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Whipsaw Wednesday – Back Where We Started From

What a crazy week already.

In the last 3 sessions, the Dow has gained 400 points, lost 400 points and now gained it again and all that only takes us back to where we were on April 19th – 34,100.  Same with the S&P 500 – just under 4,200 now and the Nasdaq has lost a bit of ground, now 13,600 for the 100, who are mostly done with earnings.  So what's the next catalyst going to be?  The Fed can't loosen and Janet Yellen even said they may have to tighten soon, before inflation gets out of control.  We know what earnings and forward estimates look like so the only thing left to take us another layer higher has got to be MORE FREE MONEY!  Come on Uncle Joe – baby needs a new pair of shoes….

Oil is back to $66.50 on enthusiasm for the re-opening though oil was only $55 avg for 2019 – before the virus and more like $60 in 2018 but $50 in 2017 and $45 in 2016 – so I really don't see how $66.50 is going to play out over the long haul.  Of course, all commodities are inflating rapidly so oil is just on that bandwagon, along with the ever-weakening Dollar.

Still, according to Caesar's (CZR), weekends in Las Vegas are sold out "for the foreseeable future" and, even though the stock lost $1.7Bn last year and plans to lose $800M this year, people are still paying $20Bn at $95.50 for the recently-bankrupt company.   Why?  I have no clue.  Cruise ships are also back in the money, as are airlines though none of them proect much more than small profits this year and nexts.

As with any gambling, people just want to play and that's good for CZR and good for the markets at the moment.  

Just remember, the longer you keep playing – the more likely it is you are going to lose! 

Finally, courtesy of BofA, here is a list of the companies that have complained in recent weeks about soaring prices most if not all of which have proceeded to pass on price increases to consumers… that would be you dear readers:

  • FAST (Industrials): “we are experiencing significant material cost inflation, particularly for steel, fuel and transportation costs.”

  • GIS (Staples): “Looking ahead, as we experienced higher inflationary environment, our first line of defense will continue to be our strong holistic margin management cost savings program. In addition, we are taking actions now and in the coming months […] to drive net price realization that will benefit our FY2022. “

  • CAG (Staples): “we're seeing input cost inflation accelerate in many of our categories and across the industry.”

  • LW (Staples): “while the pandemic-related effects on our supply chain were the primary drivers of our cost increases, we also realized higher costs due to input cost inflation in the low single-digits. We expect that rate will begin to tick up in the coming quarters as edible oil and transportation costs continue to increase.”

  • PPG (Materials): “we experienced a significant acceleration of raw material and logistics cost inflation during the quarter. Coming into the year, we were expecting an inflationary environment and had prioritized selling price increases across all of our businesses. This has helped us achieve solid price increases year-to-date. With a higher inflation backdrop, we have already secured further selling price increases and are in the process of executing additional ones during the second quarter. “

  • DOV (Industrials): “What we are going to fight against between now and the end of the year […] is inflationary input costs between raw materials, labor, and price/cost […] the way it's looking we may have to intervene on price again in certain of the businesses over the balance of the year.”

  • TEL (Tech): “I would expect our margins to modestly improve as we work our way forward here into the third and fourth quarter based on some of the actions that are underway and our ability to combat some of the inflationary pressures out there. […] Certainly, we’re feeling the biggest inflation right now is on the freight side. The freight inflation has been significant. And as we battled through there and there’s a variety of reasons for that including higher air freight and so forth in terms of that. And that’s not unique to TE. Certainly, I think that’s been as well publicized across the overall supply chain. […] labor cost is not a major issue on the inflation side, but labor  availability in certain places that are still being more impacted by COVID continues to drive some inefficiencies.”

  • CMG (Consumer Discretionary): “So, all of that is very, very manageable and we feel like if there is going to be significant increased inflation because of market-driven or because of federal minimum wage, we think everybody in the restaurant industry is going to have to pass those costs along to the customer.”

  • ALLE (Industrials): “This guide incorporates pricing actions to offset direct material inflation, as well as reflecting our supply chain capability to mitigate industry challenges on supply and electronic component shortages. We anticipate that these challenges will persist for the balance of the year, and we will continue to monitor and adapt to changing market conditions.”

  • WHR (Consumer Discretionary): “The global material cost inflation in particular in steel and resins will negatively impact our business by about $1 billion. We expect cost increases to peak in the third quarter.”

  • PNR (Industrials): “All inflation remains high. We have instituted a number of selling price increases across the portfolio that we expect to help mitigate inflation in the second half of the year.”

  • TSCO (Consumer Discretionary): “Compared to our initial outlook for the year, our forecast does reflect higher transportation costs and product inflation. We experienced increasing pressures from these factors during the first quarter and expect them to continue to be a headwind throughout 2021.”

  • POOL (Consumer Discretionary): “We previously said that inflation would be in the 2% to 3% range but now believe it will be in the 4% to 5% with some products into double-digits. We don't anticipate any of this getting hung up in the channel so that will provide a tailwind for the year. Considering that most of our – most of the cost of constructing a new pool or remodeling an existing pool is tied up in labor we don't anticipate this inflation having a meaningful effect on demand as it relates to nondiscretionary products such as chemicals, inflation has simply passed through again with no real effects on demand.”

  • LUV (Industrials): “Outside of salary, wages and benefits, the largest drivers of our sequential cost pressure are flight driven cost increases and landing fees, employee, customer and revenue related cost, and maintenance expense…”

  • HON (Industrials): “Yeah, that's definitely a watch out item for the year. And for us, inflation is taking hold. There's no doubt about it. We knew it. We see it. It's real. And if you don't stay on top of it, the two areas where – and this is not a surprise – steel, semiconductors, copper, ethylene, those are the four elements that we saw substantial inflation in Q1. [..] I can tell you that we stood up a pricing team, which has been in place since the beginning of the year. We're quickly taking actions and we are staying ahead of it. And we're going to continue to monitor what happens and stay ahead of it. But it's a watchout item. I don't think things are going to abate. The short cycle is definitely hot. We all read the same articles around semiconductors and what's going on there, and I think we're going to have to just stay ahead of it. But we do expect an inflationary environment this year. And we're going to stay ahead of it. That's our commitment.”

  • CE (Materials): “We're certainly feeling the inflationary factor. I think, the good news is we anticipated this coming back in the fourth quarter of last year already and started moving prices […] So, although it is an inflationary pressure, we've been able to push that through in our pricing and basically maintain the same level of variable margin.”

  • KMB (Staples): “The biggest reason being that our pricing actions and the benefits of that will be coming through the P&L in the second half. In terms of input cost inflation, that is ramping in the first quarter, and the second quarter. We expect that, it will peak and then moderate and, in some cases, come down a bit in the second half.”

  • MDLZ (Staples): “In terms of inflation, there is more inflation coming. And so, profitability is great in Q1. We believe we are going to hit the numbers as we had originally in mind. But the higher inflation will require some additional pricing and some additional productivities to offset the impact, which I believe at this point is absolutely manageable given that all these positions are pretty much hedged for 2021.”

  • SHW (Materials): “On the cost side of the equation we now expect raw material inflation for the year to be in the high-single-digit to low-double-digit range, a significant increase from the low- to mid-single-digit range we communicated in January. And let me just begin by reiterating a little bit what John and Al have been saying. This whole area of raw material inflation is a transitory issue for us. It's not new for us. We've demonstrated an ability to manage through this many times in the past, and we'll get through this as well.”

  • WM (Industrials): “We do expect that inflation will kick up a little bit, and so we'll get some help. And we're typically a beneficiary of higher inflation.”

  • PKG (Materials): “We also anticipate continued inflation with freight and logistics expenses as well as most of our operating and conversion costs. However, energy costs should improve as we move into seasonally milder weather.”

  • MMM (Industrials): “We are also raising prices, but it's going to take a little bit of time. The inflation has come in faster. So you're going to see 75 to 125 basis points of headwind which is the net of price versus inflation and logistics.” “On supply chain disruption, there are two pieces. One is of course the inflation that we've told you about which will cost 75 to 125 basis points of headwind between price and inflation and the raw material and logistics costs as well as making sure that we have all the product availability that we have. So that's the other, I would say, headwind to 1Q.”

  • PHM (Consumer Discretionary): “We have updated our guide in terms of what the inflationary aspect of the sticks and bricks is. We have been at or near 5%, 6%. We're now 6% to 8%. And depending what lumber does, that could move a little bit even higher than that.”

  • (Consumer Discretionary): “We're definitely feeling the commodity headwind, as John said. And inflation, it feels like we're seeing inflation in variety parts of our industry kind of in ways we haven't seen for many years. On the other hand, it feels like it's all due to a lot of one-timers as the economy comes out of lockdown. So I think it's a bit too early to declare the run rate or where it's going to be. It's just too hard to tell from my standpoint.”

  • AVY (Materials): “supply chains have remained tight and input costs have been increasing. As a result, raw material and freight inflation were above our initial expectations. And we have continued to see costs rise as we entered the second quarter We now expect mid to high single digit inflation for the year with variations by region and product category.”

  • IDX (Health Care): “I would say on the inflationary front, it's kind of spotty for us. I mean remember we're a little further down the food chain. We don't buy a lot of giant quantities of base material. We buy things that have been converted, so it does have a little bit of a lag for us. And so we see the same things others are seeing where we buy lots of metals. There's some inflationary pressure; electronics, a few other places but we're navigating around those on the freight side. That's certainly a challenge both on the price, frankly more on the availability side. [...] We're no different than anybody else trying to find sea containers, trucking, trains, port facilities that have to unclog all of those things. Our model helps us. Our folks help us. I think as we go further out, the inflationary pressure, I actually think that's going to ramp up a bit for everybody.”

  • SWK (Industrials): “As many of you follow, steel and resin represent the two largest commodity exposures and they have been impacted by rapid spot market increases as the global supply chain response to the surge of demand and temporary supply gaps. This dynamic has occurred across many of our key commodities, components, finished goods that we purchase. We now expect inflation headwinds to approximate $235 million, which is up $160 million versus our previous outlook of $75 million.”

  • MAS (Industrials): “We have seen significant inflation in raw materials, namely copper, zinc, and resin, used in both our paint and plumbing businesses as well as increases in freight costs. All in, we expect our raw material and freight costs to be up in the  mid single-digit range for the full year for both our Plumbing and Decorative segments, with inflation likely reaching high single-digit levels in both segments in the third and fourth quarters."

 


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  1. Good Morning.


  2. Good morning!

    ADP Employment was a big miss and we have IHS and ISM at 10.  

    Oil is a very tempting short into inventories at $66.25.  $66.50 I would certainly short at that's $70 for Brent, which should be rejected.

     

    API showed a huge 7.7Mb draw AND a 5.3M draw in Gasoline AND a 3.45Mb draw in Distillates – that seems very unreal

    Image


  3. Love this:  


  4. And others is pretty good!


  5. Sorry, no Webinar today, my throat is still bad and once again I slept very little.


  6. Phil / SPWR,  hope you feel better. Any thoughts on a new position?  I bailed quite a while ago but coming down prett hard. Sporting low PE around 8. thx 


  7. More chicken soup!  Get well Phil.


  8. So I can make a case for travel and tourism as I can imagine lots of people have vowed not to put off trips and experiences – now that they've been taken away from us.  You think you will always have time – but it turns out you don't.  Maybe that's how the 1918 pandemic led so quickly into the roaring 20s.

    SPWR/Jeddah – Turns out you need chips to make solar cells – who knew?  Supply constraints are killing that sector and inflationary costs may be hard to pass on as subsidies don't go up so the consumer has to bear 100% of the cost of the price increases.  

    "While demand is soaring, less than three percent of U.S. homes currently have solar and storage and penetration is still in its infancy. To significantly increase category growth, the adoption of distributed energy needs to be easy, reliable and affordable," said Peter Faricy, CEO of SunPower. "SunPower has the deepest history and strongest residential and commercial products in the business, and we see customer experience and digital product innovation as the keys to our future success. We believe we are well positioned to accelerate and lead the next era of solar."

    "Specifically, our solid first quarter results reflect the continued strong demand for our industry-leading solar and storage solutions in both our residential and commercial markets," said Faricy. "We continue to see homeowners and businesses across the country looking for cleaner, lower-cost energy with resiliency becoming a critical factor in their decisions. SunPower is delivering the industry's leading solutions today while investing in the highest growth markets including storage, energy services, and expanding our community solar efforts. With these strategic initiatives and favorable national policy proposals, we are on track to achieve our 2021 goals and drive growth in 2022 and beyond."

    Residential and Light Commercial (RLC)

    • Residential strength – 22 percent gross margin, $25 million Adjusted EBITDA

    • Overall bookings up 25 percent, record new homes bookings

    • Strong success in shifting residential mix to more full systems sales (55 percent in Q121)

    • Progress on addressable market expansion initiatives such as multi-family, loan servicing, long tail

    Commercial and Industrial Solutions (C&I Solutions)

    • Revenue growth of >20 percent, year-over-year (YOY) megawatts (MW) growth of 34 percent, backlog above 275 MW

    • Strong bookings momentum – up 50 percent compared to Q1 2020

    • Helix storage – >20 MWh Front of the Meter (FTM) storage under contract, >400 MWh awarded or shortlisted

    • Continued momentum in community solar – >115 MW of pipeline, added >25 MW in Q121

    ($ Millions, except percentages and per-share data)

    1st Quarter 2021

    4th Quarter 2020

    1st Quarter 2020

    GAAP revenue

    $306.4

    $341.8

    $290.5

    GAAP gross margin from continuing operations

    16.3%

    22.0%

    10.0%

    GAAP net (loss) income from continuing operations

    $(48.4)

    $412.5

    $21.5

    GAAP net (loss) income from continuing operations per diluted share

    $(0.28)

    $2.08

    $0.12

    Non-GAAP revenue1

    $305.8

    $341.8

    $295.7

    Non-GAAP gross margin1

    18.7%

    22.3%

    12.1%

    Non-GAAP net income (loss)1

    $9.3

    $26.6

    $(15.1)

    Non-GAAP net income (loss) from continuing operations per diluted share1

    $0.05

    $0.14

    $(0.09)

    Adjusted EBITDA1

    $19.1

    $38.6

    $(2.7)

    MW Recognized

    127

    153

    132

    Cash2

    $213.1

    $232.8

    $205.5

    Information presented for 1st quarter 2020 above is for continuing operations only, and excludes results of Maxeon, other than Cash.

    1Information about SunPower's use of non-GAAP financial information, including a reconciliation to U.S. GAAP, is provided under "Use of Non-GAAP Financial Measures" below

    2Includes cash, and cash equivalents, excluding restricted cash

    They just changed CEOs on 3/25 so, to some extent, Faricy may have tanked the Quarter so he'll have easy comps moving forward.  Q1 is always slow for solar and SPWR just partnered with MAXN, which should bring their cost of solar modules way down going forward.  

    You know I love these guys long-term but $22 is still $4Bn and they'll be very lucky to make $200M in a good year over the next 5 so it's an expensive play (we are in $5/12 spreads for Jan – the whole run-up was a surprise to us, not the sell-off) 

    Chicken Soup/1020 – Had a couple of quarts already.


  9. As expected, EIA nowhere near the draw of API and we got our $66.50 short entry so now we'll see how it goes:

     

    • April ISM Non-Manufacturing Index: 62.7 vs. 64.2 consensus, 63.7 prior.
    • Business activity 6.27 vs. 69.4 prior.
    • Employment: 58.8 vs. 57.2
    • New order: 63.7 vs. 67.2
    • Prices 76.8 vs. 74.0

  10. Oil coming down nicely, $65.50 should be bouncy so no reason to be greedy – 1/2 off there and tight stops on the rest (unless it doesn't bounce at all and goes straight under).  


  11. Phil, too bad you’re still not feeling well.  The good news is you know you’re having a robust immune response.  I always wonder how much of an immune response people are having who get no symptoms.


  12. Robust/Steve – Doesn't feel that way.  So annoying as I haven't had the flu all year thanks to masks and such.  

    That's it for /CL – hit $65 and you KNOW that's going to bounce so no sense riding it out.

    See how that works, we haven't played oil for ages and we waited PATIENTLY for a day when it clearly got too excited.  


  13. look at ETCG!

    and check this out, ETC is trading on coinbase as high as 150 and was only 97 on bittrex. Arbitrage of $53 per coin! Grayscale's ETCG owns 0.886 ETC per share, which at $70 trading = $79 NAV. Currently 120 on coinbase and 89 on bittrex so strong buy for ETCG???


  14. I had some on CB and sold them at 105 and bought the same amount on bittrex for 80. So it was just pure arbitrage. Crazy markets! So frothy they are massively inefficient right now! One thing I see is the CB confirmation is 10000 blocks for ETC, so about 36 hours. That might be the reason for the difference in price; one can't just "get" their coins onto ETC quickly. 

    Just totally crazy though.


  15. ETCG/BDC – These things are going nuts.  And that's despite the Dollar recovering.

    No options on ETCG unfortunately.

    CB/BDC – Not the one you mean but CB is very fairly priced at $171.50, which is $77Bn and they make a nice, boring $5Bn a year with a 1.85% dividend.  

    As I told you, I am working with people who are trading Bitcoins in large quantities for discounts.  If you set up a transaction, you can get paid in Bitcoin if you want.   I'm seeing small deals of 100-1,000 and then mega-deals with 100,000+ and usually about 8% discounts.  It's getting very professional with a lot of IBanks acting as escrow agents.