Morning News: December 20, 2022
Posted by Eddy Elfenbein on December 20th, 2022 at 7:03 am

Europe’s Gas Price Cap Threatens to Intensify Energy Crisis

Finland to Get Vital Floating LNG Terminal to Secure Gas Supply

Bank of Japan Surprises Markets With Policy Tweak

King Charles III Is the New Face of U.K. Money

Economists Place 70% Chance for US Recession in 2023

The US Child-Care Industry Braces for the End of Pandemic Assistance

Big US Banks Fall Short on Promises to Create Black Homeowners

Release of Trump Tax Returns Could Herald New Era for Taxpayer Privacy

Tech Companies Make Final Push to Head Off Tougher Regulation

Amazon and E.U. Reach Deal to End Antitrust Investigation

How TikTok Became a Diplomatic Crisis

Why This Is No Madoff Moment for FTX Creditors

The Sam Bankman-Fried Collapse Is a Paradoxical Sign of Progress

Musk Narrows Voting on Twitter Policy to Blue Members After Poll

Epic Games, Maker of ‘Fortnite,’ to Pay $520 Million to Resolve FTC Allegations

Honeywell to Pay $203 Million in Settlements Over Brazil, Algeria Bribery

The Golden Age of Cocaine Is Happening Right Now

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Heico Beats the Street and Raises Its Dividend
Posted by Eddy Elfenbein on December 19th, 2022 at 4:29 pm

After the closing bell, Heico (HEI) reported fiscal Q4 earnings of 70 cents per share. That was one penny more than expectations. Quarterly sales rose 20% to $609.6 million. Operating income was up 27% and Heico’s operating margin improved to 24%.

For the year, sales rose by 18% to $2.2 billion. This is for the fiscal year that ended in October. For the year, Heico made $2.55 per share. The company also raised its semi-annual dividend by 11% to 10 cents per share.

The CEO said:

“As we look ahead to fiscal 2023, we anticipate net sales growth in both the FSG and ETG, principally driven by demand for the majority of our products. Additionally, recent cost inflation and potential supply chain disruptions lingering from the COVID-19 global pandemic (the “Pandemic”) may lead to higher material and labor costs. During fiscal 2023, we plan to continue our commitments to developing new products and services, further market penetration, and an aggressive acquisition strategy while maintaining our financial strength and flexibility.”

Morning News: December 19, 2022
Posted by Eddy Elfenbein on December 19th, 2022 at 7:06 am

Qatar’s World Cup Building Frenzy Reaches Its Day of Reckoning

US Won’t Help Fund China’s Chip Ambitions, Rahm Emanuel Says

Time Might Run Out on Japan’s Low-Rate Policy

Repeat It Over and Over Again, Economic Growth Is All About Falling Prices

Trust the Models? In This Economy?

Morgan Stanley’s Wilson Says US Profit Drop Could Rival 2008 Era

Highest Interest Rates in 15 Years Are Derailing the American Dream

Why This Housing Downturn Isn’t Like the Last One

The World Is Addicted to Chicken. So Is the Bird Flu Virus

Tech’s Bust Delivers Bruising Blow to Hollowed-Out San Francisco

Defense Contractor L3Harris Plans to Buy Aerojet Rocketdyne for $4.7 Billion

Streaming’s Golden Age Is Suddenly Dimming

MLB, NBA and NHL Unlikely to Save Struggling TV Regional Sports Networks

Toyota Chief Says ‘Silent Majority’ Has Doubts About Pursuing Only EVs

Tesla’s Direct Sales Model Helps It Thwart Customer Lawsuits

Twitter Users Vote for Elon Musk to Step Down as CEO

The Education of CNN’s Chris Licht

The Backstory of ChatGPT Creator OpenAI

In the U.S., His Site Has Been Linked to Massacres. In Japan, He’s a Star.

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Morning News: December 16, 2022
Posted by Eddy Elfenbein on December 16th, 2022 at 7:02 am

EU Greenlights 15% Corporate Minimum Tax, Advancing Global Deal

Short Sellers Are Zeroing In on Europe’s Embattled Landlords

Russia’s Central Bank Governor Nabiullina Speaks After Holding Rates at 7.5%

Fed’s High Inflation Forecast Baffles Wall Street After Soft CPI

Why 2022 Was Such a Wild Year for Traders Who Bet on Dealmaking

Americans Pessimistic About Prospects for the Economy in 2023, WSJ Poll Finds

Can a Federally Funded ‘Netflix Model’ Fix the Broken Market for Antibiotics?

Verizon Lost Its Network Superiority — Now It’s Paying the Price

A Traditional Exchange? FTX Was Anything But.

Musk Disables Twitter Spaces After Clash With Journalists

Blue Bird vs. Cash Cow

Once You See the Truth About Cars, You Can’t Unsee It

Amazon Agrees to Change Some Business Practices in E.U. Settlement

TikTok’s Efforts to Distance Itself From Chinese Parent Stumble Over Talent

The Bleisure Traveler—Coming to the Rescue of Airlines Everywhere

What Is a ‘Culture Budget’?

Ben & Jerry’s, Unilever Settle Dispute Over Israeli Ice Cream

The World’s Biggest Hashish Exporter Is Struggling to Go Legal

How a Cocaine-Smuggling Cartel Infiltrated the World’s Biggest Shipping Company

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Morning News: December 15, 2022
Posted by Eddy Elfenbein on December 15th, 2022 at 7:04 am

Qatar’s $300 Billion World Cup Is Headed for an Epic Comedown

Swiss Central Bank Slows Rate Hiking With Half-Point Move

Britain’s Inflation Rate Dips From a Four-Decade High to 10.7 Percent

BOE Raises Key Rate a Half Point to 3.5%, Highest Since 2008

This Is the World’s Biggest Stock Winner of 2022 With 1,600% Gain

The Federal Reserve Signals More to Come Even as It Slows Rate Increases

Jerome Powell’s Grim Inflation Outlook Is at Odds With Markets

Why Inflation Took Off in 2022—and What Happens Next

One of World’s Richest Families Is Building an Investment Firm

How A Sprawling Hospital Chain Ignited Its Own Staffing Crisis

Twitter Suspends Accounts Sharing Live Locations, Including the Tracker of Elon Musk’s Private Jet

Jack Dorsey Says Twitter Has Too Much Power

‘FinTwit’ Influencers Face Charges in $100 Million Scheme

Musk Cashes Out Another $3.6 Billion in Tesla Stock

FTX Executive Ryan Salame Tipped Off Bahamian Regulators to Possible Fraud

Goldman Sachs May Slash Bonuses for 3,000 Investment Bankers by 40%

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The Fed Hikes by 0.50%
Posted by Eddy Elfenbein on December 14th, 2022 at 2:30 pm

This afternoon, the Federal Reserve decided to raise interest rates by 0.5%. The new target range for Fed funds is 4.25% to 4.50%. The vote was unanimous.

In the policy statement, the Fed said there’s been modest growth in spending and production while job gains have been robust. The Fed said that inflation remains elevated due to imbalances in supply and demand.

The Fed said it expects more rate hikes will be needed to bring inflation back to 2%. The Fed is also continuing to reduce its massive holdings of Treasury debt and mortgage-back securities.

The Fed also released its economic forecasts for the coming few years. The median vote for interest rates for 2023 is now 5.1%. I think that’s too high. It had been at 4.6%.

In September, none of the 19 Fed officials expected rates to get to 5% next year. Now 17 do. One voter expects rates to get to 5.63% through 2025.

The stock market is down since the statement came out. I suspect that the hawkish forecasts concerned the bulls.

Here’s the policy statement and here are the economic projections.

Morning News: December 14, 2022
Posted by Eddy Elfenbein on December 14th, 2022 at 7:00 am

US to Add More Than 30 Chinese Companies to Trade Blacklist

Europe Strikes Deal to Tax Imports Based on Greenhouse-Gas Emissions

HSBC to Stop Funding New Oil and Gas Fields as Part of Policy Overhaul

Britain’s Inflation Rate Dips From a Four-Decade High to 10.7 Percent

Slowing Inflation Could Intensify Fed Debate Over When to Stop Raising Rates

In 60 Seconds Before CPI Hit, Heavy Trading Drove Mystery Rally

BlackRock Is Becoming the Republican Bogeyman for ESG

Pandemic Loans Are Coming Due but Some Businesses Aren’t Ready to Repay

Supermarkets Offer More Store Brands to Lure Cost-Conscious Shoppers

Mortgage Demand Inches Higher as Interest Rates Move Lower

Delta Expects Profit to Nearly Double Next Year on ‘Robust’ Air Travel Demand

FTX’s Sam Bankman-Fried Charged With Criminal Fraud, Conspiracy

FTX Used ‘Old-Fashioned Embezzlement,’ New CEO Testifies

YouTube Stars Cash In Video Rights for Millions of Dollars

Avatar Sequel Helps Imax Bulls Make the Case That Cinema’s Not Dead

Bloomberg 50: The People and Ideas That Defined Global Business in 2022

Who Is Bernard Arnault, the World’s Richest Person?

Tycoon’s Prison in the Sky Shows How Wealthy Set Their Own Rules

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CWS Market Review – December 13, 2022
Posted by Eddy Elfenbein on December 13th, 2022 at 10:37 pm

“When you combine ignorance and leverage, you get some pretty interesting results.” – Warren Buffett

Stay Tuned for the 2023 Buy List

Before I get to today’s newsletter, be sure to circle your calendar for December 27, two weeks from today. That’s when I’ll unveil the 25 stocks for our 2023 Buy List. This will be the 18th year that I’ve published our Buy List.

As usual, five new stocks will go into the Buy List and five old stocks will come out. For record-keeping purposes, all the changes are made as of the close of trading on Friday, December 30 which is the final trading day of the year.

I announce our changes a few days before the end of the year so no one can say I’m trying to “game” the results.

The new Buy List will go into effect on the first trading day of the new year which is Tuesday, January 3. All of our stocks will start the year equally weighted, meaning each stock will have a 4% weighting in the portfolio based on the year-end closing prices. We assume the Buy List is always 100% invested.

As of now, it looks like 2022 will be a very good year for our Buy List, at least in relative terms. Not including dividends, our Buy List is down about 7% this year while the S&P 500 is down by 16%. The final numbers will be dividend-adjusted. We’ve done especially well versus the market over the last two months.

It may sound odd to celebrate being down by less, but it’s an important thing to do for long-term success. We had a similar year in 2008 when the stock market fell sharply.

If you own the ETF, you don’t have to do anything. The portfolio changes will happen automatically inside the shares.

Wall Street Jumps on the Good CPI Report

Wall Street had been waiting for this day for a few weeks. This was the start of the latest Fed meeting, and it’s also the day the government reported on inflation for the month of November.

The report was a good one. It was especially good news because there had been hints and suggestions that inflation was cooling off. Now we have solid proof.

Let’s get to the numbers. The government said that headline inflation rose by 0.1% last month. Wall Street had been expecting an increase of 0.3%.

Over the last year, inflation is up by 7.1%. This is the fifth month in a row that the year-over-year inflation rate has ticked down. In June, the 12-month inflation rate was 9.1%.

The core rate was also well behaved. Wall Street had been expecting the core rate to rise by 0.3% for November. Instead, it only rose by 0.2%. Over the last year, the core rate has increased by 6.0%. The 12-month core rate had peaked in September at 6.6%. Again, the trends are going in the right direction.

Most important is that inflation-adjusted wages rose by 0.5% in November. Wages are still down in real terms over the last year.

Falling energy prices helped keep inflation at bay. The energy index declined 1.6% for the month, due in part to a 2% decrease in gasoline. Food prices, however, rose 0.5% and were up 10.6% from a year ago. Even with its monthly decline, the energy index was higher by 13.1% from November 2021.

Shelter costs, which make up about one-third of CPI weighting, continued to escalate, rising 0.6% on the month and now up 7.1% on an annual basis.

Initially, the Fed dismissed inflation as being transitory. As the evidence became clear that inflation was hanging around, the Fed become more aggressive in fighting back with higher interest rates. Fed Chairman Jerome Powell said that the Fed will pay close attention to services inflation excluding shelter costs. That was mostly unchanged last month.

Medical care services fell by 0.7% in November. Used car prices dropped 2.9% last month. That had been one of the areas with the worst inflation. The problem was that a shortage of microchips caused a backlog in car production so folks snapped up used cars. Not that long ago, used car prices were up 40% year-over-year. Now used car prices are down for the year. The free market can take care of problems quickly.

Charlie Bilello points out that the average price of a used Tesla is now over $12,000 lower than the peak in July. Not surprisingly, shares of Tesla just hit a two-year low. Poor Elon is no longer the richest man in the world.

The Fed’s Next Move

The battle against inflation isn’t over, but the trend is certainly moving in the right direction.

The promise for lower interest rates is exactly what the stock market wants to hear. Sure enough, the stock market loved the inflation report. As soon as the market opened, traders pushed stock prices higher.

Shortly after trading started this morning, the S&P 500 broke above 4,100 to reach a three-month intra-day high. At its peak, the S&P 500 was up close to 2.8% today.

The important fact for investors is that the morning rally was sharply titled towards growth stocks and high-beta names. It was almost the opposite of what we’ve seen in recent months when value and high-quality did so well. At one point, Trex (TREX), our deck stock, was up close to 9% today.

It’s as if those riskier areas of the market finally got a chance to run at full speed. Soon, however, this morning’s rally petered out. We were left with decent gains on the day (+0.73%), but not quite as hopeful as this morning.

Now all eyes turn to the Fed. Their two-day meeting began today, and it will conclude tomorrow. The FOMC will release its policy statement on Wednesday at 2 p.m. ET.

The Fed has done a convincing job of telling the market to expect a rate hike tomorrow of 0.5%. Powell all but said so. That will bring the Fed’s target for its Fed funds rate to a range of 4.25% to 4.50%.

But what about after that? Well, here’s where the outlook gets a little murky. I suspect that after tomorrow’s rate hike, the Fed will be very close to the end of its rate-tightening cycle. As a ballpark figure, I’d guess that after tomorrow’s increase, the Fed will increase rates by another 0.5%. This could come in one 50-point hike or two 25-point hikes. Either way, they’ll be done by the spring.

After that, the Fed will probably pause for a few months. It’s even possible that the Fed will consider lowering rates sometime in 2023. That’s not an extreme view.

Let’s consider that market interest rates have fallen sharply over the last month. Since November 9, the yield on the 30-year Treasury is down 78 basis points to 3.53%. The 30-year yield is over 1% below the yield on the one-year Treasury. That means there will be a significant gap between where the Fed has short-term prices and where the market has long-term rates. The Fed doesn’t want that gap to be that wide for too long.

We’re also seeing evidence of lower commodity prices. That also helps the cause for lower inflation. For example, oil prices are down, and consumers are seeing better prices at the pump. Gasoline is down from $5 per gallon in June to about $3.25 per gallon now. The good news from today is that inflation appears to be retreating and that’s good news for stocks.

Stock Focus: Colgate-Palmolive

As an investor, I’ve learned that one of the best places to find great opportunities is in the regular and the ordinary. Too often, investors think that being a great investor involves finding the “next great” company that’s going to discover and market some revolutionary breakthrough.

I have nothing against that concept except that it’s very hard to do. Let’s remember how often the winner is not the company that was first. Instead, it’s the company that was best able to exploit what others have done.

On the other hand, we have the non-revolutionary companies. This week’s featured stock is Colgate-Palmolive (CL), which is about as non-revolutionary as they come.

I know what you’re thinking. Colgate? You’re talking about investing in toothpaste?

Well, yes, but Colgate is a whole lot more than toothpaste. Today’s Colgate-Palmolive is a household products powerhouse. In just about every home in America, you can probably find something made by Colgate.

Colgate employs more than 33,000 people in dozens of countries all over the world. Last year, Colgate registered sales of more than $17.4 billion. On average, people buy over $47 million worth of Colgate’s products every day.

Here’s another fact you may not know. Since 1990, shares of Colgate are up more than 5,000%. Colgate has been a massive winner for investors. Shares of Colgate-Palmolive have far outpaced the rest of the stock market. What’s more is that the company has increased its dividend every year for the last 60 years.

Here’s how the stock has done since 1990. For context, the blue line is the S&P 500.

Not bad for a toothpaste company!

Of course, Colgate is a lot more than toothpaste. There’s also Palmolive dishwashing soap. Did you know Colgate makes Irish Spring? They sure do. They also own a good part of Tom’s of Maine. Ajax and Speed Stick – yep, those too. Colgate also makes Skin Bracer, Fresh Start and Cold Power. Colgate owns dozens of well-known brand names. (You can see a list of their brands here.)

The current quarterly dividend is 47 cents per share, and I expect Colgate will keep their dividend-hiking streak alive. In October, the company reported Q3 earnings of 74 cents per share which beat the Street by one penny per share.

When you dig into the numbers, you can see how well Colgate is doing. For example, their gross profit margin is over 60%. That’s a good sign of being a market leader. Colgate now has 40.5% global market share in toothpaste, and 32% in manual toothbrushes.

Colgate is a classic defensive play and the shares led the market for much of this year, especially in the spring. The consensus on Wall Street now expects CL to earn $2.97 per share in 2022. I think that’s very doable.

I like Colgate-Palmolive the company very much, but I don’t think this is an ideal time to start a new position in Colgate. For one, the shares aren’t cheap. If Wall Street’s forecast of $2.97 per share in earnings is close, that means Colgate is going for more than 26 times earnings. That’s a lot. The best part about being a disciplined investor is that there’s no hurry.

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: December 13, 2022
Posted by Eddy Elfenbein on December 13th, 2022 at 7:01 am

FTX’s Sam Bankman-Fried Is Arrested in the Bahamas

SEC Says Bankman-Fried Defrauded Investors of $1.8 Billion

The Parents in the Middle of FTX’s Collapse

In FTX Collapse, Binance Sees a Chance to Become the New Face of Crypto

U.S. Consults with Japan, Netherlands on Chip Restrictions as China Pushes Back

Supply-Chain Shortfalls Targeted by New Bill

Slowing Growth Edges Out Inflation as Top Concern

How Long Should Powell Keep Raising Interest Rates? Fed Officials Are Divided

Shorts Eye More Gains After Reaping $50 Billion From Big Tech in 2022

BlackRock’s Top Bet Is Shunning Sovereign Bonds in All Scenarios

Goldman Sachs to Chop at Least 400 Jobs in Retail Banking Unit as Deals Fizzle

SpaceX Tender Offer Is Said to Value Company at $140 Billion

Tesla Stock Has Never Been This Cheap — And It Could Still Drop Further

AmEx Hooked Big Spenders and Regained the Throne With a Pricier Platinum Card

United Airlines Orders 100 Wide-Body Boeing 787 Jets

Keystone Has Leaked More Oil Than Any Other Pipeline in US Since 2010

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Morning News: December 12, 2022
Posted by Eddy Elfenbein on December 12th, 2022 at 7:05 am

Even as China Eases Covid Rules, Some Youths Still Fear a Grim Future

Japan Needs Indian Tech Workers. But Do They Need Japan?

How Washington Persuaded Europe to Put a Price Cap on Russian Oil

Interest-Rate Paths for U.S., Europe Set to Diverge

Inflation Was So Bad That It Even Crushed Inflation-Linked Bonds

Investors on Alert for Policy Error After Cheering Slower Rate Hikes

‘Recession’ Is Every Bit as Foolish As the GDP Calculation That Informs It

Microsoft to Buy 4% of London Stock Exchange Group

Amgen to Buy Horizon Therapeutics in $27.8 Billion Deal

Why Is Howard Schultz Taking This So Personally?

Utility Bills Rise as Americans Pay Off Storm-Recovery Costs for Decades to Come

Americans Flock to Europe for Holiday Shopping Binge

The New Chatbots Could Change the World. Can You Trust Them?

Biden Announces $2.5 Billion Loan to Help GM and LG Make EV Batteries

Rivian Scraps Plan to Make Electric Vans in Europe with Mercedes

Kia’s New Branding Strategy Looks to Compete in the EV Era

Pouring Through a Crisis: How Budweiser Salvaged Its World Cup

Elon Musk Relaunches Twitter Blue with Higher Price for iPhone Users

Sam Bankman-Fried’s Parents Were There for FTX’s Rise, and Now Its Fall

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