Morning News: January 13, 2023
Posted by Eddy Elfenbein on January 13th, 2023 at 7:03 am

I.M.F. Sees World Economy Rebounding, Yet Still Fragile, in 2023

Germany and UK Defying Forecasts May Skirt Recessions for Now

Europe’s Mild Winter Cushions Economic Blow of Ukraine War

BofA Strategists Say US Stocks Set For 10% Drop Before Later Rally

Your Tax Refunds May Be Smaller This Year

Inflation Is Turning the Corner

Wall Street’s Lucrative Leveraged-Debt Machine Is Breaking Down

Goldman Lost $1.2 Billion in Just Nine Months in Newest Division

Gemini and Genesis Sued by SEC Over Crypto ‘Earn’ Program

Inflation Weary Americans Find Some Relief as Prices Fall for Dozens of Products

FAA Pilot-Alert System Breakdown Followed Years of Warnings

Higher Labor Costs Dent Delta’s Profit Forecast but Travel Demand Is Still Strong

What Is ‘Shadow Banning’?

Are Cities Too Reliant on Twitter?

Tesla Slashes Prices Up to 20% in Broad Bid to Boost Sales

Activist Investor Nelson Peltz to Disney’s New Board Chair: No Thanks

Don’t Ban ChatGPT in Schools. Teach With It.

Sex, Death, Affairs: Everything People Would Rather Talk About Than Money

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Morning News: January 12, 2023
Posted by Eddy Elfenbein on January 12th, 2023 at 7:06 am

From Disciplinarian to Cheerleader: Why China Is Changing Its Tone on Business

Forget Core CPI, Market Pros Are Searching for Supercore Inflation

December Inflation Report to Show Whether Price Increases Continued to Moderate

The U.S. May Finally Breach the Debt Ceiling. Here’s Why That Would Be Very Bad.

This $2 Trillion Debt Pile Is Wall Street’s New ESG Target

The Yearning for Cushy Retirement Rejects ‘Predatory Lending’ Narrative

Investors Look to Corporate Reports With Low Expectations

Young Bankers Who Got Used to Smooth Sailing Prepare for a Storm

JPMorgan Accuses Morgan Stanley Defector of Poaching 32 Clients

F.A.A. Outage Highlights Fragility of the Aviation System

Airlines Resurrect Ancient Jumbo Jets to Meet First- and Business-Class Demand

Mapping the Death of NYC’s Cheap Slice

Disney Pushes Back Against Activist Investor’s Quest for Board Seat

Twitter Said to Consider Selling User Names to Boost Revenue

Elon Musk Went From Being Like Henry Ford in a Good Way to a Bad Way

Bed Bath & Beyond Warned of Bankruptcy. Then Its Stock Soared 166%

R.J. Reynolds Pivots to New Cigarette Pitches as Flavor Ban Takes Effect

FTX Says It Has Located More Than $5 Billion in Cash, Liquid Assets

Prince Harry Book ‘Spare’ Sells Over 1.4 Million Copies in U.S., U.K and Canada on First Day

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Morning News: January 11, 2023
Posted by Eddy Elfenbein on January 11th, 2023 at 7:04 am

French Government Unveils Plan to Raise Retirement Age to 64

U.S., Allies Prepare Fresh Sanctions on Russian Oil Industry

Oil and Gas Are Back and Booming

Powell Says Fed Will Not Be a ‘Climate Policymaker’

World Bank Cuts 2023 Global Growth Projection as Inflation Persists

Two Global Recessions in One Decade? That Hasn’t Happened in Over 80 Years

Wall Street Is Going All In on the Euro

Fed’s No-Rate-Cut Mantra Rejected by Markets Seeing Recession

Gundlach Says Listen to Bond Market Rather Than Fed on Rates

FAA Orders Airlines to Ground All Domestic Flights Until 9AM ET

Super-Prime Real Estate in New York and Florida Has Hit a Wall

Mortgage Refinance Demand Surges, As Homeowners Take Advantage of Lower Interest Rates

Apple to Begin Making In-House Screens in 2024 in Shift Away From Samsung

Inside Intel’s Delays in Delivering a Crucial New Microprocessor

Korean Solar Company Plans to Build $2.5 Billion Plant in Georgia

Several Top Rivian Executives Depart the Electric-Vehicle Startup

Elon Musk’s Love of Debt Is Destroying His Record Wealth

Trump’s Tax Returns Show He Was a Bigger Risk Than We Realized

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CWS Market Review – January 10, 2023
Posted by Eddy Elfenbein on January 10th, 2023 at 6:20 pm

(This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

The Fed Talks Tough but Will It Act Tough?

Yesterday, the stock market was having a nice day. At one point, the S&P 500 was up 1.4%.

But then Atlanta Fed President Raphael Bostic came out with a 2×4 and smacked the rally over the head. More specifically, he said that the Federal Reserve is going to hold interest rates high until inflation is thoroughly defeated. Central bankers are rarely so direct.

Bostic said that he sees interest rates rising about 5%. He was then asked how long the Fed would hold rates over 5%. Bostic said, “Three words: a long time.” Bostic even said that it’s “fair to say that the Fed is willing to overshoot.”

Yikes. He’s not alone. Also on Monday, San Francisco Fed President Mary Daly said she also sees rates going above 5%, but she added that it’s unclear for how long.

Bostic’s words clearly rattled the market. From the day’s high until the close, the Dow dropped over 400 points.

As dramatic as Bostic’s words were, Wall Street doesn’t buy it and neither do I. For one thing, he’s not even a voting member of the FOMC this year. Neither is Daly, for that matter.

Two voting members did speak today. Federal Reserve Governor Michelle Bowman said, “In recent months, we’ve seen a decline in some measures of inflation but we have a lot more work to do, so I expect the [Federal Open Market Committee] will continue raising interest rates to tighten monetary policy.”

Lastly, the big boss spoke earlier today. Federal Reserve Chairman Jerome Powell gave a speech in Sweden. He stressed that the Fed shouldn’t be subject to political pressures. Powell said, “restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy.”

The important point is that the cheapest asset on the Fed’s balance sheet is talk. It costs them nothing to sound tough. Of course, Fed officials will always say they’re committed to stable prices. That’s what they’re hired to do.

The problem is that once a recession sets in, the odds are very likely that they’ll get scared and start cutting interest rates. That’s what Wall Street will want and that’s what the politicians will want. Historically, the Fed almost always obliges.

After all, no Fed official wants to go before Congress and have some member of Congress demand an explanation as to why the Fed is keeping rates highs while their constituents are losing their jobs to fight an already defeated foe. It always amuses me when traders are shocked to discover that the Fed is a political body first, and a monetary authority later.

The facts are that inflation is showing early signs of weakening and the economy is beginning to show some cracks. Coinbase just said that it’s laying off 20% of its staff. Amazon and Goldman Sachs recently announced job cuts. Tesla appears to have a big oversupply of cars.

In Q4, Wall Street analysts slashed their 2023 earnings forecast by 4.4%. That’s the largest cut since 2014. This Friday, we’re going to get Q4 earnings reports from big banks like JPMorgan Chase, Wells Fargo and Bank of America.

Wall Street doesn’t buy any of this “over 5%” talk. The futures market currently expects the Fed to hike by 0.25% in February and by another 0.25% in March. That would bring the target range to 4.75% to 5%. After that, traders expect the Fed to pause for eight months. After that, they expect the Fed to start cutting interest rates.

The next big test for the market will come on Thursday when the government releases the CPI report for December. The last CPI report showed that inflation increased by 7.1% in the 12 months ending in November. The year-over-year rate has now declined for five months in a row (see below)

Wall Street thinks we can make it six in a row. The current consensus says that inflation increased by 6.5% in the 12 months ending in December.

For the month, Wall Street thinks prices fell by 0.1% while the core rate increased by 0.2%. We’ll know more on Thursday.

The Lowest Unemployment Rate Since the Sixties

On Friday, the government said that the U.S. economy created 223,000 net new jobs last month. That beat Wall Street’s forecast of 200,000.

Average hourly earnings rose by 0.4%. Over the last year, average hourly earnings were up by 4.6%. The labor force participation rate was 62.3%. The broader U-6 rate was 6.5%.

The labor force participation rate can be heavily influenced by demographics such as an aging population. The labor force participation rate for prime working-age adults was 82.4%. That’s still below the pre-Covid peak but it’s not bad considering it fell below 80% during the lockdown.

The unemployment rate fell to 3.5%. This was the sixth time the unemployment rate got to 3.5% since 1969. I broke out my spreadsheet, looked at the decimals and found out that last month’s unemployment rate reached 3.469%. That was the lowest rate since May 1969. The only months that were lower came during the wars in Korea and Vietnam. In other words, this was the lowest peacetime unemployment rate in 75 years.

(I understand some may quibble with my use of “peacetime.” I merely mean a labor force not impacted by the draft.)

I probably shouldn’t jinx it, but I need to mention that our Buy List is off to a very good start in 2023. The Buy List is already 1.3% ahead of the overall stock market. We’ve beaten the S&P 500 in five of the six trading days.

One of our new stocks, Celanese (CE) is already up 16% this year. Trex (TREX), which got clobbered last year, is a 14% winner so far this year.

Make no mistake, we’ll have plenty of down days this year, but we’re focused on the long term. If you’re not a subscriber to the premium letter, then I urge you to join us today. It’s $200 for the year or $20 per month.

I promise not to give you the hard sell, but if you’re interested, check it out!

Stock Focus: American Water Works

American Water Works (AWK) is a public utility that provides water to 1,700 communities across 24 states. I know what you’re thinking—slow growth, boring utility. Well, that’s not AWK at all. It has an impressive record for growth. Not only that, but it’s been remarkably consistent in its growth.

American Water serves a population of 14 million people. The company serves residential and business customers. They also have long-term contracts with the U.S. military.

The company’s founding goes back to 1866, but it didn’t get its current name until 1947. Most of AWK’s services are managed locally and they navigate local and state laws. The company also owns facilities that run municipal drinking water systems.

It’s a big business. AWK is a member of the S&P 500. They’ll generate revenues of close to $4 billion this year. American Water “owns 80 surface water treatment plants, 480 groundwater treatment plants, 160 wastewater treatment plants, 52,500 miles of pipes,1,100 groundwater wells, 1,700 pumping stations, 1,300 water storage facilities, and 76 dams.”

Water is a good business to be in. No town wants to be another Flint, Michigan water disaster.

The stock IPO’d in 2008. Prior to the IPO, it was owned by RWE, a European utility. They decided to ditch their water business because it was seen as a no-growth anchor.

No one liked this business. The IPO was a bit of a dud. The underwriters had originally expected $25 or $26 per share. Ultimately, the stock was priced at $21.50 per share. Nearly fourteen years later, AWK is going for $160.77 per share. It’s been a huge success.

One of the reasons why I like AWK is that it’s one of the steadiest earners around. This is AWK’s adjusted operating earnings per share.

2009: $1.25
2010: $1.53
2011: $1.81
2012: $2.11
2013: $2.20
2014: $2.43
2015: $2.64
2016: $2.84
2017: $3.03
2018: $3.30
2019: $3.61
2020: $3.96
2021 $4.44
2022 $4.45 (est)
2023 $4.77 (est)
2024 $5.15 (est)
2025 $5.61 (est)

I really like these steady, consistent increases. (The net income isn’t as smooth because weather can impact the business.) In my opinion, consistency of returns is underrated by investors. I like to have a good idea of what our stocks are going to do.

AWK’s Q3 earnings report came out on October 31. The company reported earnings of $1.63 per share. That beat the Street by 12 cents per share. The Q4 report will probably be out in mid-February. Wall Street expects 77 cents per share.

Last year, AWK raised its dividend by 8.7%. That was its 14th consecutive annual increase in a row.

Over the last three years or so, AWK hasn’t done particularly well versus the rest of the market. That could be coming to an end.

American Water said it sees 2022 earnings between $4.39 and $4.49 per share. For 2023, the company sees earnings of $4.72 to $4.82 per share. Long-term, AWK expects EPS growth of 7% to 9%. Not bad for a boring castoff stock.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

P.S. If you want to learn more about the stocks on our Buy List, please sign up for our premium service. It’s $20 per month, or $200 per an entire year.

Morning News: January 10, 2023
Posted by Eddy Elfenbein on January 10th, 2023 at 7:10 am

China Is Edging Out the US and Europe in the Race for Clean Hydrogen

Head of Battered German Utility Uniper to Resign After Nationalization

G-7 Eyes Two Prices Caps for Russian Refined Petroleum Products

Transcript: San Francisco Fed President Mary Daly at WSJ Live Q&A Event

Biden Administration Plans to Ease Rules for Income-Based Student-Loan Forgiveness

Wall Street Is Down on Corporate America

Markets Are Underestimating Inflation Again, BlackRock and Fidelity Warn

Jamie Dimon Says Fed May Need to Hike Interest Rates Beyond 5%

U.S. Banks Get Ready for Shrinking Profits and Recession

Dalio’s Bridgewater Cements Rank in 2022 as Top Foreign Hedge Fund in China

Coinbase Eliminates 20% of Staff in Latest Round of Layoffs

As Infrastructure Money Lands, the Job Dividends Begin

White-Collar Recession: Why Job Cuts Are Hitting Professional Workers

Goldman Sachs Bankers Have Nickname for Layoff Bloodbath Planned by CEO

The Law That Made Social Media Possible Faces a Supreme Court Showdown

Microsoft Considers $10 Billion Investment in ChatGPT Creator

Disney Is Bringing Employees Back Four Days a Week

Tesla Has a Major Problem That’s Bigger Than Elon Musk’s Twitter Hijinks

Failure of Britain’s First Space Launch Is a Setback to Emerging Industry

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Morning News: January 9, 2023
Posted by Eddy Elfenbein on January 9th, 2023 at 7:09 am

Goldman Sachs Is Cutting Up to 3,200 Employees this Week as Wall Street Girds for Tough Year

iPhone Exports from India Double to Surpass $2.5 Billion

China, a Pioneer in Regulating Algorithms, Turns Its Focus to Deepfakes

Developing Nations Aren’t Ready for EVs—Unless They Are Made in China

Angry Tesla Owners Swarm Showrooms in China After Missing Price Cuts

Public Transit Goes Off the Rails With Fewer Riders, Dwindling Cash, Rising Crime

Opposite Neel Kashkari’s Analysis, ‘Surge Pricing’ Has Nothing to Do with Inflation

Morgan Stanley Warns US Stocks Risk 22% Slump

Goldman to Cut About 3,200 Jobs This Week After Cost Review

Alibaba Stock Surges After Jack Ma Gives Up Control of Ant Group

Tech Industry Reversal Intensifies With New Rounds of Layoffs

Getting Rid of Remote Work Will Take More Than a Downturn

50 Companies to Watch in 2023

Mega Bonuses of 50 Months’ Salary Handed Out by Shipping Firm

Lina Khan’s Non-Compete Favor to Big Labor

Facebook’s Bridge to Nowhere

Noma, Rated the World’s Best Restaurant, Is Closing Its Doors

CES 2023: All the Cool, Crazy and Cute Tech We Found in Las Vegas

The Dystopia We Fear Is Keeping Us From the Utopia We Deserve

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December Jobs Report
Posted by Eddy Elfenbein on January 6th, 2023 at 8:34 am

The government said that the U.S. economy created 223,000 net new jobs last month. Wall Street had been expecting 200,000. The unemployment rate fell to 3.5%.

Average hourly earnings were up 0.3%. Year-over-year, average hourly earnings were up 4.6%.

The labor force participation rate was 62.3%. The broader U-6 rate was 6.5%.

Morning News: January 6, 2023
Posted by Eddy Elfenbein on January 6th, 2023 at 7:03 am

Eurozone Inflation Eases on Lower Energy Prices

Russia Looks to Press Big Firms for More Cash as War Costs Mount

The US Keeps Offering China Its Covid Vaccines. China Keeps Saying No

The World’s Love Affair With Japanese Cars Is Souring

U.S. EV Sales Jolted Higher in 2022 as Newcomers Target Tesla

Tesla Now Over 40% Cheaper in China Than US as Prices Cut Again

Mercedes-Benz Plans to Build U.S. Electric Car Charging Network

U.S. Trade Deficit Narrowed Sharply in November as Global Demand Cooled

Even a Soft Landing for the Economy May Be Uneven

December Jobs Report to Show Labor Market’s Strength as 2022 Closed

U.S. Moves to Bar Noncompete Agreements in Labor Contracts

How to Be a Better Investor in 2023

Said Haidar Streaks Ahead of Macro Hedge Funds With 193% Gain

ChatGPT Creator in Investor Talks at $29 Billion Valuation

Salesforce Guts Tableau After Spending $15.7 Billion in 2019 Deal

Southwest’s Meltdown Could Cost It Up to $825 Million

Facebook Wanted Out of Politics. It Was Messier Than Anyone Expected.

Jeff Bezos Could ‘Pull a Bob Iger’ and Return as Amazon CEO

Bed Bath & Beyond Warns of Potential Bankruptcy

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Morning News: January 5, 2023
Posted by Eddy Elfenbein on January 5th, 2023 at 7:03 am

BOJ’s Policy Tweak Hasn’t Led to Lending Windfall, Mizuho Head Says

France’s Le Maire Says Inflation, Public Finances Key Challenges

How a Texas Border City Is Shaping the Future of Global Trade

Fed Official Compares Inflation to Uber Surge Pricing

Fed Officials Fretted That Markets Would Misread Rate Slowdown

Why Republicans Probably Won’t Tank the Economy to Stick It to Biden

Good News on Taxes Came Too Late for Many SPACs

Supply Problems Hurt Auto Sales in 2022. Now Demand Is Weakening.

Tesla Bulls Brace for a Rough Year Ahead

US Job Growth to Slow or Even Reverse After Near-Record Year

Amazon Layoffs to Hit Over 18,000 Workers, the Most in Recent Tech Wave

Samsung’s Consumer-Products CEO Expects Tech Slump to Persist

Meta’s Ad Practices Ruled Illegal Under E.U. Law

Why It’s Hard for Apple to Make iPhones Outside of China

The Huge Number of Small Breweries Creates a Beer Glut

FTX’s Former Top Lawyer Aided U.S. Authorities in Bankman-Fried Case

Silvergate Raced to Cover $8.1 Billion in Withdrawals During Crypto Meltdown

20 Great Stock Ideas For 2023 From Top-Performing Fund Managers

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Morning News: January 4, 2023
Posted by Eddy Elfenbein on January 4th, 2023 at 7:03 am

The UK Recession Will Be Almost as Deep as That of Russia, Economists Predict

Why Are Energy Prices So High? Some Experts Blame Deregulation.

Renewable Companies Strive for 24-Hour Power

Job-Openings Report to Give Snapshot of Labor Demand

Jack Ma’s Ant Wins Approval for $1.5 Billion Capital Plan

Salesforce Plans to Cut 10% of Jobs After Customers Pull Back

Big Tech Is in Crisis. That’s Exactly What It Needed.

Video Game Workers Get a Union Foothold at Microsoft

CES 2023: Annual Tech Show Kicks Off as Hardware Startups Face an Innovation Crunch

New Hedge Fund Soars 163% Betting Everything Is Going Down

Crispin Odey’s Hedge Fund Soars 152% in Best Ever Year on Inflation Bet

Investing Novices Are Calling the Shots for $4 Trillion at US Pensions

Cathie Wood Bought Tesla During Biggest Rout in Two Years

Banks Should Be More Cautious on Crypto Contagion Risks, U.S. Regulators Warn

Ex-CFO Pleads Guilty to Stealing from SPACs to Trade Meme Stocks, Cryptocurrencies

Southwest Airlines Offers 25,000 Points to Passengers Hit by Travel Meltdown

Don’t Blame the Weather for Flight Delays. Here’s Who’s at Fault

How McDonald’s Won Russia—and Then Lost It All

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