Market Minutes for the week of November 13th:
“The reason the pro tells you to keep your head down is so you can’t see him laughing.” – Phyllis Diller
Here is what I am thinking: 1.) General Electric…wow. Who was watching the store? Where was the board of directors? Rubber stamping everthing CEO Jeffery Immelt wanted? Like when Immelt traveled around the world on business and had an empty corporate jet follow his jet…in case there were mechanical issues with the GE jet he was using. 2.) Who still owns GE stock? The top shareholders left as of today are passive strategies and index funds. Hmmm. 3.) GE stock has underperformed the S&P 500 for nearly 18 years. 4.) The White House is reportedly considering nominating Mohamed El-Erian for the vice chairman’s position at the Federal Reserve. The former CEO of Pimco and current chief economic advisor for Allianz would be second-in-command behind new Fed chairman, Jerome Powell. 5.) The political and corruption crackdown in Saudi Arabia last week was impressive to say the least. Reuters reports that if that sweep had occurred in the U.S., it would have nabbed the likes of Bill Gates (wealthiest), Warren Buffett (3rd wealthiest), Michael Bloomberg (8th wealthiest), Arnold Schwarzenegger (former governor of the largest state), Reince Priebus (former Chief of Staff), Gary Cohn (current National Economic Advisor), Lawrence Summers (former Treasury Secretary), plus the chief of the National Guard, Secretary of the Navy, the head of HBO and the former heads of the U.S Chamber of Commerce, Delta Air Lines, and AT&T. 6.) Leave it to Congress to try to attach healthcare reform to the tax reform bill. 7.) With this kind of noise coming from Washington, the market has become anxious and an anxious market usually equals: SELL. 8.) Couple that nervousness with the fact that earnings season is just about complete and there isn’t a lot of corporate news to push stock prices higher, market participants appear to be content with booking some of 2017s gains, which accounts for the recent volatility in the indicies 9.) Wow – Wal-Mart! What an earnings turnaround. Digital sales were up 50% for the quarter. 10.) Here are some of Goldman Sach’s favorite macro trades for 2018: One – Go long EUR/JPY for continued rotation around a flat U.S. dollar. Two – Go long the emerging markets growth cycle. Three – Own diversified Asian growth. Four – Go long global growth. Five – Position for more Fed rate hikes by keeping maturities shorter. Note: At Cascade Investment Group, we have been proactive and have already made similar adjustments to client portfolios.
The Labor Department said that U.S. producer prices rose by 0.4% in October vs a forecast of 0.1%. The jump was driven by a surge in service costs. Year over year the PPI is 2.8%, the biggest increase since February 2012.
The Labor Department also said that U.S. consumer prices rose by 0.10% in October and 2.0% year over year. Services inflation rose by 0.3%, driven by persistent rent increases. Year over year, the “Rent of Primary Residence” component was up 3.7%.
The New York Fed manufacturing index for October fell to 19.4 from 30.2 in September. This is a 4-month low but still well above zero and surveyed manufcturers remain optimistic about the next 6 months.
The Fed said that U.S. industrial production rose by 0.9% in October. The estimate was for 0.5%. Capacity utilization increased by 1.0% to 77%.
The Commerce Department reports U.S. retail sales rose by 0.2% in October. Sales of big ticket items like cars, furniture, and electronics were strong.
The NAHB (National Association of Home Builders) said that homebuilder confidence hit an 8-month high in November when the index hit 70. Builders are seeing higher traffic and sales but shortages of finished lots and labor continue to be a problem for the industry.
US home construction reaches strongest pace in a year. U.S. housing starts were forecasted to total 1.18 million in October, up from the 1.13 million reported for the previous month.
The New York Fed said that household debt rose by $116 billion or 0.9% in the 3rd quarter. Credit card debt rose by 3.10% while home equity lines of credit balances dropped by 0.9%. The higher level of auto loan originations was mostly to prime borrowers, and the median credit score for individuals originating new mortgages climbed to 760 from 754.
The National Federation of Independent Business (NFIB) said the small business optimism index rose to 103.8 in October, up from 103.0 in September. The components were mixed with no clear trend.
The International Energy Agency (IEA) predicts that the U.S. is in position to become the world leader in oil and gas production by 2025, aided by an unprecedented boom in shale oil. The Paris-based agency reported U.S. shale oil output is anticipated to have increased by 8 million barrels per day between 2010 and 2025, which would “match the highest sustained period of oil output growth by a single country in the history of oil markets.”
OPEC oil ministers are poised to meet on November 30 in Vienna, Austria to decide on oil output policy. The expectation is that the cartel will agree to extend production cuts for another 9 months in an attempt to rebalance the oil market.
Japan’s 3rd quarter GDP expanded at an annualized 1.4% rate fueled by strong exports. The results show that Japan’s economy has grown for the 7th straight quarter, the longest period of expansion since an 8-quarter run from April 1999 to March 2001.
From the Apache (oil and gas) 3rd quarter earnings call: “The good news is…the price movement has gotten very constructive lately. And we…can see a price now where we could actually have some free cash flow next year pretty soon.”
From the EOG (oil and gas) 3rd quarter earnings call: “We’re, I think, certainly encouraged by the improving market conditions as we look forward. The market, obviously, is continuing to rebalance nicely. Inventories are moving towards the five-year average, and we are watching the market closely for opportunities.”
According to a new survey by LendEdu Thanksgiving will cost the average American $165 this year, $97 on eating and hosting and $68 on travel (plane tickets, gasoline and hotel rooms). The poll surveyed 1,000 individuals who plan to celebrate the holiday.
According to WalletHub’s most recent survey, here are shoppers most wanted gifts: 41% – gift cards, 15% – clothes, 15% – electronics, 10% – books/eBooks, 9% – Furniture/Appliances, 5% – toys, 5% – jewelry.
Or…how about an original oil painting. Christie’s auction house said that a Leonardo da Vinci painting sold for $450 million on Wednesday, breaking an all-time record for auctioned art. “Salvator Mundi,” Italian for “Savior of the World,” is one of less than 20 known da Vinci paintings in existence and the only one in private hands. The previously most expensive piece of art sold at auction was Picasso’s “Women of Algiers.”
According to a recent survey from CareerBuilder 40% of employees admitted to calling in sick during the last 12 months when in fact they were perfectly healthy. Liar beware: 38% of employers checked up on ill workers and 1 in 4 say they have fired someone caught using a fake excuse. How did they get caught? By oversharing. CareerBuilder reported that 43% of employers found an employee stretching the truth about being sick by clicking through their social media posts.
JPMorgan said that NFL viewership declined 18% (year over year) in week 10 of the season. Season to date, viewership is down by 7%. Too many televised games and unpatriotic protests are to blame in my opinion.
Home Depot said that during its 3rd quarter the average shopper spent $62.84, up from $59.78 a year ago. Transactions under $50, which make up 16% of sales, were up 2%. Transactions over $900, which account for 22% of sales, were up by 12%. The company said that it has seen more shopping from first-time home buying millennials who prefer the DIY (do it yourself) approach.
KGI says that Apple will launch 3 new iPhones in 2018. All will have an all-screen form factor and 3-D sensors. One phone will sport a 6.5-inch screen, the biggest yet.
According to data from Canalys the Apple iWatch sold 3.9 million units in the 3rd quarter. The Q3 sales drove Apple to the top of the global wearable band market with a 23% share.
Alibaba (the Chinese Amazon) says that sales hit $5 billion in the first 15 minutes of Singles Day this year. Singles Day is a holiday in China where singles celebrate their singles’ lifestyle by shopping online (whatever floats your boat I guess). In the first 30 seconds, 97% of sales were made through mobile devices and the peak number of transactions hit 325,000 per second.
Roku’s CEO Anthony Wood is now a billionaire after the stock soared 70% since last Thursday’s earnings blowout.
Ride-hailing service Lyft has announced that it is expanding outside of the U.S. for the first time as it expands into Toronto, Canada.
Privately held Airbnb appears to have pulled in $1 billion in revenue in the 3rd quarter and represents a 50% increase over a year ago according to a source familiar with the company’s financials.
According to a 3rd quarter SEC filing Warren Buffett’s Berkshire Hathaway increased its Apple holdings by 4 million shares. The company also cut its stake in IBM by 32% and further reduced holdings in Charter Communications and Wells Fargo.
News out of the Dubai Airshow: Airbus gets a $50 billion order for 430 of its A320 and A321neo aircraft from Indigo Partners (they own Frontier Airlines). Boeing received a $12.4 billion order from flydubai for 175 of its 737 Max aircraft.
General Electric has cut its annual dividend by 50% to $0.48 per share as it struggles to cut costs and restructure businesses. The dividend cut is the largest by any U.S. company since the 2008-2009 financial crisis. At $18.31, the stock is down 37% year to date in 2017. GE stock hit its peak price in 2000 when it traded close to $60 per share. It hasn’t seen that price since.
Moody’s has cut GE’s long-term credit rating from A1 to A2 because of “extreme deterioration” in its energy business.
GE has said that they will now focus on three key units: aviation, power and health care, while exiting most of its other businesses.
GGP (General Growth Properties, which also owns Park Meadows Mall in South Denver) has received a $21.8 billion buyout offer from Brookfield Property Partners.
Roark Capital has made an offer to buy Buffalo Wild Wings for $150 per share.
Activist hedge fund Jana Capital has bought a $134 million stake in Jack in the Box. Earlier this year the firm bought an 8.2% stake in Whole Foods and cashed out with $300 million after Whole Foods was purchased by Amazon.
The Wall Street Journal is reporting that Sandell Asset Management has made an offer in excess of $650 million to acquire Barnes & Noble and take the retailer private.
Raytheon has announced that its adding $2 billion to its stock buyback pool bringing the total authorized amount to $2.9 billion.
Emerson Electric has boosted its offer for Rockwell for a third time. Emerson now has bid a price of $225 per share – 60% cash, 40% stock. The previous offer was at $215 per share – 50% cash and 50% stock.
Home Depot reports 3rd quarter earnings of $1.84 per share on revenue of $25 billion, an increase of 8.0% year over year.
Target reports 3rd quarter earnings of $0.91 per share on revenue of $16.67 billion, an increase of 1.4% year over year.
Cisco Systems reports fiscal 1st quarter earnings of $0.61 per share on revenue of $12.14 billion, a decrease of 1.7% year over year.
TJX (T.J. MAXX) reports 3rd quarter earnings of $1.00 per share on revenue of $8.8 billion, an increase of 6.2% year over year.
Dick’s Sporting Goods reports 3rd quarter earnings of $0.30 per share on revenue of $1.95 billion, an increase of 7.7% year over year.
Wal-Mart reports 3rd quarter earnings of $1.00 on revenue of $123.2 billion, an increase of 4.2% year over year.
Next week: Earnings from: Campbell’s Soup, Salesforce.com, Urban Outfitters, Intuit, Deere & Co., Hewlett-Packard, Lowe’s and Dollar Tree. Economic reports: Case-Shiller Home Price Index/Composite 20, U.S. Durable Goods Orders, Consumer Sentiment and Existing Home Sales.
WTI Crude Oil: $55.26 per barrel. 10-year U.S. Treasury note: 2.35%. Gold: $1,212 per ounce.
Sources: Reuters, 361 Capital, Real Money Pro, Seeking Alpha, MarketWatch, CNBC, Estimize.com. and Moneyish.
Note: There will be no Market Minutes for the week of November 20th. A Happy Thanksgiving to all!
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.