CWS Market Review – December 16, 2016

CWS Market Review December 16, 2016 “The best time to invest is when you have money.” – John Templeton Just a reminder that the 2017 Buy List will be unveiled in next week’s CWS Market Review. I’m really excited for the new list. For 2017, the Buy List will be expanded to 25 stocks. We’ll start tracking the new Buy List on January 2, which is the first day of trading in the new year. As always, newsletter subscribers are the first to get the new list. Now to the stock market. Earlier this week, the Federal Reserve decided to raise interest rates. This was only the second time in the last decade that the Fed has done a rate hike. But what caught Wall Street’s attention was the Fed’s forecast for the next few years. The central bank predicts it will increase rates three times next year, plus three times in the year after that and another three times in the year after that! Let’s just say I’m a little skeptical of the Fed’s bold plans. In more technical language, that’s just nuts. Of course, the Fed’s predictions of what they plan to do haven’t had a whole lot to do with what they’ve actually done. And it looks like that tradition is alive and well. This week, we got a nice earnings report from HEICO. I’ll go over that in a bit. I’ll also preview next week’s earnings report from Bed Bath & Beyond. But first, let’s look at this week’s Fed meeting and what it means for us. The Fed Hikes…but What Next? The Federal Reserve held one of its two-day meetings on Tuesday and Wednesday. This was probably one of the least-surprising rate hikes in the last few decades. Everybody and his dog were expecting this rate hike. The increase was so expected that it really became a non-story. At one point, the futures market pegged a rate increase at 100%. It’s hard to get more certain that that! The Fed’s new target for the Fed funds rate is now 0.50% to 0.75%. That’s an increase of 0.25%. The vote inside the Fed was unanimous. Let me first say that Fed Chairwoman Janet Yellen did a good job. She conveyed the Fed’s intentions, plus she got all the FOMC members to go along. That’s not easy. In the Fed’s policy statement, they said, “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.” As you know, I’m well versed in the arcane dialect known as Fedspeak, and I’m happy to translate this garble into normal talk. Basically, the Fed is telling markets not to expect a lot more rate-hike activity from it this year. When it says “prevail in the long run,” the Fed is obliquely referring to the natural interest rate. This is the mysterious phantom interest rate that’s the theoretical equilibrium for the economy. If the Fed goes below the natural rate, they’re boosting the economy. If they go above it, they’re hitting the brakes. Well, the Fed plans to do a lot more boosting. But here’s where it gets interesting. Economists had assumed the natural interest rate was 2% above inflation. Ever since the economy went kablooey a few years go, the consensus is that the natural rate is a lot lower. This means the Fed is trying to go below a target that itself has moved lower. In their latest projections, the Fed thinks the natural rate is 1% above inflation. I think that’s probably too high. This is important, because the Fed thinks they’ll be dragging the economy along for a few more years. Here’s the key fact for us: Real short-term rates are expected to be negative for another two years. That’s a green light for stock investors. Let me explain. People always want to know if the stock market is cheap or expensive. The answer is, compared to what? If short-term rates are going to be negative, that makes stocks a no-brainer. Sure, long-term rates have moved up. In fact, the two-year yield just touched a seven-year high this week. But they’re still a long way from being any real competition for stocks. The bullish conditions for the stock market haven’t changed in the slightest. Whenever the Fed holds a two-day meeting, it’s accompanied by updated economic projections and a press conference from Chairwoman Yellen. This week’s projections took me by surprise because the Fed sees themselves raising interest rates three times in each of the next three years. That would bring the Fed funds target from 2.75% to 3%. I suppose that’s possible but it seems like a very long shot. Bear in mind that the Fed is biased to always believe that its policies will work out just fine. Hence the need for rate hikes. But is that true? I ain’t so sure. On Thursday, for example, we learned that inflation is still well contained. Consumer prices rose by 0.2% last month. The core rate increased by the same amount. With any real inflation, there’s no hurry to jack up rates. Maybe inflation will be an issue at some point, but for now, it just isn’t there. What’s interesting is that much of the rest of the world is where the U.S. was a few years ago, economically speaking. As a result, we’re improving, while they’re still struggling to get on their feet. Our rates are going up, while their rates are negative. The higher rates from the Fed act like a magnet that sucks in money from all over the globe. That helped push the U.S. dollar up to a 13-year high this week. The euro got down to $1.04 per dollar, which is the lowest since 2003. Gold dropped to its lowest level in ten months. This has been a very good time for stocks. The Dow has set 15 record highs since the election. On Wednesday, the index came within 34 points of breaking 20,000. The S&P 100 broke though 1,000. In the options market, insurance to protect yourself from a market drop is the cheapest in two years. To be frank, the Trump Rally is starting to get a bit tired. I think we’ll see a bit of a pullback over the next few weeks. Nothing too scary, but I don’t want you to be caught off guard. Don’t chase after any stocks. Wait for good stocks to come to you. As always, stay focused on high-quality stocks such as you find on our Buy List. Speaking of which, let’s look at this week’s earnings report from the biggest winner on this year’s Buy List. HEICO Is a Buy up to $81 per Share On Tuesday, HEICO (HEI) reported fiscal Q4 earnings of 65 cents per share. That’s up from 56 cents per share for last year’s Q4. Wall Street had been expecting 62 cents per share. This was a very good quarter for HEICO, and it wraps up a very strong fiscal year. If you’re not familiar with HEICO, the company makes replacement parts for the aircraft industry. If some weird part of your chopper splits in two, you can’t just run down to Pep Boys, but HEICO can probably help you out. For the last fiscal year, HEICO earned $2.29 per share. Earlier the company had projected net income to rise by 13% to 15%. As it turns out, net income rose by 17% while net sales rose by 16% to $1.38 billion. I was impressed to see their operating margin stayed the same, at 19.3%. That’s a good sign. HEICO also boosted their semi-annual dividend from eight to nine cents per share. That may sound small, but these do add up over time. HEICO said they’re looking to split their stock sometime early next year. I love this nugget from their press release: Considering the impact of cash dividends, prior stock splits and stock dividends, one share of HEI worth $8.38 in 1990 has become worth on a combined basis approximately $1,417, representing an increase of approximately 169 times the 1990 value and a compound annual growth rate of approximately 22%. Not bad. For 2017, HEICO sees net sales growth of 5% to 7%, and net income growth of 7% to 10%. That works out to an EPS range of $2.45 to $2.52. Wall Street had been expecting $2.53 per share. Shares of HEI pulled back a few dollars this week, but I’m not too worried. The stock is still up 40.8% YTD. This week, I’m raising my Buy Below to $81 per share. Preview of Bed Bath & Beyond’s Earnings Bed Bath & Beyond (BBBY) is due to report its Q3 earnings on December 21. This has been a tough year for Bed Bath. The home-furnishings store missed Wall Street’s consensus badly for fiscal Q1 and Q2. The stock had a terrible year until a few weeks ago, when it started to make up for a lot of lost ground. Since November 4, BBBY has gained 23%. It’s now down 1% on the year. The company hasn’t given guidance for Q3, but they have said they expect full-year earnings to range between $4.50 and $5 per share. That’s down from $5.10 per share last year, and $5.03 per share for the year before that. They’ve already made $1.91 per share for the first half of the year. The consensus on Wall Street is for Q3 earnings of 99 cents per share. It’s hard for me even to give a good estimate. I’d be very relieved if BBBY earned 99 cents per share last year, and I suspect the market would be as well. The problem is the company has grown overly reliant on coupons and share buybacks. That’s a good strategy when things are going well, but not when same-store sales are falling. Bed Bath is a good company, but they need to make a lot of changes, and soon. One more quick item. On Wednesday, Express Scripts (ESRX) reiterated their 2016 EPS guidance of $6.36 to $6.42 per share. The company also said they expect 2017 EPS to range between $6.82 and $7.02. Wall Street had been expecting $6.93. I thought the numbers were fine, but traders weren’t so impressed. The stock got clocked for a loss on Wednesday and Thursday. That’s all for now. Stay tuned for next week’s issue with the 2017 Buy List. Next Thursday, we’ll get an update on Q3 GDP growth, plus personal income and spending, and durable orders. The stock market will be open Friday, but closed next Monday, the day after Christmas. 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 nine years. This email was sent by Eddy Elfenbein through Crossing Wall Street.

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#Fed hike day, protests in #Brazil, #Paris vs. rats

Good morning, Quartz readers!

WHAT TO WATCH FOR TODAY

The Fed hikes interest rates. Almost every analyst expects the US central bank to raise its benchmark rate for only the second time since 2006, but there is more uncertainty about future increases in the months to come. Markets are feeling optimistic, with the Dowclosing 50 points shy of a record 20,000 (paywall).

Donald Trump holds a tech summit. Tim Cook, Elon Musk, Larry Page, Jeff Bezos, and Sheryl Sandberg are among the executives expected to attend a high-profile meeting with the president-elect. Separately, more than 100 tech employees vowed not to help Trumpregister Muslims or facilitate immigrant deportations.

Taiwan, the US, and Japan discuss security. An annual security dialog in Taipei will draw more scrutiny than usual in the wake of Trump’s unprecedented contact with the Taiwanese government.

WHILE YOU WERE SLEEPING

The bloody battle for Aleppo drew to a horrific close. Russia said that the Syrian government had taken control of the last rebel-held areas in the east of the city, as anti-government forces reached an agreement to leave amid a heavy Russian bombardment. The UN reported that civilians were being summarily executed by pro-government forces.

Protests erupted across Brazil after an austerity bill cleared the senate. The measure puts a 20-year cap on federal spending. Proponents hope it will restore confidence in the economy, luring investors back to the country. Demonstrators worry about the bill hurting social programs, but it now looks set to become law, possibly by tomorrow.

Trump tapped Montana congressman Ryan Zinke as interior secretary. If confirmed by the senate, the former Navy SEAL commander would head a department that oversees more than 20% of federal land, including national parks. A proponent of US energy independence, Zinke has voted to weaken environmental safeguards on public land.

Google’s driverless car unit was reborn as Waymo. The new company is a freestanding business owned by Google’s Alphabet holding company, focused on bringing products quickly to market. Waymo is partnering with Fiat Chrysler to create a semi-autonomous ride-sharing service as soon as 2017.

QUARTZ OBSESSION INTERLUDE

Tim Fernholz explains how Goldman Sachs’ Gary Cohn became Donald Trump’s top economic adviser: “Real estate barons are used to turning to Wall Street to finance their grandiose ambitions, and Donald Trump is no exception. When Cohn came into his Trump Tower office on Nov. 30 with a Wall Street-inspired plan for financing big-ticket government infrastructure investments, the US president-elect was smitten.” Read more here.

QUARTZ HAIKU INTERLUDE

Dow Jones: Up! Oil: Up!
S&P: Up! Nasdaq: Up!
Such times we live in.

MATTERS OF DEBATE

Trump’s cabinet consists of people running agencies they hate. “Draining the swamp” seems to mean undermining the government.

Decentralized hacking attacks are a new form of warfare. The internet’s greatest strength is its greatest vulnerability.

Rodrigo Duterte’s “drug war” is genocide. His campaign of extrajudicial killings ignores the fact that drug addiction is a disease.

SURPRISING DISCOVERIES

The UN fired Wonder Woman as its goodwill ambassador.Critics argued there are better real-world options than the scantily dressed comic book heroine.

Paris is losing its war with rats. The overrun city had to close parks and tourist attractions, including the Eiffel Tower (paywall), over the weekend.

There are bestsellers, and there’s Harry Potter. “Cursed Child—Parts I and II”—a script based on a play about Potter’s son—soldfour times more than the No. 2 book in the US.

A $16 million Leonardo da Vinci drawing was found in France.A doctor discovered the 530-year-old sketch among his father’s drawings.

In 1973, the entire internet fit on a cocktail napkin. Arpanet, the predecessor of the modern-day internet, consisted of just 45 computers.

Our best wishes for a productive day. Please send any news, rat traps, and Leonardo drawings to hi@qz.com. You can follow us on Twitter for updates throughout the day or download our apps for iPhone and Android.

#US probes #Russia hack, #Venezuela shuts border, #Mozart outsells #Drake

Good morning, Quartz readers!

WHAT TO WATCH FOR TODAY

Russia releases preliminary GDP figures. They should indicate whether the economy is picking up steam after the stagnation that began during the war in Ukraine. The economy shrank 0.4% last quarter from a year previous, which was less than analysts had expected.

India publishes trade statistics. Gold imports more than doubledin October, and they’re to climb even higher in November in the wake of the government’s attempt to flush out illicit cash hoarding.

South Korea, Japan, and the US discuss Pyongyang.Representatives from the three countries meet in Seoul to flesh out plans for new sanctions on North Korea’s nuclear program. The UN security council passed a resolution in November to target coal sales.

WHILE YOU WERE SLEEPING

Trump postponed explaining how he would separate himself from his business. He was supposed to hold a press conference on the issue Dec. 15, but now it will be January. This gives the Electoral College, which votes Dec. 19 to officially make him US president, a legitimate reason to vote him down, ethics lawyers say. He also confirmed ExxonMobil CEO Rex Tillerson as his secretary of state pick.

US Republicans backed an investigation into Russian election hacking. Senate majority leader Mitch McConnell and House speaker Paul Ryan both said they would look into allegations that Moscow interfered in the US presidential race. That puts them in opposition to Trump, who attacked the CIA for its conclusions about Russia’s involvement.

Venezuela closed its Colombia border to fight currency smuggling. The 72-hour shutdown will help it fight “mafias” smuggling hard-to-find cash, said president Nicolas Maduro. The move comes after the inflation-ravaged country yanked its largest-denomination bill—worth just $0.02—from circulation.

Paolo Gentiloni took the reins as Italy’s new prime minister. Heopted to keep almost the entire cabinet from his predecessor Matteo Renzi, who resigned after losing a national referendum. The loss of support from a small center-right party could threaten Gentiloni’s parliamentary majority.

QUARTZ OBSESSION INTERLUDE

Gwynn Guilford on the brewing war between Donald Trump and Janet Yellen. “A Trump boom that boosts US economic potential by spurring business investment will not necessarily be dangerously inflationary, all else being equal. However, as employment and investment rise, prices will inevitably rise—even more so if Trump raises trade barriers as promised.” Read more here.

QUARTZ HAIKU INTERLUDE

Russia slashes oil
production. Who says Putin
can’t play with others?

MATTERS OF DEBATE

The vegetarian revolution is nigh. Innovative new veggie burgers will make it easier to admit that factory farming is horrible.

“Female” bots are the opposite of futuristic. They represent abadly outdated version of womanhood.

Exchange traded funds need to be carefully scrutinized.Investing pioneer Jack Bogle says ETFs have radically changed the way (paywall) the stock market works.

SURPRISING DISCOVERIES

Mozart outsold Drake and Beyoncé in 2016. The composer moved more CDs than anyone thanks to a massive box set.

Christmas is a merry health hazard. Regulators have compiled alist of Yuletide injuries, many related to holiday decorations.

New York City is facing “persistent flooding.” If sea levels rise 1 ft (30 cm), 60 sq miles (155 sq km) could be underwater by 2050.

LinkedIn is the best place to find experienced Santas. The social networking site for job seekers is chock-full of holiday hopefuls.

Scottish Amazon workers are living in a tent city. They would rather brave the cold than bear the cost of their lengthy commute.

Our best wishes for a productive day. Please send any news, Mozart CDs, and Christmas injuries to hi@qz.com. You can follow us on Twitter for updates throughout the day or download our apps for iPhone and Android.

$1 billion for clean energy, Christine #Lagarde on trial, frisky sexagenarian seabirds

Good morning, Quartz readers!

WHAT TO WATCH FOR TODAY

Investors led by Bill Gates put $1 billion into clean energy innovation. Their new fund, Breakthrough Energy Ventures, hopes to commercialize promising research to fight climate change. “You need investment to take things out of a research lab,” Gates told Quartz ahead of the official announcement. Amazon’s Jeff Bezos and Virgin’s Richard Branson are also investors.

Christine Lagarde goes on trial. The head of the International Monetary Fund will stand trial in France in a special court charged with negligence over a €400 million payout awarded to a French businessman that dates back to the 1990s. She is the third IMF managing director in a row to face legal woes.

There’s a new UN secretary-general in town. António Guterres, former prime minister of Portugal, is to be sworn in to replace the incumbent, Ban Ki-moon of South Korea. He will become “the world’s top diplomat” for at least five years beginning on Jan. 1.

SPONSOR CONTENT BY THE GOVERNMENT OF JAPAN

Over 1 million women joined the Japanese workforce from 2012 to 2015. But representation isn’t enough: Prime Minister Abe has implemented policies that offer working women increased management opportunities, improved career mobility, and more progressive childcare policies. Abe will highlight “Japan’s resolve to produce results” in workplace gender equality at the Tokyo World Assembly for Women.

OVER THE WEEKEND

Turkey was shaken by terror attacks. A Kurdish militant group has claimed responsibility for the explosions that shook Istanbul, killing 38 and injuring at least 160 on Saturday. Turkish president Recep Tayyip Erdoğan seems to expect more violence ahead, tweeting that Turkey will have to “keep spilling more” blood to fight terrorist groups.

Trump said he’s been shirking the traditional daily top-secret intelligence briefing. “I get it when I need it,” he said. “I’m, like, a smart person.” He added that he plans to use the “One China” position as a bargaining chip with Beijing.

A new government for Italy? Foreign minister Paolo Gentiloni was picked for prime minister by president Sergio Mattarella. Gentiloni’s new role won’t be official until he chooses his cabinet and wins parliament’s vote of confidence. Former PM Matteo Renzi’s resignation came after Italians voted against his referendum to streamline the government decision-making process.

ISIL regained ground. Nine months after being routed from Palmyra, the so-called Islamic State has retaken the ancient city, according to Syrian officials. Palmyra was previously held by ISIL for 10 months (paywall), during which time the group destroyedirreplaceable religious and historical buildings.

Iran agreed to buy $17 billion in new planes. In the first of two major deals with Western aircraft manufacturers, Iran closed a deal with Boeing to buy 80 new passenger planes. The country is also expected to sign a contract with Airbus in the coming days, for 50 to 60 additional aircraft.

QUARTZ OBSESSION INTERLUDE

Ana Campoy on what Americans should teach their children under a Trump presidency. “Kahlenberg has called Trump’s election a ‘Sputnik moment’ that should spur the same kind of investment in civics education as the Soviet satellite did for science back in the late 1950s and 1960s. As the US seeks to compete with other world economies, practical subjects such as reading and math have crowded out civics lessons, he argued in a recent report.” Read more here.

MATTERS OF DEBATE

Trump does not play by the rules when it comes to China and Taiwan. But the history of relations between the three parties holds many lessons for him.

Italy poses a huge threat to the euro. It won’t be long before the country is led by a party in favor of leaving the single currency(paywall).

Your procrastination can be overcome with science. Well, if you ever get around to reading this article.

SURPRISING DISCOVERIES

An American posing as a police officer accidentally pulled over a real cop. He was arrested, rather than the other way around.

Diet soda is on the decline. Both Diet Coke and Diet Pepsi havereported falling sales in recent years.

An adorable goggles-wearing parrot is helping researchers understand how birds fly. The lessons could be used to make better drones and aircraft.

Hayao Miyazaki isn’t impressed with the idea of AI-made cartoons. The animation legend called a project to model new forms of movement “an insult to life itself.”

The world’s oldest-known seabird is still feeling frisky. The 66-year-old albatross is incubating another egg, making her the oldest breeding bird recorded.

Our best wishes for a productive day. Please send any news, comments, AI art, and frisky seabirds to hi@qz.com. You can follow us on Twitter for updates throughout the day or download our apps for iPhone and Android.

Weekend edition—Job-stealing machines, #Google’s middle age, solving poverty

Good morning, Quartz readers!

This week we learned the future will be an automated utopia. Amazonannounced its first grocery store will open in Seattle, Washington, but it’s not like any grocery you’ve seen. Cashiers need not apply; customers pull food off the shelves, walk out, and pay automatically through a smartphone app called Amazon Go. Truckers, too, will likely see their jobs disappear before long. Many have put the arrival of autonomous commercial trucks at 40 years off. “Three years, at most,” countered one Silicon Valley investor.

The working and middle classes of Europe and North America are already reeling, as globalization hollows out much of the industrial heartland of the world’s rich countries. Now automation technology seems ready to finish off the job. Millions of jobs are on the chopping block—most paying less than $20 per hour. Meanwhile, politicians’ neglect of the working and middle classes’ economic security makes the electoral shocks that followed—Brexit, Trump, Renzi—seem almost inevitable. The stability of these democracies will hinge on how well the economy works for these citizens.

It wasn’t long ago that automation promised an economic paradise. “For the first time since his creation,” wrote economist Maynard Keynes in a 1930 essay, “man will be faced with his real, his permanent problem—how to use his freedom from pressing economic cares, how to occupy the leisure.” That, of course, assumes a big share of machine-generated wealth reaches workers. So far, that hasn’t happened.

History may be instructive. The last time American capitalism faltered, Franklin D. Roosevelt rode to power on the strength of his “New Deal” in 1932. Does a comparable political platform exist to rally Americans discarded by their own economy? Proposals are already being floated: A “GI Bill” to educate workers displaced by automation. A universal basic income to give workers the right to economic security. Companies paying for workers’ vocational training, with the help of government incentives (Germany already does this).

Instead, America might get Trump’s answer: a mix of deregulation for big business and steep tariffs. That has populist appeal, buteconomists warn it also risks tipping the US into recession—not righting the ship.—Michael Coren

FIVE THINGS ON QUARTZ WE ESPECIALLY LIKED

Everything we thought we knew about free trade is wrong.High-skilled American workers have enjoyed obscenely cheap import prices for years now—at the expense of the country’s poorer, less-educated taxpayers. Meanwhile, China has all the jobs, but no purchasing power. If the recent US election has you questioning how we got to into such a global economic mess, Gwynn Guilford has answers.

The last slow-food holdout is fish. Sushi restaurants still fly in endangered species every day for diners, but if we continue trawling the oceans at our current pace, all fish stocks could collapse in our lifetime. That prediction is leading some to posit we are at peak wild fish. Alden Wicker dives deep into how to disrupt the sushi business and save the oceans.

You can build a better life by tracking your happiness.Katherine Ellen Foley spent a year writing down moments in which she felt “truly, blissfully happy.” The resulting data helped her figure out how to best spend her time and energy in 2017: more cozy nights cooking with friends, more long-distance races, fewer fancy nights out, and lots of ambitious writing goals.

Filipinos send oversized boxes home every Christmas.Balikbayans are a unique symbol of the global economy: flat-rate shipped consumer goods that serve as an expression of generosity and longing for 10 million overseas workers. Anne Quito and Adam Freelander explore the Filipino preference for Spam and Jiffy peanut butter, plus one bonus: a video on optimum packing techniques.

The solution to poverty is…giving poor people cash. There has always been much hand-wringing among policymakers about how to ensure financial aid gets used in the “right” way (i.e., not for booze). But it may be for naught: As Dan Kopf reports, poor people almost always use cash transfers to lift themselves out of poverty.

QUARTZ ANNOUNCEMENT

Hey, Android users. You can now download the Quartz apptoo. Think of it as an ongoing conversation about the news, sort of like texting with your smart, well-traveled friend. We’ll send you messages, photos, GIFs, and links, and you can tap to respond when you’re interested in learning more about a topic. Apple’s just named the iPhone version one of the 10 best apps of the year.

FIVE THINGS ELSEWHERE THAT MADE US SMARTER

Google grows up, and faces the music. For years, the Silicon Valley giant made enough money from search to overlook that all its “moonshot” side projects were financial sinkholes. But Bloomberg Businessweek reports that since Google’s “Alphabetization,” the former startup has been forced to act like “a normal, publicly traded company”—in other words, to look at the books.

The dark, twisted world of chemsex. Warning: not for the prudish or fainthearted. In an eye-opening examination of the gay male subculture of drug-fueled sex, Buzzfeed’s Patrick Studwick looks at a phenomenon that surpasses all normal limits of sexuality and human behavior, and has led to horrific abuse and exploitation.

Human traffickers are sending refugees to their deaths…Reuters investigated the April sinking of a ship that resulted in the deaths of 500 migrants and refugees. They name the main smugglers responsible as Ahmed Obeid and Ismail al-Bougy, detail the events leading up to the deaths, and allege that none of the local or international bodies involved in Europe’s migrant crisis has ever investigated.

…and some survivors end up in a hell disguised as paradise.About 900 refugees have been detained—and abused—in Papua New Guinea’s heavenly Manus Island for three years and counting. Roger Cohen, reporting for the New York Times (paywall), went to Manus to hear the chilling stories of this forgotten slice of humanity, banned from entering nearby Australia and stuck in seemingly eternal limbo.

Old-fashioned diplomacy is dead. Veteran US State Department official Robin Raphel was a master at boots-on-the-ground networking, but her cozy relationship with Pakistan sparked a (fruitless) FBI espionage investigation that upended her life and career. In a thorough examination (paywall), the Wall Street Journal highlights a crucial disconnect between how the State Department and the FBI gather and assess intelligence.

Our best wishes for a relaxing but thought-filled weekend. Please send any news, Spam recipes, farm-raised bluefin, and Googleplex schematics to hi@qz.com. You can follow us on Twitter here for updates throughout the day.

#Ghana’s tight election, casinos take a hit, Japanese robot babies

Good morning, Quartz readers!

WHAT TO WATCH FOR TODAY AND OVER THE WEEKEND

Ghana’s tight presidential race is decided. The contest between incumbent John Mahama and opponent Nana Akufo-Addo is too close to call. If no majority winner from the Dec. 7 election is declared, the race will go to a run-off.

South Korea’s president may be impeached. If parliament moves against the deeply unpopular and scandal-ridden Park Geun-hye, a nine-judge constitutional court will have six months to uphold or reject the motion.

The Nobel Prize ceremony. On Saturday, the laureates will gatherin Oslo for the physics, chemistry, physiology or medicine, and literature awards; the prize for economics will be awarded in Stockholm. Bob Dylan, the first singer-songwriter to win the literature prize, has opted not to attend.

SPONSOR CONTENT BY BARCLAYS

ESG investing: what’s the impact? A new study shows a positive link between high-ESG corporate bond portfolios and performance, dispelling the myth that doing good for the planet is a negative investment. Barclays’ infographic explains.

WHILE YOU WERE SLEEPING

Donald Trump named a fast-food executive as his labor secretary. Andy Puzder, CEO of the company that owns Carl’s Jr. and Hardee’s, is a staunch opponent of labor unions and minimum wage hikes. He also likes raunchy ads, saying: “I like beautiful women eating burgers in bikinis. I think it’s very American.”

China capped UnionPay ATM withdrawals in Macau. The max daily amount will now be 5,000 patacas ($626). Shares of casino companies, including ones based in the US and Australia that have operations in Macau, took a tumble after the news. About half of mainland Chinese gamblers use UnionPay cards to withdraw money in Macau.

Australia approved the sale of its largest private landholding.The Kidman estate will go to Gina Rinehart—the nation’s richest woman—and her business partner, Chinese developer Shanghai CRED. The buyers had in October bid US$288 million for the estate, which encompasses about 1.3% of Australian land. Concerns about foreign interests had stymied previous attempts at a sale.

Former astronaut and US senator John Glenn died at 95. In the early 1960s he became the first American to orbit the planet, then in 1998, at the age of 77, he became the oldest person to fly in space, taking a trip on the shuttle Discovery. He served in the senate for decades, representing the state of Ohio, where he was born and passed away.

QUARTZ OBSESSION INTERLUDE

Gwynn Guilford explains why everything we thought we knew about free trade is wrong. “Starting with Ronald Reagan, American presidents of both parties have oversimplified and overemphasized the benefits of free trade… That lapse has now invited a populist demagogue into the White House. Trump has correctly identified a problem. But by focusing only on free trade deals he risks repeating the very mistakes that conjured him forth in the first place.” Read more here.

QUARTZ HAIKU INTERLUDE

Step up, place your bets:
What will come first? Saint Nick, or
Dow twenty thousand?

MATTERS OF DEBATE

Get ready to never talk to strangers again. In the future we won’t have to interact with anyone we don’t want to.

Nine out of 10 hedge funds are a waste of time and money. The S&P 500 is growing 3 percentage points faster on average.

High drug prices save lives. Charging more means pharma companies can plunge more money into risky innovations.

SURPRISING DISCOVERIES

A 99-million-year-old piece of amber proved that dinosaurs had feathers. They were probably meant not for flight, but for signaling or cooling.

A curvy squirrel was rescued from a manhole in Munich. Wide-hipped “Olivio” is now safe and recuperating on a diet of nuts.

Japan is staking its future on robot babies. They’re designed toconvince couples to become parents, and boost the country’s dismal fertility rate.

Sir Mick Jagger became a father at age 73. The rock legend justhad his eighth child.

Researchers used AI to write a Christmas carol. Let’s just say Mariah Carey doesn’t have anything to worry about.

Our best wishes for a productive day. Please send any news, dinosaur feathers, and robot babies to hi@qz.com. You can follow uson Twitter for updates throughout the day or download our apps for iPhone and Android.

CWS Market Review – December 9, 2016

CWS Market Review December 9, 2016 “Investment success does not require glamour stocks or bull markets.” – John Neff The Trump Rally keeps on trumping. Since Election Day, the Dow has set 13 new highs. Remarkably, just one stock—Goldman Sachs—is responsible for 30.2% of the Dow’s entire advance. Remember how the start of 2016 was one of the worst market starts in Wall Street history? Howard Silverblatt noted this stat: At the market’s February low, the S&P 500 was down 10.5% YTD, yet the Financials were down 17.7%. Since then, the S&P 500 has rallied 21.5%, while the Financials are up 45.6%. It’s as if the entire market were the dog being wagged by the banking sector’s tail. I’ve been pleased to see the Trump Rally broaden out recently. On Wednesday, one-quarter of the stocks in the S&P 500 closed at a new 52-week high. That’s the most in two years. In this week’s CWS Market Review, we’ll take a look at the recent jobs report, plus we’ll preview next week’s Federal Reserve meeting. For the second time in a decade, the Fed looks set to raise interest rates. I’ll also preview the upcoming earnings report from HEICO. This quiet stock is now a 50% winner for us this year. We also got a nice 12% dividend increase from Stryker. The stock has increased its dividend every year for more than 20 years. But first, let’s see if the Fed has plans to kill the Trump Rally. The Federal Reserve Will Finally Raise Interest Rates Last Friday, the government reported that the U.S. economy created 178,000 net new jobs for the month of November. I try to take the government stats with a very big grain of salt. Instead, I prefer to zero in on the overall trend, which, as it turns out, has been very close to 178,000 new jobs each month. The unemployment rate dropped down to 4.6%, which is the lowest in nine years. The workforce participation rate is still too low, and I’d like to see that come up some. Still, the overall trend has been slow improvement in the labor market. All this sets us up for next week’s two-day meeting of the Federal Open Market Committee. I’m afraid I’m going to ruin the suspense for you—the Fed’s going to raise rates. This will be the second December in a row in which the Fed has hiked interest rates. So will the Fed’s move be a rally killer? Not at all. For one, interest rates are still very low. As low as they are, they’re actually positive, which we can’t say for much of the world. Even after the rate increase, the Fed funds rate will be below the rate of inflation. To be blunt, this is less a rate increase than it is fine tuning from the Fed. To be sure, the Fed usually kills rallies in their sleep, but that would require a lot more action than what we’re seeing. Interest rates would have to be 2% or 3% more than inflation. That’s hardly a fear at the moment. It also appears that the economy is gaining a little momentum. Q3 was pretty good for the economy, and the earnings recession ended for Corporate America. This week, we learned that the ISM Non-Manufacturing Index rose to 57.2 for November. That’s very good. The market this year has been very difficult for a lot of Wall Street bigwigs. The Financial Times notes that more hedge funds will shut down this year than in any year since 2008. This market has thrown us a couple false starts, quiet reversals and head fakes. For example, stocks are becoming much more correlated with each other. In previous years, when the S&P 500 rose, say, 1%, you could pretty much guess that most stocks would be near 1%. Now that’s not so true. In fact, even the Dow and S&P 500 have parted ways. Since the Dow is loaded with more heavy-industry industrial stocks, it’s enjoyed the Trump Rally far more than the broader S&P 500. This has been a great time for U.S. stocks. Since Donald Trump got elected, about $2 trillion has rotated out of bonds and into stocks. On Thursday, the S&P 500 set another record closing high of 2246.19. At some point, this surge will come to a halt, but don’t try to guess when. For now, we should enjoy the ride. Our Buy List stocks are doing very well. Now let’s take a look at the smallest stock on our Buy List, which just so happened to close Thursday at a fresh 52-week high. Earnings Preview for HEICO Who would have guess that little HEICO (HEI) would turn out to be our top-performing stock this year? Through Thursday’s close, shares of HEI have gained more than 50% this year. If you’re not familiar with HEICO, the company makes replacement parts for the aircraft industry. They’ve raised their earnings guidance three times this year. HEICO is due to report their Q4 earnings next Tuesday, December 13, after the closing bell. Earnings for the first three quarters of this year are up 18%, while sales are up 19%. The company only provides guidance for net income, instead of EPS. In the Q3 earnings report, they said they forecast net income to rise by 13% to 15%. Let’s bust out some math. Last year, HEICO earned $1.97 per share. That means an increase of 13% to 15% works out to a range of $2.23 to $2.27 per share. However, HEICO’s shares outstanding are 0.4% higher this year, so that will dilute that range by about one penny per share. Since the company has already made $1.64 per share so far this year, we can expect 58 to 62 cents per share for Q4. Wall Street’s consensus is for 62 cents per share. The stock is currently well above our $76 Buy Below price, but I want to hold off increasing that price until we see the Q4 earnings report. I like HEICO a lot. Stryker Raises Dividend by 12% We got very good news this week from Stryker (SYK). The orthopedic company announced a 12% dividend increase. Stryker’s quarterly payout will rise from 38 cents to 42.5 cents per share. The company has increased its dividend every year since 1993. “Our 12% increase in the dividend for 2017 reflects the strength of our balance sheet and our consistent capital-allocation approach, which uses acquisitions, dividends and share repurchases to drive shareholder value,” said Kevin A. Lobo, Chairman and Chief Executive Officer. “Our continued strong performance should enable us to continue to drive future dividend increases roughly at or above our earnings growth.” The annualized dividend is $1.70 per share, which comes to 1.5% based on Thursday’s closing price. The dividend is payable on January 31, 2017 to shareholders of record at the close of business on December 30, 2016. Stryker remains a buy up to $119 per share. Express Scripts Drops on Short-Seller’s Tweet I’ve been getting more impressed with Express Scripts (ESRX), although the stock hasn’t done particularly well this year. ESRX was starting to recover until Thursday, when a prominent short-seller dinged the stock with a pair of tweets. On Thursday afternoon, Andrew Left of Citron Research tweeted, first: $ESRX is Philidor of the pharma industry. @therealdonaldtrump promises to fix drug pricing? Two words: EXPRESS SCRIPTS Which was followed by: When @realdonaldtrump tells $ESRX ‘you’re fired’ heads will roll. The culprit behind pharmaceutical price gouging. Price Target $45 I’m not sure if the president-elect read Left’s tweets, but enough traders did. The stock reacted immediately. Within minutes, shares of ESRX fell from $74 to about $68. The stock recovered a bit later in the day and closed at $70.75. I’m always a bit reluctant to comment on other people’s research. I still like Express a lot and see no reason to worry. The problem is that drug companies are pushing back against the flap about high drug prices by shifting the blame to companies like Express Scripts. It might be good PR, but it’s bad economics. From the last earnings report, Express said they expect full-year earnings of $6.36 to $6.42 per share. That means the stock is currently going for about 11 times earnings. That’s quite cheap. Three New Buy Below Prices Thanks to the post-election rally, a few of our stocks have jumped well above their Buy Below prices. I suppose that’s a good problem to have. I wanted to adjust a few of our Buy Belows before the end of the year. In this week’s issue, I’m raising our Buy Below on Alliance Data Systems (ADS) to $250 per share. The stock has rallied impressively over the last month. Another big winner recently has been Snap-on (SNA). SNA had a great earnings report in October. The stock has rallied more than 18% in the last two months. This week, I’m raising our Buy Below on Snap-on to $181 per share. But Signature Bank (SBNY) has been our biggest winner lately. The stock is up close to 40% from its September low. After the October earnings report, I lowered our Buy Below on SBNY to $125 per share. The stock quickly blew past that, so three weeks ago, I raised the Buy Below to $150. SBNY is still climbing, so now I’m raising our Buy Below to $165 per share. That’s all for now. A reminder that I’ll unveil the 2017 Buy List in the CWS Market Review two weeks from today. Next year’s Buy List will be expanded to 25 names. The big news next week will be the Federal Reserve’s meeting on Tuesday and Wednesday. The Fed will almost certainly raise interest rates for just the second time in the last decade. I suspect that the Fed will lean towards doing very little over the first six months of 2017. 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 nine years. This email was sent by Eddy Elfenbein through Crossing Wall Street.

2223 Ontario Road NW, Washington, DC 20009, USA

#China’s surging trade, New Zealand’s next PM, #Philippine gift boxes

Good morning, Quartz readers!

WHAT TO WATCH FOR TODAY

The European Central Bank decides the fate of its stimulus efforts. Most investors are expecting the bank to announce (paywall) at least a six-month extension of its extensive bond-buying program. If the bank has a surprise, the sell-off in bonds could be severe.

Widespread strikes rattle Greece. The nation’s largest private sector union, GSEE, has called for nationwide strikes today to protest austerity measures. It contends the latter have squeezed wages, driven many out of work, and hurt the economy.

A trial begins for a high-profile Pakistan “honor killing.” A local court has indicted three men, including her brother and cousin, in the murder of Qandeel Baloch, a controversial Pakistani social media star.

WHILE YOU WERE SLEEPING

China reported upbeat trade figures. Both imports and exportssurpassed expectations. Imports jumped the most in two years, with resource imports being particularly strong, which helps explain the rising prices of bulk commodities. The news was especially welcome in Australia, which supplies China with many a raw material.

Bill English emerged as New Zealand’s next prime minister. He still faces a vote on Monday by MPs of his National Party, but that’s looking like a formality now that 30 have indicated their support for him. The current PM John Key announced his resignation on Dec. 5, suggesting that English, currently the deputy PM and finance minister, succeed him.

Shell signed a deal with Iran’s state oil company. Thepreliminary agreement flies in the face of US president-elect Trump’s vow to reverse or renegotiate the deal to end sanctions against the nation. Last month France’s Total SA signed a deal (paywall) to develop a natural-gas field in Iran.

Michael Jordon won the rights to his Chinese name in China.The basketball legend finally emerged victorious in a long-running trademark dispute, with China’s top court overturning earlier decisions against him. On the losing side is Chinese company Qiaodan Sports, which will have to give up its registration of the Chinese version of his last name.

QUARTZ OBSESSION INTERLUDE

Anne Quito on the millions of 100-lb. gift boxes Filipinos send their relatives every Christmas: “The word “balikbayan” is a Tagalog compound word that translates to “return [to] country.” As the most iconic symbol of the Filipino diaspora, the balikbayan box serves as an emotional bridge between parents and siblings who part with their families to earn a higher wage abroad collectively known as ‘Overseas Filipino Workers.’” Read more here.

QUARTZ HAIKU INTERLUDE

Winter winds blow cold
for the disfavored. Today
Pharma feels the chill.

MATTERS OF DEBATE

“Seasteading” could blur the boundaries of business.Autonomous ocean platforms might sell health care and finance services to the rest of the world.

Identity politics is the politics of survival. For years, marginalized Americans have been repressed into silence.

If you give the poor cash, they don’t waste it. Direct transfers lead to more spending on children’s food and health—especially when women are in charge.

SURPRISING DISCOVERIES

Cheerleading and Muay Thai may be Olympic sports in Tokyo 2020. They were both provisionally recognized by a key committeethis week.

Strobe lighting could fight Alzheimer’s disease. Flashing lights stimulate immune cells to absorb the sticky amyloid proteins that are a hallmark of the disease.

A robot is guarding the world’s biggest physics experiment.“TIM” is patrolling the 27 km tunnel that houses the Large Hadron Collider.

Burger King is selling a jelly donut burger in Israel. It has beenchristened “Sufagni Burger” for the Hebrew word for donuts—a Hanukkah staple.

Japan loves it when the First Lady criticizes the president. Aki Abe describes her role as “a bit like an opposition party.”

Our best wishes for a productive day. Please send any news, cheerleading routines, and jelly donut burgers to hi@qz.com. You can follow us on Twitter for updates throughout the day or download our apps for iPhone and Android.

#Samsung gets a win, #Trump hugs #SoftBank, airport therapy pig

Good morning, Quartz readers!

WHAT TO WATCH FOR TODAY

The US Senate considers AT&T’s acquisition of Time Warner.The companies’ CEOs will try to persuade the judiciary committee that the $108.7 billion deal will increase competition. Tech billionaire Mark Cuban will also testify that it will create a new competitor for Facebook and Google.

India’s central bank looks to cut rates. With the economy sputtering from demonetization, the Reserve Bank of India is expected to drop its benchmark interest rate by .25 points to 6%. (In yesterday’s Daily Brief, we mistakenly said the decision would be made on Dec. 6.)

The US reports more October economic data. Analysts expect job openings increased by 14,000 (pdf) to a
seasonally adjusted 5.5 million. Consumer credit data will also be released.

WHILE YOU WERE SLEEPING

Donald Trump met with SoftBank CEO Masayoshi Son.Afterwards he announced the Japanese tech firm will invest $50 billion and create 50,000 jobs in the US. SoftBank still hopes for US approval to merge its Sprint subsidiary with T-Mobile US, despite authorities signaling opposition to the idea a few years ago. Stocks in both companies gained after the announcement.

The US Supreme Court backed Samsung over Apple. In a unanimous decision, judges threw out a ruling that ordered the South Korean giant to pay a $399 million penalty for violating Apple’s patents. The case was returned to an appeals court with instructions to decide on a smaller penalty for copying iPhone designs.

Alaska Air Group won US approval for its $2.6 billion acquisition of Virgin America. But the company will have to scale back its code-sharing with American Airlines for the deal to go forward, antitrust regulators said. The merged company would be the fifth-largest US carrier.

An earthquake struck Indonesia’s northern Aceh province. At least 25 people were killed, and dozens of buildings collapsed. In 2004 the nation lost more than 160,000 lives, mostly in the Aceh province, after an earthquake triggered a large tsunami. This time there was no tsunami threat.

QUARTZ OBSESSION INTERLUDE

Josh Horwitz on the US companies and states that will suffer most if US-China relations worsen: “Any trade war that introduced new tariffs on US goods sold in China or made it more difficult for US companies to do business there would hurt some profoundly. In the aggregate, US soybeans farmers, auto makers, and aircraft companies export the most to China.” Read more here.

QUARTZ HAIKU INTERLUDE

The skyward cranes join
and part in flight, kind of like
two stock indices

MATTERS OF DEBATE

Beijing will be the real winner if Facebook enters China.Censoring content in exchange for market access would be a Pyrrhic victory for Mark Zuckerberg.

The West’s center-left is in free fall. Francois Hollande’s demise is a sign of the times, one that mirrors the fate of politicians throughout the western hemisphere.

Tamil Nadu’s most shameful political moment fueled Jayalalithaa’s rise. The late Indian politician was a victim turned abuser.

SURPRISING DISCOVERIES

David Bowie is treating Buzz Aldrin in a New Zealand hospital.The astronaut’s doctor shares a name with the late rock star who wrote the song “Space Oddity.”

Polar sea ice the size of India has disappeared. Greenhouse gases, an El Niño weather event, and freak natural swings are all possible culprits.

The speed of light could be slowing down. Some scientists believe that the supposed constant was faster in the early moments of the universe.

JPMorgan Chase’s new credit card may be too popular. The premium Sapphire Reserve card is expected to reduce the bank’s quarterly profits by up to $300 million.

San Francisco’s airport now features a therapy pig. LiLou istrained to reduce the stress of travel (she’s also big on Instagram.)

Our best wishes for a productive day. Please send any news, comments, therapy animals, and premium credit cards to hi@qz.com. You can follow us on Twitter for updates throughout the day or download our apps for iPhone and Android.

#US reassures #Asia, #Renzi’s ripple, #cannabis coffee

Good morning, Quartz readers!

WHAT TO WATCH FOR TODAY

Ash Carter tries to reassure Asia. The US defense secretary will speak with Asian allies, who are nervous about a Trump presidency, on a trip spanning Japan, India, and Bahrain. Separately, the president-elect “will be on everyone’s minds” as NATO foreign ministers meet in Brussels.

The Reserve Bank of India addresses interest rates. Its monetary policy committee is likely to cut (paywall) the benchmark interest rate to 6%, the lowest since 2012. Many expect the cash crunch from demonetization to shave up to 1% off India’s GDP growth.

The US reports October economic data. Analysts expect that new orders for US factory goods rose 2.6% from the previous month (compared to September’s 0.3% increase over August), and that the trade deficit rose to $41.8 billion (pdf), compared to $36.4 billion the month before.

WHILE YOU WERE SLEEPING

Markets didn’t flinch after Italy’s populist vote. Unlike votes for Brexit or the US presidency, the “no” vote on prime minister Matteo Renzi’s referendum on constitutional reform caused only a small ripple in global markets. US and Asian stocks climbed.

Amazon is building grab-and-go grocery stores. The e-commerce giant is opening a brick-and-mortar pilot store with no checkout lines. Instead, a combination of sensors, computer vision, and deep learning will track the items that shoppers choose.

The US tried to make good with China. After Donald Trump’s call with Taiwan’s leader caused a diplomatic furor, the Obama administration spoke twice with Beijing to reassure them of Washington’s continued support for its 40-year-old “One China” policy.

Donald Trump and Al Gore discussed climate change. The president-elect—who has called global warming a Chinese hoax—had a “productive” meeting with the former vice president, who was awarded the Nobel Peace Prize in 2007 for his climate change efforts.

India’s actress-turned-politician Jayalalithaa Jayaraman passed away. The 68-year-old suffered a cardiac arrest at Chennai’s Apollo Hospital. The former movie star was serving her sixth term as the chief minister of the state of Tamil Nadu, despite a political career plagued with legal trials and tribulations.

QUARTZ OBSESSION INTERLUDE

Isabella Steger on the unbearable sadness of being Taiwan, a liberal island other democracies refuse to talk to: “The simple fact that it took a phone call between US president-elect Donald Trump and Taiwanese president Tsai Ing-wen to draw attention to one of Asia’s most vibrant democracies highlights the humiliating plight of Taiwan in the international arena.” Read more here.

MATTERS OF DEBATE

You’re not entitled to your own opinion. It’s a logical fallacy that is often used to shelter faulty arguments.

Airbnb is no longer the nice guy of the sharing economy. The once idealistic startup has become yet another corporate giant.

Italy’s referendum shouldn’t be conflated with Brexit and Trump. Italians were actually voting to maintain the status quo.

SURPRISING DISCOVERIES

Japan won’t be getting reindeer-delivered pizzas after all.Domino’s canceled its unusual transportation scheme because it’s “difficult to control the reindeer.”

Cannabis coffee pods are coming to California. They work in Keurig machines for those who want to wake, bake, and caffeinate.

Chimps recognize each other by their backsides. They have specific neural areas devoted to butt recognition.

The best bed in the world costs $150,000. The Hästens Vividus is made of rare Swedish pine and hand-braided horsehair.

A Chinese nursing home is paying people to visit their relatives. Visits have soared since the home started offering a $29 cash bonus.

Our best wishes for a productive day. Please send any news, comments, horsehair beds, and cannabis coffee to hi@qz.com. You can follow us on Twitter for updates throughout the day or downloadour apps for iPhone and Android.