS Deal

Amazon’s Next Delivery Drone: You

How FitBit Can Avoid Becoming Another BlackBerry After Its IPO

Ben Carlson: Will Retiring Baby Boomers Ruin Future Market Returns?

Joshua Brown: The Riskalyze Report: Advisors Blow Out of Long-Term Treasurys

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Morning News: June 16, 2015
Posted by Eddy Elfenbein on June 16th, 2015 at 7:28 am

Greek Deadlock Has Leader Hoping for Miracle to Avoid Default

Asia To Surpass North America As Wealthiest Region In 2016; Fintech Set To Change Wealth Management

Siena Tries to Regain Its Financial Footing, and Its Identity

EU-U.S. Trade Deal Seems Distant Dream After Early Optimism

Janet Yellen’s Prediction Last Month Is Already Being Vindicated

US Judge Gives Partial Victory to Ex-AIG CEO in Bailout Case

Even the Oil Rout Can’t Stop Houston’s Economic Boom

Swiss Trader to Pay $2.8 Million Over Apple-Linked Insider Case

Honda to Discontinue CNG and Hybrid Civic Models

How Millenial Shoppers Have Made Gap’s ‘Basic’ Look Obsolete

Fitbit Raises Price Range for I.P.O.

Kleiner Perkins Launches New Seed Fund to Lure Youth

Goldman Plans to Offer Consumer Loans Online, Adopting Start-Ups’ Tactics

Cullen Roche: Interest Rate Hike – It’s Different This Time Edition

Roger Nusbaum: Yes, Markets Were Actually Open Last Week

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Industrial Production Falls Again
Posted by Eddy Elfenbein on June 15th, 2015 at 10:08 am

This morning, the Federal Reserve reported that Industrial Production fell again last month. Thanks to revisions, we can’t say that IP is down six months in a row. In the last six months, IP has dropped four times and risen very, very slightly twice.

U.S. industrial production declined in May, a sign weak global demand and a strong U.S. dollar continue to hold back output.

Industrial production, which measures the output of U.S. manufacturers, utilities and mines, decreased a seasonally adjusted 0.2% from the prior month, the Federal Reserve said Monday.

Capacity utilization, a measure of slack in the industrial sector, fell two-tenths of a percentage point to 78.1% in May. With the decline, capacity utilization is two percentage points below its long-run average recorded since 1972.

Economists surveyed by The Wall Street Journal had forecast a 0.2% increase in industrial production and a capacity utilization rate of 78.3%.

The Mess in Greece
Posted by Eddy Elfenbein on June 15th, 2015 at 9:22 am

The Greek Crisis has reached the boiling point. Talks collapsed yesterday and now the Greek government has until Thursday to reach a deal. Greece owes the IMF $1.7 billion, and the rest of Europe has run out of patience. This mess has gone on for a long time and the Germans now seem fine with having Greece leave the EU.

Germany’s EU commissioner said it’s time to prepare for a state of emergency. Markets in Europe are down today, and the damage is severe in Greece:

Greek bank stocks, which have fallen 99 percent from their pre-crisis peak, plunged as much as 17 percent and traded 8.7 percent lower at 1:51 p.m. in Athens. The yield on Greece’s 2017 bonds jumped 241 basis points to 28.45 percent.

So far, the Greek drama has had little impact on our markets. It’s not that Greece affects us that much, but Greece affects people who affect us (like the Germans). This has helped the strong dollar get even stronger.

Morning News: June 15, 2015
Posted by Eddy Elfenbein on June 15th, 2015 at 7:12 am

Greece Contagion Sweeps Euro Zone Bond Markets, Hits Shares

Out of Options and Time, Tsipras Faces Greece’s Moment of Truth

Alibaba Plans to Create China’s Version of Netflix, HBO

Fed Hones Tricky Message as It Nears Boosting Rates

Tale of Two Job Markets Makes Fed’s Liftoff Timing a Tough Call

Homebuilders Standard Pacific, Ryland Group to Merge

United Technologies Says It Will Exit Sikorsky Helicopter Business

Colt Files for Bankruptcy, Seeks August Auction

GM to Return to U.S. Medium-Truck Market

CVS to Buy Target’s Pharmacy, Clinic Businesses For $1.9 Billion

EasyJet Chief Carolyn McCall Leads Airline Through Turnaround

With CEO Shakeup, Twitter Under Pressure to Please Advertisers

Geneva Whodunit Has Chinese Up in Arms Over $1.2 Billion Lost in Alleged Scam

Jeff Carter: Is A Cyber Attack An Act of War?

Jeff Miller: Weighing the Week Ahead: A Market Message for the Fed?

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Ross Stores Splits 2-for-1
Posted by Eddy Elfenbein on June 12th, 2015 at 9:31 am

Shares of Ross Stores (ROST) have split 2-for-1 today. Shareholders have twice as many shares while the share price has fallen in half.

I always try to be as transparent as possible with our Buy List. For tracking purposes, I assume the Buy List is a $1 million portfolio at the start of the year. That’s 20 positions of $50,000 for each stock. For Ross Stores, that meant 530.4477 shares at $94.26 (the closing price on December 31).

To adjust for the split, the Buy List portfolio now holds 1,060.8954 shares of Ross with $47.13 as the purchase price.

CWS Market Review – June 12, 2015
Posted by Eddy Elfenbein on June 12th, 2015 at 7:08 am

“If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.” – Jack Bogle

The good news is that good news is once again bad news. Before, bad news was actually good news because the bad news was worse than had been expected. Since the expectations of bad news had in fact been expected, that was actually good news.

Follow?

Don’t worry. I’ll try to untangle the mess for you. On Planet Wall Street, the rules of what’s good or bad are constantly changing. It’s like a $20 trillion game of Calvinball.

In this week’s CWS Market Review, I’ll take a closer look at the May jobs report. The headline numbers were pretty good, but there’s still a lot of weakness out there. I’ll also discuss the bond market’s recent drop. The yield on the 10-year Treasury is flirting with nine-month highs (see below). On Wednesday, as the bond market was retreating, stocks had their best day in more than a month. Bonds and stocks are decoupling. As I explained in last week’s issue, this is part of an important rotation unfolding on Wall Street that’s impacting our portfolios.

Speaking of which, I’ll preview upcoming earnings reports from Oracle (ORCL) and Bed Bath & Beyond (BBBY). The tech world will be especially interested in how Oracle has been doing. This week, we got a 9% dividend increase from CR Bard (BCR). I love a good Buy List dividend hike! The medical-equipment company has increased its dividend every year since 1972. Not many companies can say that but we like those long-term winners on our Buy List. But first, let’s take a step back and look at the macro picture.

More Americans Are Working, but Wage Growth Is Slow

Last Friday, the government said that the U.S. economy created 280,000 net new jobs in May. That’s a strong report; economists had been expecting an increase of 222,000. On top of that, the poor payroll number for April was revised higher by 34,000, while the May figure was revised a little bit lower.

The increase in jobs is especially good considering the big cutbacks in the energy sector. The plunge in crude hit the energy sector hard. Jobs in drilling and mining fell by 17,000 last month. That’s the fifth month in a row of job losses in that sector. Energy stocks are still looking rough.

For the overall jobs market, the problem area continues to be wage growth. More people are working, but folks aren’t seeing much in the way of raises. In May, wages rose by only 0.3%. In the last year, wages are up 2.3%. That’s not much, and it’s actually the best year-over-year increase since 2013. Though, as Josh Brown reminded us this week, wage growth usually comes in the latter stages of an economic recovery.

What really concerns Wall Street is inflation. Despite numerous predictions that inflation is about to come back, prices are still well contained. However, a tighter jobs market should lead to higher wages, which will in turn lead to higher prices. There’s been news recently of high-profile employers like McDonald’s (MCD), Walmart (WMT) and Target (TGT) raising worker pay. This week’s JOLTS report showed that job openings jumped to a record high (the data series began in 2000).

Former Fed Chairman William McChesney Martin famously described the Fed’s job as taking away the punchbowl once the party gets going. It looks like the Fed is getting ready to take away the punchbowl before the party has even started. Heck, I don’t think the invitations have even been sent out!

But that hasn’t stopped the bond market from taking its cue. On Wednesday, the 10-year Treasury yield came within a whisker of breaching 2.50%. The 10-year hasn’t yielded that much since last September. This is part of the market’s rotation. Stocks and bonds are moving in completely different directions.

To go back to my introduction, we’ve reached another classic impasse on Wall Street when good news may actually be bad news. Or more specifically, good economic news is bad news for the financial markets, since it means that the Fed is more inclined to hike interest rates.

But I want to reiterate my view since it seems to be in the minority on Wall Street, and that’s that the economy is doing better than a lot of people realize. Please don’t take this as a political stand. Rather, I’m looking at the numbers. For example, the retail-sales report for May was pretty good. Last month, sales rose 1.2%. Excluding gasoline, retail sales were up 1.0%. The numbers for March and April were revised higher as well.

I was also pleased to see that Corelogic reported that homes in foreclosure are at their lowest level since November 2007. Foreclosures are 67% below their peak. That’s very good news. The broad economic stats for Q2 should be quite good. The Atlanta Fed has a GDP model. Currently, the model sees GDP growth for Q2 coming in at 1.9%. I think it will be closer to 3%.

The weakness in the bond is perhaps the strongest clue that the economy is getting better. It’s also interesting to note that financial stocks have been leading the market over the past few weeks. The Financial Sector ETF (XLF) has been outperforming the overall market since late April (think Quadrant 2 from last week’s chart).

Earnings Preview for Oracle and Bed Bath & Beyond

I’m pleased to see that our Buy List continues to lead the overall market this year. A few of our stocks like Cognizant Technology (CTSH), Wells Fargo (WFC) and Fiserv (FISV) are having excellent years so far. I expect more good results when the second-quarter earnings season begins next month. Before that happens, two of our Buy List stocks, Oracle and Bed Bath & Beyond, are due to report earnings. These are our only two stocks that report on the February/May/August/November reporting cycle.

Oracle (ORCL) is set to report their fiscal Q4 earnings after the closing bell on Wednesday, June 17. This will be a closely-watched earnings report for the entire tech sector.

Three months ago, Oracle reported earnings of 68 cents per share, which matched expectations. The problem was that they were clipped by the strong dollar. There’s been a lot of that going around. But the best news was that the software giant raised its dividend by 25%.

For Q4, Oracle said they see earnings ranging between 90 and 96 cents per share. Wall Street had been expecting 88 cents per share. I’ve been especially impressed with how well Oracle’s cloud business has been progressing.

Unfortunately, shares of Oracle have been locked between $43 and $45 for much of the last three months. I don’t feel confident saying Oracle will beat their earnings forecast. The question mark is the impact of currency. Outside that, I have a great deal of confidence in Oracle. I also want to see what they have to say for Q1 (which ends in August). Wall Street currently expects 62 cents per share.

I like Oracle a lot, but I want to be cautious here before we see solid evidence. Oracle remains a buy up to $46 per share. I want to keep a tight range here.

Bed Bath & Beyond (BBBY) is due to report fiscal Q1 earnings on Wednesday, June 24, exactly one week after Oracle. The home-furnishings store is in an odd spot. The company generates tons of cash. They’ve been using much of it to buy back stock. Unlike many other companies, BBBY actually reduces their share count. I like that. What I don’t like is their spending tons of money on a stock that’s no longer such a bargain.

The company told us to expect fiscal Q2 earnings to range between 90 and 95 cents per share. I’m not wild about that guidance. BBBY sees comp-store sales rising between 2% and 3% for the quarter and the entire fiscal year. For full-year earnings, BBBY expects flat to mid-single digits. Let’s say that means 0% to 5%, so that implies an EPS range of $5.07 to $5.32. Wall Street had been expecting $5.43 per share.

Honestly, I’m a little frustrated with BBBY, but I won’t give up on them. I’m especially interested to hear what guidance they have to offer.

Updates on Other Buy List Stocks

Don’t forget that Ross Stores (ROST) has split 2 for 1. You should now have twice as many shares. The deep discounter is a good buy up to $52 per share.

Last week, I highlighted Signature Bank (SBNY) as one of our Buy List stocks that looks especially attractive. The stock has now rallied for five days in a row, and it’s gained more than 5.2% in the last week. On Thursday, the bank hit another 52-week high. SBNY is now our second-best performer on the year. This week, I’m nudging up my Buy Below price on Signature to $150 per share.

Remember that stodgy, old-fashioned, boring dinosaur Snap-on (SNA)? Yep, new all-time high on Thursday.

Two weeks ago, I told you to expect another dividend increase soon from CR Bard (BCR). This week, Bard announced a 9% dividend increase. The quarterly payout will rise from 22 to 24 cents per share. That means the yearly dividend is 96 cents per share, which works out to a yield of 0.56%. That’s still pretty small.

I was able to predict Bard’s dividend increase based on my uncanny powers of prognostication, and also due to the fact that Bard has increased their dividend every year since 1972.

Bard also authorized a $500 million share buyback , which is about 4% of Bard’s overall market cap. My view is that Bard should put more of that towards the dividend, but I’m not about to complain. The company has performed very well for us.

That’s all for now. The Federal Reserve meets again next week. Don’t expect any move on interest rates, but Janet Yellen will a hold a post-meeting presser. The Fed will also update its economic projections, which tend to be pretty bad. The more interesting news will be the industrial production report, which comes out on Monday. IP has fallen for the last five months in a row. I hope this streak came to an end in May. Also, the CPI report for May will come out on Thursday. 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: June 12, 2015
Posted by Eddy Elfenbein on June 12th, 2015 at 7:02 am

IMF Quits Greek Debt Talks; No Deal In Sight Due To Continuing Disagreements

Fearful ECB Starts Countdown on Greek Funding Lifeline

Merkel Urges Greece and Creditors To Keep Pushing For Deal

Kuroda Seen Capping Yen Slide as Officials Hint Limit Close

You Need 35 Quadrillion In This Currency to Buy $1.00

Five Reasons Why Twitter’s CEO Needed to Fire Himself

Shares of Axovant, Alzheimer’s Drug Developer, Surge on Trading Debut

Uber Boosts Bet on China

Goldman Gets Serious About High-Speed Trading

Airbus Forecasts Stronger Long-Term Aircraft Demand

Organic Farmers Object to Whole Foods Rating System

Rupert Murdoch to Put Media Empire in Sons’ Hands

These Are Wall Street’s Must-Read Books of the Summer

Joshua Brown: The Keynesian Ugly Contest

Ben Carlson: The Struggle to Define Risk

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Morning News: June 11, 2015
Posted by Eddy Elfenbein on June 11th, 2015 at 7:11 am

German Central Bank Chief Says Time Running Out For Greece

German Holders of Greek Bonds Can Seek Compensation: European Court of Justice

New Zealand Dollar Sinks To 5-Yr Low on Rate Cut

China May Investment Up 11.4% Year-on-Year

Luxury Goods Face a Global Reckoning

Alibaba’s Ma Sees $1 Trillion in Transactions in Five Years

EU Opens Investigation Into Amazon’s e-Book Selling

J. Crew Names New Head of Women’s Design, Eliminates 175 Jobs

Top Executive at Kleiner Perkins to Make Rare Silicon Valley Shift, to Menlo Ventures

American Billionaire Takes On Samsung

Sidewalk Labs, a Start-Up Created by Google, Has Bold Aims to Improve City Living

No Need to Be Industry Number One, Says Spotify Founder

Jamie Dimon: I’m Not Sure Elizabeth Warren Understands Banking

Howard Lindzon: Goldman Sachs and ShittyBank…

Credit Writedowns: Are Bond Investors Crying Wolf?

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