Bespoke Brunch Reads + 2018 Annual Outlook Special — 12/10/17

Happy Sunday!
Before getting to our favorite articles from the past week, take advantage of our limited time 2018 Annual Outlook special offer.  You’ll get a two-week free trial, a 20%-off LIFETIME discount, a free copy of our 2018 Market Calendar, and a free copy of our 2018 Annual Outlook report.  The report alone is worth the cost!  CLICK HERE to sign up at our secure checkout page.

Below is our Bespoke Brunch Reads linkfest, featuring some of the most interesting articles we read over the past week.


Private equity investors are paying through the nose for midsize companies by Matthew C. Klein (FTAV)

An update on the P/E market, which looks a little bit excessive these days given huge war chests and extreme valuations. [Link; registration required]

Bloomberg’s rising terminal count signals hope for the beleaguered bond trader by John Detrixhe (Quartz)

After recording only its second subscriber count decline in history last year, Bloomberg’s terminal business saw its customer count rise in 2017. [Link]

Millions Are Hounded for Debt They Don’t Owe. One Victim Fought Back, With a Vengeance by Zeke Faux (Bloomberg)

Debt collectors are hounding consumers for payments on debts they never incurred, but one man they chose to threaten over an invented balance decided to fight back. [Link]


Long Online/Short Stores ETF (ProShares)

Just in time for a huge rally in traditional retail stores over the last few weeks, ProShares has created a custom index of traditional retailers to short and online retailers to be long, similar to Bespoke’s Death By Amazon index (link to more information). [Link]

Judge bars Starbucks from closing 77 failing Teavana stores by Lisa Fickenscher (NYP)

Starbucks has been ordered to keep stores open under the theory that closing them is a bigger burden on their landlord (Simon Property Group) than it is on Starbucks to keep the stores open. [Link]


Want a Vintage Metallica T-Shirt? That’ll be $1,000 by Jacob Gallagher (WSJ)

Vintage t-shirts from across the musical spectrum are flying off the shelves of stores that specialize in digging up old tour merch for a new generation. [Link; paywall]

Design (Motiv)

A new fitness tracker that’s fully waterproof, lasts days without a charge, and is worn around…your finger. [Link]


Napoleon was the Best General Ever, and the Math Proves it. by Ethan Arsht (Towards Data Science)

Using methods that will be familiar to any hard-core baseball fan, Arsht ranks generals and attempts to determine how well they performed relative to the typical general. [Link]

The Conflict in Jerusalem Is Distinctly Modern. Here’s the History. by Mona Boshnaq, Sewell Chan, Irit Pazner Garshowitz, and Gaia Tripoli (NYT)

Background on the history of Jerusalem, helpful in the context of President Trump’s decision to move the US embassy to that city this week. [Link; soft paywall]


I Made My Shed the Top Rated Restaurant On TripAdvisor by Oobah Butler (Vice)

In a frankly hilarious stunt, a journalist listed their shed as a restaurant then gamed TripAdvisor to make it the highest ranked restaurant in all of London. [Link]


This Mining Company Soared 159% After Saying It’s Buying a Crypto Firm by Camila Russo (Bloomberg)

All a company needs to do these days is change a part of its name to something bitcoin-related. [Link; auto-playing video]

There’s an $814 Million Mystery Near the Heart of the Biggest Bitcoin Exchange by Matthew Leising (Bloomberg)

In any investing fad there is inevitably fraud, and it looks like the combination of tether and the crypto exchange Bitfinex are gunning for the poll position in the blockchain’s tally. [Link; auto-playing video]

SEC Targets Initial Coin Offering ‘Scam’ by Paul Vigna (WSJ)

The first enforcement action against an initial coin offering has been dropped by the SEC, and it could be important in setting precedent for how ICOs are handled by US regulators. [Link; paywall]

Bitcoin miner: ‘I haven’t paid for heat in three years’ by Krystal Hu (Yahoo Finance)

A North Carolina man who mines bitcoins hasn’t needed to turn on his heat thanks to the huge volume of heat thrown off by CPUs on rigs he uses to mine. [Link; auto-playing video]

A Bitcoin Frenzy Like No Other Is Gripping South Korea by Kyungji Cho, Yuji Nakamura , and Narae Kim (Bloomberg)

Roughly 21% of trading in bitcoin globally takes place in Korean won, and thousands of speculators in the relatively small country have piled in to the surge. [Link; auto-playing video]

Meet CryptoKitties, the $100,000 digital beanie babies epitomizing the cryptocurrency mania by Evelyn Cheng (CNBC)

An explainer on the strangest fad you’ll read about this weekend. [Link; auto-playing video]

Economic Research

A prince not a pauper: the truth behind the UK’s current account deficit by Stephen Burgess and Rachana Stanbhogue (BoE Bank Underground)

An argument that rather than incurring new liabilities, the UK’s current account deficit is a spending-down of accumulated national wealth. [Link]

Putting a Value on the Ecosystem Services Provided by Forests in the Eastern United States: Case Studies on Natural Capital and Conservation by Dan Kraus and Brian DePratto (The Nature Conservancy)

An attempt to demonstrate the economic value of forests across the East Coast of the United States, with a range of values per acre and methodology for how biological resources were assigned financial worth. [Link; 29 pages]

Tax Reform and the Trade Balance by Brad W. Setser (Council on Foreign Relations)

A rundown on likely macroeconomic account impacts from tax reform, focusing on the shifts in foreign taxation that will drive a re-alignment of the current account including the trade balance. [Link]

Have a great Sunday!  (And don’t forget to subscribe!)


CWS Market Review – December 8, 2017

CWS Market Review

December 8, 2017

“People calculate too much and think too little.” – Charlie Munger

Before I get to today’s newsletter, I wanted to let you know that I’ll be announcing the 2018 Buy List in the December 22th newsletter. That’s in two weeks.

The new Buy List will have 25 stocks. I’ll be adding five new stocks and deleting five old ones. We like to keep our turnover low. The new list won’t take effect until the start of trading in the new year. I like to let investors know what the changes are a few days before they go into effect. I’m very excited for our new Buy List (our 13th!).

Now let’s turn to this week’s newsletter. On Thursday, the S&P 500 finally halted its four-day losing streak. The damage was very minor, and the major indexes are still very close to all-time highs. I have to say that the recent market environment has been nearly picture-perfect; interest rates and inflation are low, corporate profits are growing and consumer confidence is soaring. The S&P 500 has traded above its 200-DMA continuously for 18 months. I’ll warn you—this won’t last!

Lately, some big-name tech stocks have been getting knocked about. At the same time, Wall Street has been favoring cyclical stocks. The Dow Transports, for example, recently broke 10,000 for the first time ever. This could be the start of a major rotation. I’ll tell you what it all means.

We also have a big Fed meeting coming our way next week. Expect another rate hike. I think it’s a mistake, but alas, they didn’t ask me. Later on, I have some Buy List updates for you. Stryker, one of our stalwarts, just raised its dividend, as it has every year since 1993. But first, let’s see what this rotation is all about.

Wall Street Turns from Tech to Cyclicals

While the stock market has remained strong, quietly there’s been a changing of the guard. Recently, big tech stocks have been lagging the market. Bear in mind what a good year it’s been for them. The tech sector has made up nearly half the S&P 500’s gains this year. If you lump Amazon in with the techs, then it’s more than half.

Tech first started to lag the market last Tuesday, November 28. It then got much worse for tech on Wednesday, November 28. After that, tech stocks appeared to stabilize, but lagged again this past Monday. On our Buy ListMicrosoft (MSFT) has been a victim of this shift. We can’t say yet if the trend is over.

Overall, the impact hasn’t been earth-shaking, but it’s interesting because it’s been so new. For so long, large-cap tech was such an easy trade. (There was a brief hiccup in June, but that didn’t last long.)

Here’s what’s important: The flip side of lagging tech is a buoyant environment for cyclical stocks. By cyclicals, I mean stocks whose businesses are heavily tied to the economic cycle. You may own a wonderfully run homebuilder or chemical maker, but their prospects are always at the mercy of where we are in the cycle. Investors need to understand that.

We can see a good example of this by looking at the Consumer Discretionaries ETF (XLY). This sector was a giant winner at the start of this bull market. Their outperformance lasted for years, but starting about two years ago, the consumer discretionaries started to lag. Not badly, but they did fall behind. Lately, however, they’ve been rock stars.

Similarly, the Dow Transports (^DJT) have been popping. This is an old-time index of 20 stocks involved in the business of moving people and things about. For the first time ever, the Transports broke 10,000. I wonder how many investors are aware that CSX Corporation (CSX), a boring old railroad, is up 56% this year. That’s more than all the FAANG stocks.

If we drill down a little, one of the best-performing sectors of the cyclicals has been the homebuilders. NVR (NVR), for example, is a $3,400 stock that’s more than doubled this year. After a long brutal stretch, things are finally looking up for the housing market. Home prices are rising at their fastest pace in three years. Last week, we learned that new-home sales jumped to a 10-year high. It’s all about the cycle.

We’re also seeing new-found strength in financial stocks. On our Buy List, you can see that in stocks like AFLAC (AFL) and Signature Bank (SBNY). The theme seems to be stocks that do the financing, and stuff that’s bought via financing.

What Does This Rotation Mean for Us?

What does this shift to cyclicals mean? I suspect that this is the market’s confirmation of some recent good news for the economy. As we’ve noted before, consumer confidence is at a 17-year high. Inflation is still low. Housing is coming back. GDP growth for Q2 and Q3 were pretty good, and it looks like Q4 may even top those two. Simply put, the economy is doing well, and the market’s rotation is reflecting that.

Another reflection of the improving economy is the flattening of the yield curve. The spread between the 2- and 10-year Treasury yields recently fell to just 53 basis points. That’s down from 130 basis points less than a year ago, and 260 basis points four years ago.

The yield curve is going to get flatter soon. The Federal Reserve is getting together next week, and it seems certain that they’ll raise interest rates again. The central bank has said it sees three more rate hikes next year, plus another three in 2019. I think three hikes in 2018 has a good chance of happening, but I’m not so sure about 2019. At the upcoming Fed meeting, the Fed will update its projections. I won’t be surprised if they walk back their 2019 forecast.

The reason is the key part of the flattening yield curve—long-term rates aren’t moving that much. In fact, long-term yields are lower than where they were at the start of the year. Frankly, I’m not sure why that is.

Fortunately, we’re not economists, and we don’t have to overly concern ourselves with why something is happening. As investors, it’s good enough to know that it’s happening. Shortly after the election, we saw a similar rotation away from tech and towards cyclicals. However, that move was matched by a sharp drop-off in long-term bonds. We’re not seeing that this time.

This means that bonds are still pretty weak competition against stocks. While stock valuations are elevated (but not extreme), you can still find good deals. On our Buy List, there are several stocks poised to benefit from a continued rotation into cyclicals. For example, I like Sherwin-Williams (SHW), the paint people. Also, Signature Bank (SBNY) continues to look good. Another cyclical that looks good now is Wabtec (WAB). Now let’s look at a nice dividend boost from Stryker.

Buy List Updates

We got some good news this week from Stryker (SYK). The orthopedics company said it’s raising its quarterly dividend by 11%. The payout will rise from 42.5 to 47 cents per share.

With all those artificial hips and limbs, Baby Boomers are gradually turning bionic. This is great news for Stryker. The company has raised its dividend every year since 1993.

“Our financial strength is reflected in the 11% increase in our dividend for 2018 as we continue to execute on our capital-allocation strategy,” said Kevin A. Lobo, Chairman and Chief Executive Officer. “With strong organic sales growth and leveraged adjusted-earnings gains, we believe we are well positioned to continue to deliver dividend increases in line with our adjusted earnings growth.”

The new dividend will be payable on January 31 to shareholders of record on December 29. Based on Thursday’s closing price, SYK yields 1.24%.

Shares of Express Scripts (ESRX) have been acting much better recently. Since mid-October, the stock is up nearly 19%. The company is benefiting from an improved environment. Someone could make an offer for ESRX. Thanks to the CVS-and-Aetna deal, there’s a belief that Amazon may jump in, or possibly, Walgreens Boots Alliance. Bernstein recently upgraded the stock, and raised its target price from $51 to $65 per share. It also said that Express could greatly benefit from tax reform.

Shares of Cinemark (CNK) got some welcome news this week. First, Cineworld said it’s buying Regal Entertainment for $3.6 billion. Whenever there’s one buyout in an industry, it usually bodes well for other companies. Perhaps someone will make an offer for CNK. The theater chain also announced it’s jumping into the subscription business.

For $8.99 per month, you’ll be able to see one film per month, plus get a 20% discount on concessions, and bring a friend along for $8.99 for a movie. I think this is a good idea. It’s probably not a game-changer, but it fights back against services like Movie Pass.

That’s all for now. The big news next week will be the Federal Reserve meeting. It will be a two-day meeting, on Tuesday and Wednesday. After the meeting, Janet Yellen will be holding a press conference. The Fed will also update its economic projections for the next few years. Then on Thursday, we’ll get the retail-sales report, and on Friday, the industrial-production report comes out. 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

Here’s an interview I did this past week on Bloomberg.

Named by CNN/Money as the best buy-and-hold blogger, Eddy Elfenbein is the editor of Crossing Wall Street. His free Buy List has beaten the S&P 500 eight times in the last ten years. This email was sent by Eddy Elfenbein through Crossing Wall Street.

Bespoke Brunch Reads: 12/3/17

Happy Sunday!
Before getting to our favorite articles from the past week, take advantage of our limited time 2018 Annual Outlook special offer.  You’ll get Bespoke Premium for 3 months for the price of 1, and you’ll receive our 2018 Annual Outlook Report when it’s published in December.  The report alone is worth the cost!  CLICK HERE to sign up at our secure checkout page.

Below is our “Bespoke Brunch Reads” linkfest featuring some of our favorite articles from the past week.

Investment Picks

The Winners of the New World by Jim Cramer (TheStreet)

Worth reading amidst booming prices for tech stocks and cryptocurrencies alike: Jim Cramer’s summary of the lay of the market and his picks just weeks before the peak of the Nasdaq in the year 2000. [Link]

50 startups that will boom in 2018, according to VCs by Julie Bort (Business Insider)

Not so helpful as a measure of where returns will be, but definitely interesting as a pulse-taking on sentiment and thematic focus for the venture space. [Link]

Tax Reform

Trump’s Tax Promises Undercut by CEO Plans to Help Investors by Toluse Olorunnipa (Bloomberg)

While a key assumption of the Republican tax bill is that lower corporate taxes will boost wages and investment, CEOs have different ideas. [Link; auto-playing video]

Current Tax Reform Bills Could Encourage US Jobs, Factories and Profits to Shift Overseas by Steven M. Rosenthal (Tax Policy Center)

We don’t want to do a disservice to the details (which Rosenthal cogently explains) but the bottom line is that provisions in both the House and Senate tax bills would create large incentives to shift production overseas, the opposite of their intended approach. [Link]


Let’s Talk About Arbitrage – Bitcoin Futures Edition by Kid Dynamite (Kid Dynamite’s World)

The introduction of bitcoin futures will create an easy method for shorting the currency, but because of how arbitrage works, there’s unlikely to be anything but upward pressure based on the introduction of the new contracts. [Link]

Bitcoin’s Trading Star Is Chicago High-Speed Firm That Nods to the Grateful Dead by Alexander Osipovich (WSJ)

A look inside DRW’s high frequency trading unit focused on cryptocurrencies, which has bought cryptocurrency from governments, rejected the idea of making money mining crypto, and now makes markets in the space. [Link; paywall]


The Case For Lefty Driesell by Dave Kindred (The Athletic)

A strong argument that Duke player, former high school coach, and 786 NCAA D1 game winner doesn’t get the respect he deserves. [Link]

I Saw The Buttfumble Live And It Fractured My Family by Jon Eisman (Deadspin)

An oral history of the stupidest play in NFL history’s impact on a family, complete with desperate bids for family unity, seasons tickets to the Jets, and the last time a Jets fan goes to one of their games. [Link]


Oil demand: Beware the gap by Jamie Webster (Petroleum Economist)

A comprehensive but digestible review of the shifting economics of the global crude industry. [Link]

Will Tesla Die for Lack of Cobalt? by Spencer Jakab (WSJ)

While demand for cobalt has surged thanks to the explosive growth of global battery demand, there are talks of a shortage; that said, we’ve heard this sort of “no supply left” story before. [Link; paywall]


Huge security flaw lets anyone log into a High Sierra Mac by Devin Coldewey (TechCrunch)

Users are granted full access to a device running Mac OS (note: not iOS, the phone operating system) by simply entering ‘root’ as the user when attempting to authenticate. [Link]

Ignored By Big Telecom, Detroit’s Marginalized Communities Are Building Their Own Internet by Kaleigh Rogers (Vice)

40% of the population (including 70% of school children) do not have access to any internet service in Detroit, thanks to underinvestment in infrastructure by telecoms that don’t see building what’s needed as profitable given the economic backdrop. This group is DIYing its way into broader access to the internet in response to the problem. [Link]

Stop Using Excel, Finance Chiefs Tell Staffs by Tatyana Shumsky (WSJ)

CFOs are leading the charge in reducing reliance on Excel as the workhorse software tool used by accountants, finance divisions, and other corporate analysts. [Link; paywall]


The Triumph of the Latin American Mall by Nolan Gray (Citylab)

While mall construction is nonexistent in the United States with as many as 25% of the remaining 1100 expected to close over the next 5 years, Latin America is seeing an explosion of construction. [Link]

Best Tech Gifts 2017 by Wilson Rothman and Joanna Stern (WSJ)

Streaming, phones, laptops, Wi-fi, cameras, kids “toys”, remote controlled toys, cooking, tablets, games, and more. [Link; paywall]

Baltic News

For some Russian oligarchs, sanctions risk makes Putin awkward to know by Darya Korsunskaya, Katya Golubkova, and Gleb Stolyarov (Reuters)

US sanctions on Russian citizens are starting to pinch, and are putting at least some distance between powerful oligarchs and the President. [Link]

How 41 People in Lithuania Took Over Your Facebook Feed by Kevin Roose (NYT)

Inside a small boot-strapped startup that has become dominant in the world of digital publishing. [Link; soft paywall]


The Fruit That Smells Like Gym Socks Is Skyrocketing in China by Anuradha Raghu (Bloomberg)

China is gobbling down durian at a staggering pace, creating an opening for non-traditional players to enter the booming market. [Link]

Wall Street

Inside the Race for the Top Job on Wall Street by Kate Kelly (NYT)

The Co-COOs of Goldman Sachs are neck-in-neck to replace CEO Lloyd Blankfein, and the two are a remarkable study in contrasts. [Link; soft paywall]

Have a great Sunday!

Bespoke Brunch Reads + 2018 Annual Outlook Special

Happy Sunday!
Before getting to our favorite articles from the past week, take advantage of our limited time 2018 Annual Outlook special offer.  You’ll get Bespoke Premium for 3 months for the price of 1, and you’ll receive our 2018 Annual Outlook Report when it’s published in December.  The report alone is worth the cost!  CLICK HERE to sign up at our secure checkout page.

Below is our “Bespoke Brunch Reads” linkfest featuring some of our favorite articles from the past week.


Ray Dalio Has an Unbelievable Algorithm by Cathy O’Neil (Bloomberg)

Are algos any good if all they do is reflect the biases, fallibility, incomplete information, and general human weakness of their designers? [Link]

Parable of the Polygon by Vi Hart and Nicky Case (NCase)

A simple, intuitive explanation of math showing that small biases against or towards one’s own group or others can create extreme segregation. [Link]


The Dead Man Fund by Jack El-Hai (Longreads)

A history of one of the worst investment funds available, and why most of their investors were dead long before the fund was shut down by the SEC. [Link]


Fed Insiders Seek Radical Policy Review as Powell Era Dawns by Jeanna Smialek and Matthew Boesler (Bloomberg)

As the Federal Reserve’s Board of Governors undergoes a shake-up, other policymakers on the FOMC are advocating a shift in policy goals. [Link; auto-playing video]

AT&T Ready to Probe the White House’s Role in Time Warner Deal by David McLaughlin, Scott Moritz, and Sara Forden (Bloomberg)

Amidst claims that the White House instructed the Justice Department to demand Time Warner sell CNN to clear its proposed merger with AT&T, the bidder isn’t willing to let potential interference slide. [Link; auto-playing video]

A few random thoughts on taxes by Bill McBride (Calculated Risk)

An argument that the current approach to tax cuts and reform is going about a decent idea the wrong way, and possibly at the wrong time. [Link]

Great Things In Unexpected Places

Why classical purists should start taking video game music seriously by Caroline Crampton (New Statesman)

Did you know Hans Zimmer (writer of the epic soundtrack in Gladiator) is the composer for Modern Warfare? Long a hotbed of audio-visual innovation (Gregorian chants of Halo, anyone?), video games are providing a market for modern classical that hasn’t found footing elsewhere. [Link]

Harvard university debate team loses to New York prison inmate by Barney Henderson (The Telegraph)

In a remarkable upset (based on preconceptions alone, of course) three inmates from maximum security Eastern New York Correctional Facility beat three Harvard undergrads in a competitive debate. [Link]


How Facebook Figures Out Everyone You’ve Ever Met by Kashmir Hill (Gizmodo)

People You May Know (PYMK) is an algorithm Facebook deploys to draw data from sources outside the social network itself in order to drive engagement. It also creates massive privacy concerns. [Link]


Meet ‘Bitcoin Clashic,’ a Weird and Totally Unexpected Cryptocurrency Rebellion by Jordan Pearson (Vice)

Obscure to be sure but a fascinating look at how unstable and generally head-scratching the world of cryptocurrencies can be. [Link]

The Rich

Look Inside the DeVos Family Office by Anupreeta Das and Jean Eaglesham (WSJ)

A deep dive into the structure and activities of the family office which manages the fortune of Secretary of Education Betsy DeVos and her husband. [Link; paywall]

According to one estimate, wealthy couples in NYC need $190 million to keep their heads above water by Tanza Loudenback (Business Insider)

It turns out living parkside on Fifth, spending lots on art and private jets, having an active philanthropy life, and paying a live-in staff gets expensive…who would have imagined? [Link]

Social Media

The 100 Best Finance Twitter Accounts You Should Be Following by Alap Shah (Forbes)

A Sentieo algorithm has determined the top 100 finance accounts on Twitter. [Link]


The Science of the Post: Going Deep with “Mills” by Chris Brown (Smart Football)

A combination oral history and deep dive into the strategy of post routes, and specifically post routes with an underneath dig route, one of the most-used schemes in modern offensive playcalling. [Link]


Elon Musk: The Architect of Tomorrow by Neil Strauss (Rolling Stone)

A glowing laundry list of projects and ambitions including cars, mass transportation, and space.  This one is worth the read. [Link]


Airbus clinches $49.5bn single aisle aircraft deal by Peggy Hollinger (FT)

The biggest deal in the history of the European plane manufacturer was signed this week in Dubai, with 430 single aisle aircraft set to be sold to 4 global budget airlines. [Link; paywall]


Can You Draw the Starbucks Logo Without Cheating? Probably Not. by Zach Schonbrun (NYT)

Being able to reproduce iconic logos is a lot less important than recognizing them. [Link; soft paywall]

Have a great Sunday!

CWS Market Review – November 17, 2017

CWS Market Review

November 17, 2017

“I’m always fully invested. It’s a great feeling to be caught with your pants up.”
– Peter Lynch

Wall Street has been in a slightly sour mood lately. Of course, I mean this in a relative sense. Volatility is still low—very low, in fact.

Until last week, the S&P 500 had climbed for eight weeks in a row. So within that context, four daily drops in five days does seem to stand out. The damage was a little over 1%. Again, that’s barely a speck, but it seems like more when compared to serene market we’ve had since late August. This week, the S&P 500 snaps a streak of 54 days in a row of closing within 1% of its all-time high. That was the longest such streak in half a century. That’s what investing is like in 2017.

More good news for our Buy List this week. We had a very good earnings report from Smucker. The jelly stock jumped nearly 10% on Thursday. We also had a very good earnings beat from Ross Stores. I don’t know yet how the shares opened on Friday, but ROST was up more than 7% in Thursday’s after-hours market.

I’ll run through both reports in just a bit, plus I’ll preview next week’s earnings report from Hormel Foods. The Spam stock has been hot lately (up 9.2% since October 30). I’ll also have some updates on our Buy List. But first, let’s look at some recent news on the economy.

Wall Street Wraps up Another Good Earnings Season

Overall, the third-quarter earnings season was a good one for Wall Street. This was the 23rd consecutive quarter that exceeded expectations. This earnings season was especially good for the tech sector. The Financial Times noted that four mega-cap tech stocks were responsible for half of the earnings beat for Q3. The big four are Apple, Alphabet, Facebook and our very own Microsoft. The tech sector has been such a big winner (+37% YTD) that it’s more than doubled the second-place sector (healthcare +18%).

The Federal Reserve will almost certainly raise interest rates next month, but what about after that? As I’ve said before, I’m not terribly worried about the first few rate increases, but I do think the Fed has less room to work with than they may realize. The futures market currently thinks another hike will happen by June (and possibly by March).

There continues to be little to worry about on the inflation front. This week, we learned that inflation was calm last month. The CPI rose by just 0.1%, and the “core rate,” which excludes food and energy prices, also rose by 0.1%. In the last year, core inflation is running at 1.8%. That’s still below the Fed’s target of 2%. Bottom line: I just don’t see what the Fed is so worried about. The jobs market is humming and prices are steady.

But here’s what worries me. The spread between the two- and 10-year Treasuries narrowed to just 65 basis points this week. The spread hasn’t been that narrow in ten years. I would expect to see the spread tighten after the rate increases. Historically, when the 2/10 spread gets to 0%, economic weakness isn’t far behind.

So any trouble is off in the distance, but it’s there. The overall market and economy are doing fairly well. For example, this week we learned that retail sales rose 0.2% in October. In the last year, they’re up 4.6%. Taking out gasoline, retail sales rose by 0.4% in last month. The industrial production report showed an increase of 0.9% for October. Economists had been expecting a rise of 0.5%.

I expect a calm market for the rest of the year. This is a good time for investors to make sure they’re well-diversified, and that they hold high-quality stocks. As always, our Buy List is a great place to start. As a whole, our Buy List has been leading the market since late summer (we lagged during Q2 earnings season). Now let’s turn to this week’s strong earnings reports from our Buy List.

Smucker Soars 10% on Strong Earnings

On Thursday morning, JM Smucker (SJM) released a very positive earnings report. The jelly folks beat Wall Street’s consensus thanks to higher prices for several of their product lines. For their fiscal Q2, the company earned $2.02 per share last quarter, beating estimates by 12 cents per share.

“We are pleased with our second-quarter results, primarily driven by our pet-food business and the strong performance of a number of key brands across all our businesses,” said Mark Smucker, Chief Executive Officer. “This included double-digit sales increases for Nature’s Recipe® dog food, Dunkin’ Donuts® coffee, and Jif®peanut butter. We also experienced continued strong growth of our brands in e-commerce, as sales in this channel doubled in the quarter for our U.S. retail segments. We are confident in the ability of our brands to win in the rapidly changing retail environment. In addition, we remain focused on achieving sustainable cost reductions that both support the bottom line and fuel investments in future growth.”

SJM’s coffee business is still struggling, but that’s not news. They raised coffee prices earlier this year, and that blew up in their face. What is new is the way the other divisions have picked up the slack. Smucker’s net income rose 10% to $194.6 million. I was pleased to see operating margins come in at 17.2%, compared with 15.8% last year.

This is a welcome earnings report because Smucker had been in a jam (Heh). They bombed their last earnings report, missing consensus by ten cents per share. This time, Smucker lowered the upper end of their full-year guidance by five cents per share. The company now expects full-year earnings of $7.75 to $7.90 per share. Smucker said that reflects higher anticipated freight cost for the rest of the fiscal year.

In Thursday trading, shares of SJM jumped 9.5% to close at $116.65 per share. The stock is still trying to make up for a lot of lost ground. Going on a simple valuation basis, the stock is trading for about 15 times earnings. JM Smucker remains a buy up to $118 per share.

Ross Stores Earns 72 Cents per Share

After the close on Thursday, Ross Stores (ROST) reported Q3 earnings of 72 cents per share. Previously, they gave us a range of 64 to 67 cents per share. Ross made 62 cents per share for Q3 last year.

Looking at the numbers, this was a solid quarter for Ross. Net sales rose 8% to $3.3 billion. Comparable-store sales rose 4%. That’s a key metric for retailers. Operating margins were 13.3%. That’s good for a retailer, especially for a deep discounter.

Barbara Rentler, Chief Executive Officer, commented, “Our third-quarter sales and earnings outperformed our expectations despite being up against our toughest prior-year comparisons and two major hurricanes during the quarter. We are pleased with these strong results, which reflect our continued market-share gains in a challenging retail environment. Operating margin of 13.3% was better than expected, mainly due to a combination of higher merchandise margin and leverage on above-plan sales.”

Now for guidance. A small note. Like other retailers, Ross uses 13-week quarters. That means, every so often, they’ll have a 14-week quarter, and a 53-week fiscal year. Q4 happens to be a 14-weeker. For fiscal Q4, which ends on February 3, Ross expects earnings of 88 to 92 cents per share. That’s up from 77 cents for last year’s Q4, which was a 13-weeker. Ross estimates that the extra week for this quarter adds about eight cents per share. So even adjusting for that, Ross is growing nicely. Adding it all up, Ross expects to make between $3.24 and $3.28 per share for this fiscal year.

This was an excellent quarter for Ross. These numbers are especially good to see because ROST has had a tough time this year. From its December 2016 peak to its July 2017 trough, shares of ROST lost 24%, even though nothing about the business changed. Folks are just scared of anything in retail not named Amazon. This week, I’m raising my Buy Below on Ross Stores to $73 per share.

Earnings Preview from Hormel Foods

Hormel Foods (HRL) is another stock that hasn’t joined in on the fun this year. In fact, though it’s been up lately, HRL is still down 5.4% this year. Consumer-staple stocks have been lagging the market badly since February 2016. These are classic defensive stocks, which means they do well when things aren’t going well. The downside is that they lag when things are going well, like now.

It’s best to avoid trying to guess when these cycles change. Instead, investors should understand that every so often, good stocks fall out of style. The crowd always loves to follow the next big thing. Sometimes you’re surprised to find out that you already own it!

Hormel will report their fiscal Q4 earnings on Tuesday, November 21. Like Smucker, Hormel’s last earnings report wasn’t a great one. They made 34 cents per share, which missed by three cents. So what caused the miss? The problem is that there’s been a surge in demand for bacon. Normally, that’s a good thing, but Hormel hasn’t been able to catch up with the cost change. Their CEO said that since April, pork-belly prices have doubled. Hormel said they probably will not be able to raise prices until October. As a result, the company’s profit margins got squeezed hard.

That’s not all. Hormel also had a poor quarter from their Muscle Milk unit, which they’ve spent heavily on. Plus, their turkey unit continues to see poor sales. The silver lining is that Hormel’s grocery-store biz, with brands like Skippy Peanut Butter, is doing well. (By the way, Smucker owns Jif, so we have maximum peanut-butter exposure in our Buy List.)

In August, Hormel lowered its full-year guidance range to $1.54 to $1.58 per share from the previous range of $1.65 to $1.71 per share. For the first three quarters, Hormel made $1.17 per share, so their guidance means a Q4 range of 37 to 41 cents per share. Wall Street expects 40 cents per share.

Buy List Updates

In last week’s issue, I mentioned the good earnings report from Continental Building Products (CBPX). The stock reacted well to the earnings news (as we know, that doesn’t always happen). I’m lifting our Buy Below on CBPX to $29 per share.

Shares of Ingredion (INGR) got a big lift on Wednesday. The shares touched a new high of $134.03 after the stock was upgraded by some Wall Street firms. The company also gave a business overview. Ingredion got clobbered earlier this year, but it’s gradually fought its way back and is now a 6.4% gainer for us YTD.

That’s all for now. There will be no newsletter next week. I’m taking my traditional Thanksgiving break. The U.S. stock market will be closed on Thursday for Thanksgiving, and it will close at 1 pm on Friday, November 24. There’s not much in the way of economic news next week. We’ll get the existing-home sales report on Tuesday, and durable goods on Wednesday. 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

Named by CNN/Money as the best buy-and-hold blogger, Eddy Elfenbein is the editor of Crossing Wall Street. His free Buy List has beaten the S&P 500 eight times in the last ten years. This email was sent by Eddy Elfenbein through Crossing Wall Street.

Bespoke Brunch Reads: 11/12/17

Good Morning!
Below is our “Bespoke Brunch Reads” linkfest featuring some of our favorite articles from the past week.


Why Is U.S. Wage Growth So Low? It’s All About the Top 80% by Matt Boesler (Bloomberg)

The low end of the wage pile (occupations with average hourly earnings in the bottom quintile of the distribution) have seen drastically higher wage growth recently. [Link; auto-playing video]


In 2017, Investors Can Either Buy Bubbles or Be Left Far Behind by Luke Kawa (Bloomberg)

An index of trades pundits have broadly agreed are unsustainable “bubbles” has drastically outperformed of late. [Link; auto-playing video]


European leaders seem determined to remake the “global savings glut” on a massive scale by Matthew C. Klein (FTAV)

Running persistent current account surpluses may reduce exposure to external shocks, but it creates problems elsewhere by forcing borrowing into economies that may not be able to use it productively. [Link; registration required]

On collateral: implications for financial stability and monetary policy by Stefano Corradin, Florian Heider, Marie Hoerova (ECB Working Papers)

This new discussion paper makes the argument that collateralizing lending is not sufficient to maintain financial stability; this is an intuitive result for anyone that’s spent time reading about previous financial crises. [Link; 51 page PDF]

The Hanseatic League 2.0 by Jim Brundsen and Michael Acton (FT)

The 13th century federation of trading nations in northern Europe is getting something of a revamp as a similar geographic lineup seeks to navigate Brexit and the future of the EU. [Link; paywall]


America’s ‘Retail Apocalypse’ Is Really Just Beginning by Matt Townsend, Jenny Surane, Emma Orr and Christopher Cannon (Bloomberg)

This mix of text and graphics does a good job showing the scale of America’s dependence on retail; if the worst possible outcomes play out for the industry, it’s going to have a big impact. [Link]

Venezuelan debt: ‘Qué Pasa?’ by LeeC. Buchheit and Mitu Gulati (FT)

The dons of the sovereign restructuring world outline a strange set of developments in the Venezuelan bond market, which could point to a possible out for the country in its restructuring. [Link; paywall]


Cryptocurrency Mania Fuels Hype And Fear At Venture Firms by Erin Griffith (Wired)

A review of how venture capital firms – the traditional gatekeepers of early stage tech funding – are reacting to the world of cryptocurrencies, blockchains, and ICOs. [Link]

Security Alert (Parity Technologies)

A cryptocurrency wallet provider was struck by a major vulnerability discovery this week, which put users’ portfolios at risk of theft. [Link]

Regulators begin to tackle the craze for initial coin offerings (The Economist)

A review of the current intersection between regulation, speculation, and abuse in the cryptocurrency space, especially ICOs. [Link; soft paywall]


‘Fat Leonard’ probe expands to ensnare more than 60 admirals by Craig Whitlock (WaPo)

Have you heard about the massive corruption across the highest ranks of the Navy that’s currently being rooted out? We hadn’t either. A remarkable review of the effort to reign in the admirals. [Link; soft paywall]

Something is wrong on the internet by James Bridle (Medium)

A disturbing review of the darker side to kids’ favorite videos on YouTube, and in a more sinister sense, how and why those videos become popular. [Link]

Leaked Documents Expose Stunning Plan To Wage Financial War On Qatar – And Steal The World Cup by Ryan Grim and Ben Walsh (The Intercept)

A leaked presentation proposed to the UAE that FX trades, CDS positions, and a cornered bond market be used to disrupt Qatar. If this sounds like an absolutely ridiculous plan that could never work, you’re barking up the right tree, but the details are still highly entertaining. [Link]

Harvey Weinstein’s Army of Spies by Ronan Farrow (The New Yorker)

Potential accusers of Harvey Weinstein and the journalists working with them faced a sophisticated counterintelligence operation which included former Israeli spies and gross misconduct from lawyers. [Link]

Baseball Fakes

Teen Girl Posed For 8 Years As Married Man To Write About Baseball And Harass Women by Lindsey Adler (Deadspin)

In what may be the strangest story of the week, Adler reveals the details of a young woman who pretended to be a man on the internet so she could write about baseball…with very dark results. [Link]

Operation Stolen Base by Luke Winn (SI)

The story of a minor league washout’s road from behind home plate to behind bars, all part of the largest sports memorabilia fraud in history. [Link]


Most scientists now reject the idea that the first Americans came by land by Annalee Newitz (Ars Technica)

While there’s no dispute that the Clovis people of ~13,500 years ago crossed from Siberia to North America by a land bridge, it’s almost certain they were proceeded by island-hopping peoples of the Pacific. [Link]

Have a great Sunday!

Weekend edition—Russian propaganda, Chinese Confucius centers, deadly American air

Good morning, Quartz readers!

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In a diary discovered after the fall of Berlin, Nazi propaganda chief Joseph Goebbels outlined his principles (pdf) for effective propaganda. The second of these states that it “must be planned and executed by only one authority.”

What would Goebbels have made of Facebook? Where the 20th century was macro, the 21st is micro. Just as the clash of massive armies has given way to guerrilla war and terrorism, information—and disinformation—now flows not from a single entity but from thousands or millions. And with the micro-targeting power of social networks like Facebook, propaganda is no longer one message: It can be any number of them, tailored to any number of audiences.

Russia understands both these differences. The ads it spread on Facebook during last year’s US election—some of which Congressmade public this week—were not a single pro-Trump message; indeed, many supported left-leaning causes like anti-Trump rallies and LGBT rights. Where Goebbels aimed to sow confusion and fear, Russia’s goal was simply to deepen the American public’s existing divisions. And unlike Goebbels, Russia is fine with not having the monopoly on propaganda. If a bevy of Macedonian teenagers are helping, so much the better.

The key lesson of the scandal is not that Russia is dangerous to US democracy, but that social media makes all democracies vulnerable to anyone with a political agenda, a bit of money, and a reasonable quantity of data. It would be a trivial matter to target Facebook ads at just the undecided voters in the US’s small number of competitive districts at the next election, for instance, and very hard to catch the culprit.

Guerrilla war cannot be won by a conventional army; it requires a solution to the war’s underlying causes. Similarly, 21st century propaganda cannot be dealt with by trying to eliminate its sources. How platforms like Facebook enable it is also part of the problem, and they need to take part in the solution as well.—Nikhil Sonnad


Why pregnant women die in America. With an estimated 26.4 deaths for every 100,000 live births in 2015, the US has the highest maternal mortality rate of all industrialized countries—by several times over. And the trend is worsening. Annalisa Merelli unpacks how sexism, racism, inequality, and a fragmented, for-profit health system all combine to form a country that cares too little about its new mothers.

Deadly air. More than two dozen people suffocated in a small Pennsylvania town on Halloween weekend in 1948. The disaster happened two decades before the passage of America’s first clean air laws. Zoe Schlanger reports that when a weather phenomena began trapping gases in the town’s valley, the regular morning haze came and never left. First plants died, then pets. By the weekend it was people. Donora, Pennsylvania knows what life was like before clean air laws, and it wasn’t pretty.

Are you on clock time or event time? There are two main ways to approach time, and they’re frequently in conflict with one another—at work, in families, and in societies moving from one system to the other. Lila MacLellan, writing in Quartz At Work, investigates the psychology and the business history dictating our relationships with our schedules, and offers new insight into the universal quest for time management.

Will McKinsey walk the talk? One of the world’s top consulting firms is preparing to select a new leader next year, and the list of potential candidates is already taking shape. The selection process is reportedly a grueling one (paywall), but Lila MacLellan argues the choice for McKinsey is simple—that is, if you accept the findings of the firm’s own comprehensive research on diversity and gender equality.

Confucius centers across Africa are teaching Mandarin and a pro-China outlook. China is driving the largest language and culture-promoting initiative the world has ever seen. But, as Claire van den Heever finds traveling through Lusaka, Dar es Salaam and Harare, Confucius centers are more than just language schools in Africa. China hopes the centers will help shape its public image for the long term on a continent with so many young people.

Yolie Cintron was going to commit suicide—and then she found zumba. Cintron is just one of thousands of people who swear by the dance-fitness craze. Amy X. Wang travels to Orlando, Florida for the 10th annual ZINCON, a convention of 8,000 zumba instructors, to investigate the origins and appeal of the mysterious multi-million dollar empire, led by—magically enough—three men all named Alberto.


Cooking for survival. Coverage of refugees and displaced people often feature the predictable images of large sacks of anonymous food distributed to the hungry masses. But what do people actually make for themselves and their families in these trying circumstances? Andrew Esiebo, reporting for Buzzfeed in Niger, visited a camp for internally displaced people, many fleeing Boko Haram, and came back with a humanizing photo essay on the simple meals that sustain families.

(First) class concerns. Dwight Garner, book critic for the New York Times, was once so terrified of flying he would get to the airport and promptly turn around. In a funny essay for Esquire about his only time in first-class, he remembers a course he took for paranoid travelers, in which he learned which clothes are most likely to catch fire in a flight emergency.

Portugal’s road to decriminalization. In the 1980s, before the opioid crisis gripped the US, one in ten Portuguese citizens were heroin addicts—until 2001, when the country became the first nation to decriminalize the consumption of all illicit substances. In a sweeping essay, Susana Ferreira returns to her family’s home and, with the help of a local doctor uncovers how a law change informed an enormous shift in perception, pulling the nation out of the depths of addiction.

I forgot my key to $30,000 of bitcoin. It’s the stuff of nerd-nightmare fuel. In Wired, Mark Frauenfelder traces how his casual purchase of 7.4 bitcoins became, thanks to an innocent mistake, locked in a web of complex systems. He enlisted the services of a hypnotist, his family, Reddit, and finally an overseas hacker, all in a desperate bid to recover the keys to his wallet—and his cash.

Our best wishes for a relaxing but thought-filled weekend. Please send any news, comments, Confucius centers, and bitcoin PINs You can follow us on Twitter here for updates throughout the day, or download our apps for iPhone and Android.