Market Minutes for the week of February 18th:
“I think it’s really stupid for a state to drive the rich people out…They’re old. They keep your hospitals busy. They don’t burden your schools, the police department, your prisons. They give a lot. Who wouldn’t want rich people?” – Charlie Munger (Berkshire Hathaway)
Here’s what I am thinking and hearing: *1.) I love this comment by Hugh Liedtke, the late chief of Pennzoil on the history of investment by corporate managers with oodles of cash on their hands, he said he liked to believe in “the bladder theory”: “Companies should pay out as much cash as possible [to shareholders], so managers couldn’t piss all the money away.” This is what happens if you push CEOs to retain too much capital. *2.) From Doug Kass, Founder and President of Seabreeze Partners Management, “[Late last Friday] we saw that there was a large amount of net selling of US notes and bonds in December by foreigners, particularly from the Chinese. The total amount of liquidation came to $77.4 billion, the largest one month draw down ever. This takes the full year 2018 net purchases to just $1.6 billion. *3.) Comments from New Yorker Bret Jensen on Amazon’s pull out from New York: “Lots of fallout and chatter about Amazon pulling out of NYC for its second HQ along, despite $3 billion in tax incentives, the full backing of the governor, mayor and state legislature. This still wasn’t enough to overcome local resistance from the likes of AOC and unions. Gone are 25,000 jobs paying an average of $150,000. Real estate prices in Long Island City also will take a substantial hit. From my perch here in Manhattan’s East Village, one has to be concerned about how business unfriendly the city has become in recent years. This is leading to a continued migration of business and the affluent out of the state, and having impacts on the state budget as well. It does say something that NY State has a budget nearly twice as big as Florida, which has almost two million more people.” *4.) From Seeking Alpha: “To the great dismay of New York Governor Andrew Cuomo, who said he was prepared to change his first name to Amazon, New York City mayor Bill de Blasio and Congresswoman Alexandria Ocasio-Cortez were among those who hounded Amazon out of a development where the average worker was to be receiving an average salary of at least $150,000… According to de Blasio, Amazon just wasn’t a good enough neighbor for ‘the greatest city in the world.’ And according to Ocasio-Cortez, ‘everyday New Yorkers & their neighbors…defeated Amazon’s corporate greed [and] its worker exploitation.’ Yet there are many, many New Yorkers who would love to be exploited for more than $150,000 a year, which is why numerous polls showed majority support for the development.” *5.) I am not taking a political side to what happened with Amazon and New York, but I think it is true what Charlie Munger and Bret Jensen had to say on the subject. A thriving economy that benefits everyone needs capitalistic fuel to make it happen.
The Federal Reserve said that January Industrial Production fell by 0.6% to 109.4. The consensus was for +0.3%. Capacity Utilization for the month was 78.2% vs a consensus of 78.8%.
The University of Michigan consumer sentiment index for February rose to 95.5 from 91.2 in January, which was the worst reading since November 2016. The employment indicator remained positive while the new orders and shipment components fell sharply in the month.
January existing home sales fell by 1.2% month over month to an annualized rate of 4.94 million units.
The National Association of Home Builders (NAHB) said that home builder confidence index in February rose by 4 points to 62. The gain is the second in a row for 2019.
The Philly Fed manufacturing index fell for the first time in three years into negative territory. The index fell to -4.1 from +17 in the prior month, the lowest reading since May of 2016.
Minutes from the January Federal Reserve meeting continued to reiterate the central bank’s new “patient” policy stance. Highlighting the need to keep rates steady for now and indicated that the balance sheet reduction would end by the end of this year.
JP Morgan economists now see a business spending slowdown, biting into economic growth. The bank has cut its forecast for first quarter economic growth to 1.5% following the 4th quarter’s sluggish 1.4%. The bank said that the government shutdown and a stunningly weak retail sales report are contributing to the 1.5% growth rate in the 1st quarter. JP Morgan sees a 2nd quarter pickup in growth to 2.25% as consumer spending returns to a more normal pattern.
Baker Hughes said that the U.S. drilling rig count rose by 2 to 1,051 in the last week. Active oil rigs rose by three to 857 while gas rigs lost 1 to 194.
According to the Federal Reserve Bank of New York’s latest quarterly report on U.S. household debt, Americans collectively owed about $13.54 trillion, an amount that has risen for 18 consecutive quarters, 21% higher than owed in 2008 during the height of the Great Recession.
Some highlights of the report include the fact that there is a record 7 million Americans who are more than 90 or more behind on their auto loan payments. As a clear sign that many Americans are struggling to pay their bills, approximately 6.5% of all auto finance loans are 90-plus days past due. For 2018, auto loan originations totaled $584 billion, the highest amount recorded in 19 years. Mortgage loans accounted for most of the total debt and delinquencies were roughly flat (1.1% were 90-plus days late). About 195,000 consumers had a bankruptcy notation added to their credit report in 2018, down 5,000 year over year.
Luxury retailer Barneys New York is going to add its own cannabis boutique to the store. Named “The High End,” the upscale head shop will sell expensive smoker accessories from rolling papers to leather ashtrays and bespoke glass bongs. According to MarketWatch, “The department store teamed up with Los Angeles-based cannabis purveyor Beboe – referred to as the “Hermes of Marijuana” by fans and its celebrity clientele…co-founder Scott Campbell says the accessories are for ‘ex-punk rock stoner kids who now make a little money and can buy nice stuff.” Jessica Cadmus, founder of Rouge Paq, another luxury retailer of cannabis accessories: “When you bring it out at a party, you don’t want to look like an amateur in your college days.” I’m just saying, I was no prude in college but…this stuff is hard to comprehend.
According to Thrillist, the ideal time to dining out is 5:30. This time slot has several advantages – the restaurant staff is at their freshest. Since most restaurants begin their dinner service at 5:00 p.m., by 5:30 your server has maybe had just a handful of tables and is not yet exhausted. The same with the kitchen staff. They aren’t running behind 90 orders deep into the night. Your food will more often come out on time and exactly as you ordered it. Finally, eating at 5:30 also guarantees that the kitchen hasn’t run out of any ingredients.
According to the Harvard Gazette, “active middle-aged men able to complete more than 40 pushups had a significantly lower risk of cardiovascular disease (CVD) outcomes – including diagnosis of coronary artery disease and major events such as heart failure – during 10 years of follow-up compared to those who were able to fewer than 10 pushups in a baseline exam.”
In Texas (where everything is big), there is a chain of highway eateries/stores called Buc-ee’s. The one in Bastrop has 56,000 square feet and aisles wide enough to drive a golf cart through. There are also 71 toilets and urinals and a team of custodians whose entire job is to clean the bathrooms 24 hours a day. Buc-ee’s sells its branded fuel from 96 gas pumps under two canopies. It provides 655 extra roomy parking spaces (10 feet by 20 feet instead of the standard 9×18 to better accommodate Texan’s trucks) that fan out from the store on three sides.
The Presidents’ Day weekend at box office, was the slowest take in almost 20 years ($125 million). It’s quite a tumble (56.4%) from last year when last year Marvel Studios’ “Black Panther” brought in $202 million. A dearth of good films is to blame.
Levi Strauss is planning to go public again in the next 6 months. The San Francisco-based company plans on raising $100 million through the offering.
Kraft Heinz shares dropped almost 25% on Friday as the company announced that it has received a subpoena from the SEC as part of an investigation regarding procurement accounting practices. At the same time, the company reported weaker 4th quarter earnings and slashed its quarterly dividend by 36% to $0.40 per share.
Berkshire Hathaway owns 27% of the food and beverage company with a stake of about $14 billion. The latest decline has cost the company about $4 billion and could cut earnings in half for the 1st quarter according to Barclay’s Jay Gelb.
Google Cloud is planning to acquire Alooma to simplify cloud migration. Alooma helps enterprises streamline database migration.
Uber said that 4th quarter revenues climbed 25% from a year earlier to $3.02 billion. Growth in the 1st quarter was 70% year over year and growth in the 3rd quarter was 38% year over year.
According to the Wall Street Journal, “Payless ShoeSource will close all of its approximately 2,100 stores in the U.S. and Puerto Rico as part of the largest retail liquidation ever…Payless filed for bankruptcy protection and emerged in 2017.”
Walmart reports 4th quarter earnings of $1.41 per share on revenue of $138.8 billion, an increase of 1.8% year over year.
Canopy Growth reports fiscal 3rd quarter earnings of C$ of -$0.38 per share on revenue of C$83 million. The Canadian-based company reports earnings in its local currency.
Energy Transfer reports 4th quarter earnings of $0.26 per share on revenue of $13.6 billion, an increase of 18.8% year over year.
Domino’s Pizza reports 4th quarter earnings of $2.62 per share on revenue of $1.08 billion an increase of 21.1% year over year.
Roku reports 4th quarter earnings of $0.05 per share on revenue of $275 million, an increase of 46.4% year over year.
Dine Brands Global (IHOP and Applebee’s) reports fiscal 4th quarter earnings of $1.70 per share on revenue of $214.2 million, an increase of 21.2% year over year.
Next week: Earnings reports from: Shake Shack, Home Depot, Macy’s, Workday, Square, DocuSign, Bookings Holdings (Priceline), Best Buy and Hewlett Packard. Economic reports: U.S. Housing Starts for December, Case-Shiller Home Price Index for December, U.S. Manufacturing New Orders for December, 4th Quarter 2018 GDP, U.S. Purchasing Managers Index for February.
WTI Crude oil: $55.60 per barrel. 10-year U.S. Treasury note: 2.66%. Gold: $1,312 per ounce.
Sources: CNBC, Real Money Pro, First Trust Economics, 361 Capital, Seeking Alpha, Estimize.com, Market Watch, Bloomberg, The Wall Street Journal and The Calafia Beach Pundit.
At the time of publication Cascade Investment Group and /or its clients owned shares of: AMZN, BRK, JMP, BHE, DIS, KHC, GOOGL, WMT, CGC, ET, DPZ, ROKU, DIN, HD, M, WDAY, SQ, DOCU, BKNG.
Disclosure: This publication shall not constitute an offer to sell or the solicitation of any offer to buy or sell any securities of the companies mentioned. This publication is solely a compilation of recent news releases from the sources cited above.
Ken Beach, President and Managing Partner of Cascade Investment Group, member FINRA & SIPC. Cascade Investment Group is not a tax or legal advisor. You should always consult with your tax advisor or attorney before taking any actions that may have tax consequences.