What Now Wednesday - Looking for Direction, Waiting for Disaster

Davos – clueless as ever | We're on very shaky ground.

The World is reeling from crisis to crisis and shortages are piling up and that's causing companies to issue warnings about future profits on an almost daily basis. We just ran out of Baby Formula, for goodness sakes! This is not getting better, it's getting worse as countries are starting to curb exports of things like wheat, corn and oils – as they aren't sure they have enough for their own people.

Russia is blockading Ukraine's wheat and that's about 10% of the entire World's supply. Wheat is used in lots of things so that shortage cascades down to food manufacturers and then to restaurants and, of course, Cost of Living Indexes.

Meanwhile, in our typical American fashion, we hear about India having a month straight of over 100 degree days and ignore it – even though the World is round and tends to spin so weather gets to us all eventually. The US is flat out not able to provide enough electricity to keep people comfortable in that kind of weather and we're looking at a summer of rolling blackouts if we suffer the same temperatures.

Why? Because we never spent the $2Tn we needed to spend to upgrade the Power Grid. Our Power Grid loses 67.8% of the electicity we generate, so it costs us Trillions of Dollars NOT to fix it. We have known about this for 20 years and we have done nothing for 20 years so my Top Trade Alert for this morning is to get solar panels, a home storage battery and a generator – the Government isn't going to save us so we have to save ourselves (and, by doing so, we take a little pressure off the grid as well).

Yes, it is actually that insane that to deliver 12.5 QBTU of energy to end users we use 31 QBTU of Fossil Fuels AND 6.4 QBTU of renewable energy. CLEARY addressing this problem would make the World a better place and CLEARLY it would be well worth borrowing $2Tn to save an estimated $500Bn PER YEAR in losses AND drastically reduce emissions but the Coal, Natural Gas and Nuclear lobbyists have fought tooth and nail for 20 years against any such improvements. Just ask Joe Manchin – who is single-handedly destroying the planet as we speak – or any Republican, of course…

This morning's bad news, other than 21 people being shot in a school in Texas or "Wednesday" as we like to call it in gun-crazy America, is the Dollar making a comeback after being down for two days of Davos. That's putting pressure on Stocks, Oil, Gold, etc, which is a shame as we went long on Silver (/SI) yesterday at $22 (but tight stops) – but we'll try again when it stops falling.

The Dollar is going to be strong because the Fed is raising rates faster than other Central Banks and also because there are multiple political, natural and economic disasters all over the World and the Dollar is the "safe haven" currency that everyone DEMANDS when shit hits the fan.

Frankly, if it weren't for a Dollar that rose 13% in the past two years, inflation would be MUCH higher than it is now. But what makes us happy makes others sad and the Euro tested $1.05 this week as the Dollar hit 105 so figure 110 on the Dollar will be $1 for the Euro and that would be a complete catastrophe for the Euro Zone who, of course, are feeling the brunt of the war already as they move into their own long, hot summer.

Earnings revisions in Europe and the US have gotten fairly drastic now down 20% for the Quarter in the US and that was only through the end of April, we've gotten a lot more bad news since then. As I have LONG pointed out, $11Tn in stimulus was 25% of our GDP in the past two years – lack of stimulus this year is, OF COURSE, going to lead to a lower GDP and lower Corporate Earnings – you can't wish it all away with positive thinking:

That's why I keep saying this is a CORRECTION – as in we are moving down to the CORRECT market levels – and not a pullback, which indicates that we expect to get back to the highs. The highs were WRONG – no one should have paid that much for those stocks and those people will now have to live with those decisions. It doesn't mean all stocks are bad but, unfortunately, a major market repricing can drag down good stocks – just as a major rally can lift bad ones. We are now in a reversal of both.

We have Fed Minutes at 2pm and people want to know what "neutral" will look like. Most likely there are two 0.5% hikes ahead of us but, after that, who knows? It's all going to hit the fan next month anyway, when the Fed stops buying TBills. Who will buy them? You???

The 10-year is bouncing off its lows at 118 but down from 140 is 22 so, by applying our 5% Rule™, we'll be looking for 4.4-point bounces to 122.4 (weak) and 126.8 (strong) and failing the weak bounce this week would be BAD!

Oh, I'm sorry, BAD makes it sound like it won't happen but it will. 140 to 118 is -22 which is 15.7% but it's a 10-year note so, if you bought one with 2% interest at 140 and rates go up to 3.5%, then your note is worth 1.5% less than a new note PER YEAR, or 15% less than the new notes. If the market begins to accept the fact that the Fed Funds Rate going forward will be more like 3.5%, then a TBill will be more like 5% and that would be a 3% annual disadvants for 2% note-holders and that would bring us to 140 x 0.70 = 98.

That being the case, there is no "bounce" – just a pause on the way to new lows.

Ongoing Supply Chain Worries Cut Into Production

While shares of several of the major automakers have been pushed significantly lower over the past 30 days, Ford’s stock has been hit unusually hard, falling 16% as of Wednesday. Shares of rival General Motors (GM), in comparison, have declined 10%, while Honda’s (HMC) have slid 5% and Toyota’s (TM) 6%. Stellantis (STLA), meanwhile, has seen its shares rise 1%.

With the retreat, Ford shares also hit a 52-week low of $12.07 last week. That’s a 53% drop from the 52-week high of $25.87 they reached on Jan. 13.

In late April, Ford released a Q1 earnings report that was largely in-line with expectations, but included significant losses connected to its investment in EV maker Rivian (RIVN). Ford also reported that chronic supply chain problems had dragged down earnings by slowing production despite strong consumer demand for its vehicles.

Ford shares began a multi-session slide on May 5 after it reported that April sales had declined 10.5% year-over-year to 177k vehicles for the month. It noted that sales of EVs had shot up 50% to 17K vehicles.

The stock dipped again on May 12 after it was revealed that Ford had unloaded a significant chunk of its Rivian stock. Shares were also put under pressure by a lowered forecast from rival Toyota and a downgrade by Wells Fargo, both of which referenced chronic supply chain problems in the auto sector.

Is F a Buy?

Morgan Stanley, which recently raised its rating on Ford to Equal Weight, said in a note dated May 18 that it believes Ford will have to revise down its EV forecast due to ongoing supply chain issues. A delay in EV rollouts, however, would be countered by increased demand for old-school internal combustion engine, or ICE, vehicles.

“We believe investors may be underestimating the ‘longevity’ of Ford’s ICE profitability which is driven by strong demand relative to supply for ICE vehicles and an inability for the industry to produce sufficient quantities of EVs through the middle and later part of this decade,” the analysts wrote.

Tigress Financial Partners, meanwhile, reiterated its Buy rating in a note dated May 20, citing “strong demand” for Ford’s ICE F-series trucks and SUVs that it believes will fuel near-term revenue while “its aggressive electrification investment initiatives will drive long-term share price gains.”

Wall Street analysts, on average, rate Ford a Hold. Of the 24 analysts tracked by Seeking Alpha, nine rated the stock a Buy or Strong Buy. Half the total view the stock as a Hold and three have issued a rating of either Sell or Strong Sell. SA authors, on average, have a Buy rating on Ford.

Seeking Alpha's Quant Ratings give a rosier assessment, seeing the stock as a Buy. As of midday Wednesday, the company had received an A+ for profitability, an A for growth, A- for valuation, B+ for momentum and a C for revisions.

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phil

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May 25, 2022 12:28 pm

Kids/Jeddah – Every time I hear one of these GOP/NRA apologists say there's nothing we can do to prevent this I want to shoot somebody!

https://www.texastribune.org/2022/05/24/texas-gun-laws-uvalde-mass-shootings/

In the past few years, Texas Republicans have been quick to consider a crackdown on gun violence after a mass shooting.

They did so in 2018 after a 17-year-old entered Santa Fe High School and killed 10 people. Then again in 2019, when two mass shootings weeks apart occurred in El Paso at a Walmart and then in Midland and Odessa after a dismissed worker opened fire.

But when lawmakers have reconvened in Austin in the months after a mass shooting, those same leaders tend to fall silent on any restrictive measures when it comes to guns. In the last two legislative sessions, Texas legislators have loosened gun laws, most notably by passing permitless carry in 2021, less than two years after mass shootings in El Paso and Odessa took the lives of 30 people.

In August 2019, after 23 people were killed by an avowed racist at an El Paso Walmart, and a few weeks later, seven more people were killed in a shooting spree in Midland and Odessa, Abbott and Patrick discussed expanding background checks to include stranger-to-stranger gun sales.

By the end of the next legislative session in 2021, Patrick had gone silent on the issue. And the Legislature instead passed a bill long sought by gun rights advocates that allows Texans to openly carry a handgun without a permit.

What insanity!

That's what the kid gets to buy the day he turns 18 in Texas.

Some versions of the AR-15 were classified as "assault weapons" and banned under the Public Safety and Recreational Firearms Use Protection Act in 1994 within the United States. This act expired in 2004.^[4]^[19]

In 2009, the term "modern sporting rifle" was coined by the National Shooting Sports Foundation for its survey that year as a marketing term used by the firearms industry to describe modular semi-automatic rifles including AR-15s.^[20]^[6]^[21]^[14] Today, nearly every major firearm manufacturer produces its own generic AR-15 style rifle.^[22]^[21] As Colt continues to own and use the AR-15 trademark for its line of AR-15 variants, other manufacturers must use their own model numbers and names to market their AR-15 style rifles for commercial sale.^[23]

Under US law, when manufactured with a barrel length less than 16 inches (410 mm) and without a shoulder stock, it is legally considered a pistol as opposed to being a short-barreled rifle,^[24] and is described as an AR-15 style pistol.

AR-15 style rifles have played a prominent role in many high-profile mass shootings in the United States^[90] and have come to be widely characterized as the weapon of choice for perpetrators of these crimes.^[91] AR-15s or similar rifles were the primary weapons used in half of the 10 deadliest mass shootings in modern American history;^[92]^[93] the 2012 Sandy Hook Elementary School shooting, the 2017 Las Vegas shooting, the 2017 Sutherland Springs church shooting,^[94] the 2018 Stoneman Douglas High School shooting,^[95] and the 2022 Robb Elementary School shooting.^[96]

Gosh, I can't possibly imagine what we could do to stop these kinds of shootings? What a F'ing brain-teaser this is….

Good morning everyone. Here is the link to today's webinar.

https://attendee.gotowebinar.com/register/5069531879617317645

May 25, 2022 1:05 pm

TotalEnergies climate report easily approved by shareholders

TTE +1.52%May 25, 2022 12:25 PM ET

TotalEnergies (NYSE:TTE) said Wednesday that shareholders voted 89% in favor of the company's climate strategy at the annual general meeting.

Support slipped a bit from nearly 92% last year when shareholders supported the company's climate plan and approved a rebranding marking a shift toward renewable energy.

Shareholders also narrowly approved CEO Patrick Pouyanne's pay package, after nearly 20% of voters opposed it.

Pouyanne said at the meeting that TotalEnergies (TTE) will not sell off its Russian assets without financial compensation, and the company will maintain operations at the Yamal liquefied natural gas field as long as international sanctions allow it.

The company will stop its purchases of Russian oil and petroleum products when its current contracts expire at the end of the year, the CEO said.

TotalEnergies (TTE) owns a 20% stake in the Yamal LNG project and 19.4% in Russian LNG producer Novatek.

Earlier today, TotalEnergies (TTE) announced a deal to buy a 50% stake in Clearway Energy from Global Infrastructure Partners.

Target, Macy's and Under Armour trade higher as retail sector looks to recover

BBWI +8.82%May 25, 2022 11:44 AM ET1 Comment

The retail sector is seeing a strong recovery after earnings reports from Nordstrom (JWN +9.6%) and Best Buy (BBY +6.0%) helped tamp down fears that consumer spending is tailing off far and wide. There was also some M&A buzz with Wendy's and Kohl's (KSS +16.0%) attracting interest, as well as a reassuring tone from Dick's Sporting Goods (DKS +10.4%) during its earnings call on the promotional atmosphere in retail.

Broad gains were seen across retail in mid-day Wednesday trading including recoveries for Bath & Body Works (NYSE:BBWI +8.0%), Under Armour (UAA +5.7%), PVH Corp. (PVH +4.8%), Ross Stores (ROST +4.0%), Abercrombie & Fitch (ANF +16.1%), Children's Place (PLCE +16.1%), Torrid Holdings (CURV +11.8%), American Eagle Outfitters (AEO +11.3%), Signet Jewelers (SIG +11.7%), Wayfair (W +11.8%), Dillard's (DDS +11.3%), Macy's (M +8.5%), Hibbett (HIBB +17.8%), Williams-Sonoma (WSM +11.8%) and Conn's (CONN +11.3%).

Target (TGT +3.6%) is also trying to claw back after its 30% decline last week.

See the consumer discretionary stocks with the highest Seeking Alpha Quant Ratings.

May 25, 2022 1:06 pm

Webinar time!

malsg

Member

May 25, 2022 2:05 pm

How does anyone send their kid to school? You should worry about scraped knees not gun shot wounds …

stockbern

May 25, 2022 2:54 pm

GNRC having a nice day

May 25, 2022 3:03 pm

That was a good webinar – we covered a lot of good macro stuff.

Nice pop after the Fed, 12,000 in sight.

As noted in Webinar – STP made $40,000 on the bull run so we're officially bullish after selling those SQQQs but that means we need to be quick to flip back if 12,000 does not hold.

/SI back over $22.

GNRC/Stock – People are following my advice from the morning post.

May 25, 2022 3:09 pm

What complete and utter BS. Are you people seriously investing in "currencies" where they just change the rules at will?

Terra ecosystem votes to rescue Luna without UST stablecoin

UST-USD +46.00%Now!

Shortly after its multi-billion dollar collapse in early May, the Terra ecosystem has approved Do Kwon’s most recent proposal aiming to revive Luna (LUNA-USD) through the creation of a new blockchain called Terra Classic.

“With overwhelming support, the Terra ecosystem has voted to pass Proposal 1623, calling for the genesis of a new blockchain and the preservation of our community,” according to a Twitter post Wednesday.

The new Terra chain, though, will not include TerraUST (UST-USD), an algorithmic stablecoin that detached far away from its peg to the U.S. dollar.

Do Kwon's proposal would also change the name of Luna (LUNA-USD), Terra's native digital token that became nearly worthless this month, to Luna Classic with the ticker LUNC, according to a follow-up tweet.

The old Terra blockchain will be managed by users and anything built on it will have to transition to Terra Classic, Kwon's proposal said.

Despite those moves to bring Terra back to life, there's still plenty of uncertainty surrounding the revival plan. “There has been a massive loss in confidence overall in the Terra project,” Vijay Ayyar, head of international at crypto exchange Luno, as quoted by CNBC. “This is a very crowded space already with a number of already well entrenched platforms that have lots of developer activity. I don’t see why Terra would succeed here,” he added.

On May 13, Do Kwon called for a restart of Terra chain in "revival plan."

What a f'ing joke this is!

Air Products upped at Atlantic as hydrogen projects hike earnings momentum

APD -0.47%May 25, 2022 2:56 PM ET

Air Products and Chemicals (NYSE:APD) -0.4% in Wednesday's trading despite winning an upgrade to Overweight from Neutral with a $290 price target, up from $280, at Atlantic Equities, citing the industrial gas producer's "pricing power and below average cyclical risk."

"High energy prices are arguably a secular tailwind" for Air Products (APD), "boosting refining margins [and] short-term investment in traditional energy infrastructure while lending further support to decarbonization and alternative energy projects," Atlantic's Colin Isaac writes.

The analyst notes Air Products (APD) already has a $15B backlog of signed hydrogen and gasification projects that begin to contribute from FY 2022, supporting 50% EPS growth through 2027, and he sees "scope for the shares to reverse recent underperformance as earnings momentum recovers."

Air Products (APD) "may be an ideal choice for those seeking a combination of income and growth," Gen Alpha writes in a bullish analysis published recently on Seeking Alpha.

I like these guys., Nice NJ company my step-father used to work with. $234 is $52.5Bn and they make $2.3Bn but that hydrogen project will boost it nicely over time. They pay a 3% dividend too. In the LTP, let's sell 5 2024 $200 puts for $18.50 ($9,250) to remind us to keep an eye on them.

batman

May 25, 2022 3:15 pm

He is on point on this issue….

Beto O'Rourke crashes Texas Gov. Greg Abbott press conference on Uvalde school shooting, demands change

https://www.wfaa.com/article/news/special-reports/uvalde-school-shooting/beto-orourke-crashes-texas-gov-greg-abbott-uvalde-school-shooting-press-conference-demands-change/287-e0e28a87-99a6-4eda-8c81-0f8678991281

May 25, 2022 3:17 pm

https://seekingalpha.com/article/4514367-cleveland-cliffs-stock-ridiculously-undervalued-clf

May 25, 2022 3:20 pm

Better to have tainted baby food than no food at all, I guess…

Despite 'lost confidence' in Abbott, FDA OKd baby formula plant reopening

ABT -0.56%May 25, 2022 2:30 PM ET7 Comments

The FDA entered into a consent decree with Abbott (NYSE:ABT) to reopen its troubled Sturgis, Mich., baby formula plant even though the agency "lost confidence" in the company's safety and quality culture, as well as commitment to fix problems quickly.

In testimony before a House subcommittee Wednesday, FDA Commissioner Robert Califf and others said that a consent decree was pursued rather than a permanent injunction given Abbott's market share for baby formula.

"A consent decree was the best option, giving FDA more control over the outcome, and was more likely to result in a safe resumption of operations by Abbott Nutrition at the Sturgis facility," the testimony stated.

FDA tests for Cronobacter bacteria in finished product from the plant tested negative, though the agency added such tests are not likely to detect low levels of contamination. However, the FDA said five environmental surface swabs collected at the plant did test positive.

Califf told the committee that inspections of facility found cracks in equipment, a leaky roof, standing water, and bacteria growing in multiple places, CNBC reported.

"This is so far removed from my previous experience with the company that I am concerned," he added.

Califf said he spoke with Abbott (ABT) CEO Robert Ford on Tuesday who assured him the Sturgis facility would be up and running in early June.

The Washington Post on Wednesday reported that a whistleblower report on the conditions in the Sturgis plant took months to get to a top FDA official.

Yeah, less Government will fix everything…

European Union commercial vehicle sales slipped 27.1% in April

RNSDF -3.99%May 25, 2022 2:27 PM ET2 Comments

New commercial vehicle registrations in the European Union fell 27.1% to 125,034 units in April, followed by 24.9% decline in March.

On YTD basis, demand for commercial vehicles in the EU decreased by 20.3%.

All vehicle segments saw declines due to supply chain and Russia-Ukraine war issues.

The four key EU markets suffered significant losses, contributing to the region’s sharp fall: Spain -36.0%, Germany ?30.5%, France -28.6% and Italy -17.5%.

New light commercial vehicles dipped 30.2% to 99,908 units.

New heavy commercial vehicles fell 10.8% Y/Y.

New medium and heavy commercial vehicles dropped 12.6% to 23,308 units.

New medium and heavy buses & coaches declined 1.2% to 1,818 units.

A quick look at 12 months trend:

Exxon shareholders reject faster emission cuts but support climate report

XOM +1.88%May 25, 2022 2:27 PM ET11 Comments

Exxon Mobil (NYSE:XOM) shareholders supported the company's energy transition strategy at the annual general meeting on Wednesday, voting against most proposals related to speeding up carbon emission reductions, Reuters reports.

Only 28% of the participants reportedly backed a resolution filed by the Follow This activist group urging faster action to battle climate change.

A proposal calling for a report on low carbon business planning received just 10.5% support, and a report on plastic production garnered a 37% favorable vote.

However, climate campaigners notched a "major win" as shareholders backed a measure calling on Exxon (XOM) to lay out how a rapid global shift away from fossil fuels would affect its finances, Financial Times reports.

The measure, which was backed by 52% of shareholders, asks Exxon (XOM) to publish an audited report outlining how the International Energy Agency's modeling for a net zero economy by 2050 would impact the "assumptions, costs, estimates and valuations" underlying its financial statements.

Company management had urged shareholders to vote against the resolution, saying the information already was readily available; a similar motion was narrowly defeated last year.

The motion was backed by some major investors including New York State Common Retirement, T. Rowe Price and California Public Employees Retirement System.

Also at the meeting, shareholders re-elected Exxon's (XOM) board and supported the executive compensation program.

Exxon (XOM) said it continues to mitigate emissions from its operations and achieved its 2025 emission reduction plans four years earlier than planned.

Alaska Air pilots approve strike if negotiations do not progress

ALK +1.58%May 25, 2022 2:26 PM ET

Pilots at Alaska Air Group (NYSE:ALK +1.4%) authorized a strike if an agreement on a new employment contract cannot be worked out between the airline company and the Air Line Pilots Association union.

The ALPA said 99% of the pilots who cast their ballots backed the strike-authorization measure.

An approved strike cannot happen until the National Mediation Board grants the group permission after determining that further bargaining would not be productive.

Alaska Air (ALK) has been negotiating with its since 2019, with a disruption in talks during the pandemic.

ALPA has said the company has not meaningfully addressed job security and schedule flexibility concerns. The union is also looking for higher wages and better benefits.

Ford shares hit a 52-week low last week amid supply chain worries. Is the stock a buy?

F +1.61%May 25, 2022 2:24 PM ET11 Comments

Ford (NYSE:F) shares hit a 52-week low last week, despite high demand for both its EVs and traditional gas-powered cars. The company has faced supply-chain problems that have complicated production. At the same time, investors have recently worried about the impact of high gas prices and shaky prospects for consumer spending.

Despite these headwinds, has the Big Auto stalwart dropped enough to become a buying opportunity?

Ongoing Supply Chain Worries Cut Into Production

While shares of several of the major automakers have been pushed significantly lower over the past 30 days, Ford’s stock has been hit unusually hard, falling 16% as of Wednesday. Shares of rival General Motors (GM), in comparison, have declined 10%, while Honda’s (HMC) have slid 5% and Toyota’s (TM) 6%. Stellantis (STLA), meanwhile, has seen its shares rise 1%.

With the retreat, Ford shares also hit a 52-week low of $12.07 last week. That’s a 53% drop from the 52-week high of $25.87 they reached on Jan. 13.

In late April, Ford released a Q1 earnings report that was largely in-line with expectations, but included significant losses connected to its investment in EV maker Rivian (RIVN). Ford also reported that chronic supply chain problems had dragged down earnings by slowing production despite strong consumer demand for its vehicles.

Ford shares began a multi-session slide on May 5 after it reported that April sales had declined 10.5% year-over-year to 177k vehicles for the month. It noted that sales of EVs had shot up 50% to 17K vehicles.

The stock dipped again on May 12 after it was revealed that Ford had unloaded a significant chunk of its Rivian stock. Shares were also put under pressure by a lowered forecast from rival Toyota and a downgrade by Wells Fargo, both of which referenced chronic supply chain problems in the auto sector.

Is F a Buy?

Morgan Stanley, which recently raised its rating on Ford to Equal Weight, said in a note dated May 18 that it believes Ford will have to revise down its EV forecast due to ongoing supply chain issues. A delay in EV rollouts, however, would be countered by increased demand for old-school internal combustion engine, or ICE, vehicles.

“We believe investors may be underestimating the ‘longevity’ of Ford’s ICE profitability which is driven by strong demand relative to supply for ICE vehicles and an inability for the industry to produce sufficient quantities of EVs through the middle and later part of this decade,” the analysts wrote.

Tigress Financial Partners, meanwhile, reiterated its Buy rating in a note dated May 20, citing “strong demand” for Ford’s ICE F-series trucks and SUVs that it believes will fuel near-term revenue while “its aggressive electrification investment initiatives will drive long-term share price gains.”

Wall Street analysts, on average, rate Ford a Hold. Of the 24 analysts tracked by Seeking Alpha, nine rated the stock a Buy or Strong Buy. Half the total view the stock as a Hold and three have issued a rating of either Sell or Strong Sell. SA authors, on average, have a Buy rating on Ford.

Seeking Alpha's Quant Ratings give a rosier assessment, seeing the stock as a Buy. As of midday Wednesday, the company had received an A+ for profitability, an A for growth, A- for valuation, B+ for momentum and a C for revisions.

For a more in-depth view of Ford, check out SA contributor The Asian Investor’s “Ford Is Finally Addressing Its Rivian Problem” or Juxtaposed Idea’s “Ford: Potential $32B of Enterprise Value Recovery in H2 Aided by F-150 Lightning”.

From our Butterfly Portfolio Review:

F – Very surprising drop in F. $12.82 is back to $54Bn and F makes $8Bn a year so this is just stupid down around 6x earnings. The 2024 $10s are $4.40 so we roll the 2024 $15s for $2.12 ($21,200) and we roll the 2023 $10s for 0.65 ($4,875) and then we have 175 2024 $10s and we'll see what happens. This is what the cash is for, people!

May 25, 2022 3:29 pm

Fed officials see aggressive hikes early allowing for flexibility later in year

May 25, 2022 2:09 PM ET34 Comments

The Federal Reserve's policymakers agreed that they're "highly attentive to inflation risks," according to the minutes of the Federal Open Market Committee's May 3-4 meeting. Specifically, they noted that the implications of the Ukraine war on the U.S. economy were highly uncertain and that lockdowns in China were likely to exacerbate supply chain disruptions.

The FOMC meeting participants all agreed to the 50 basis point rate hike and that it's appropriate to start reducing the size of the Fed's balance sheet on June 1.

"Most participants judged that 50 basis point increases in the target range would likely be appropriate at the next couple of meetings," the minutes said.

Many participants said that taking strong policy actions now would leave the FOMC well-positioned later this year to assess the effects of policy firming, "and the extent to which economic developments warranted policy adjustments. That implies that the central bank may pause after a few meeting to assess the effects of the policy actions.

"A number of participants" said it might be appropriate for the FOMC to consider sales of agency mortgage-backed securities once the balance-sheet runoff was "well underway." "Any program of sales of agency MBS would be announced well in advance," the minutes said.

Recall that the Federal Reserve hiked its key rate by 50 bps, its first increase of that magnitude in 22 years, to 0.75%-1.00% and decided to start shrinking balance sheet in June.

In Wednesday midafternoon trading, all three major U.S. stock averages are in the green — Dow +0.1%, Nasdaq +1.1%, S&P 500 +0.6%. The 10-year Treasury yield slips 1 basis point to 2.75%.

After the May 4 meeting, Chair Powell discussed the strength of the economy and said 50-bp rate hikes would be "on the table fo r the next couple of meetings."

Eli Lilly allocates $2.1 billion to expand production footprint in Indiana

LLY +0.23%May 25, 2022 1:52 PM ET8 Comments

Eli Lilly (NYSE:LLY) announced Wednesday that the company earmarked $2.1 billion to expand its production capacity in Indiana with plans to build two new manufacturing sites.

The facilities will be established at Indiana's LEAP Lebanon Innovation and Research District in Boone County, subject to certain local approvals.

The production sites will help the company expand the production of active ingredients and new therapeutic modalities, such as genetic medicines, according to Lilly (LLY).

The project is expected to add 500 direct employment opportunities and additional four indirect jobs for every direct position.

"These new sites will add capacity in support of our growing pipeline of innovative medicines, while also creating more high-tech jobs for Hoosiers,” Lilly (LLY) Chief Executive David A. Ricks.

Read more about the company’s recent financial performance.

Don't mess with Elon or he'll get your whole sector investigated:

SEC proposes rules to crack down on ESG funds marketing, labeling (updated)

DB +0.23%May 25, 2022 1:33 PM ET5 Comments

The U.S. Securities and Exchange Commission is proposing rule changes to crack down on unsubstantiated claims by funds about their environmental, social, and corporate governance performance, Reuters reported on Wednesday, citing people who spoke with the SEC on the matter.

The proposal will encompass how funds should be marketed and how investment advisers should provide the reasoning behind labeling a fund. It would also require that investment funds using terms such as sustainable, ESG, and low-carbon in their names provide the criteria and underlying data to back the label, the people told Reuters.

While the rules would apply to all funds, the SEC's target is ESG funds, Reuters said. Such funds attracted a record $649B through Nov. 30, 2021, up from $542B in 2020 and $285B in 2019, according to Refinitiv Lipper.

"A lot has happened in our capital markets in the past two decades. As the fund industry has developed, gaps in the current Names Rule may undermine investor protection, said SEC Chair Gary Gensler in a statement. "In particular, some funds have claimed that the rule does not apply to them — even though their name suggests that investments are selected based on specific criteria or characteristics. Today's proposal would modernize the Names Rule for today's market." (Added at 2:30 PM ET)

The Names Rule currently requires registered investment companies whose name suggest a focus in a particular type of investment to adopt a policy to invest at least 80% of the value of its assets in those investments. The proposed changes would require more funds to adopt an 80% investment policy. Specifically, it would apply to any fund name with terms suggesting the fund focuses on a particular type of investment or that have particular characteristics.

"This would include fund names with terms such as 'growth' or 'value' or terms indicating that the fund’s investment decisions incorporate one or more environmental, social, or governance factors," the SEC said. The proposal would also limit temporary departures from the 80% investment requirement. (Added at 2:38 PM ET)

"We are hopeful that the new rule will require fund managers to follow basic naming guidelines," Andrew Behar, president of As You Sow, who has discussed the potential rules with the SEC, told Reuters. "This will help to eliminate confusion and misleading marketing."

Some industry groups, though, fear that the agency's actions to standardize ESG labels may narrow investors' choices.

The public comment period will remain open for 60 days after its publication in the Federal Register.

Last year, Deutsche Bank's (DB) DWS denied claims that it misrepresented its ESG investments after reports that the SEC and federal prosecutors were investigating the firm's former head of sustainability.

Last August, the United Nations sounded a "code red for humanity" regarding climate change.

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May 25, 2022 3:32 pm

Phil / APD – This is sitting at a 15 PE – very low historically – Why are you holding off on a BCS?

I was looking at the '24 220 / 270.

May 25, 2022 3:36 pm

APD/Batman – Still conserving our cash until I see things stabilize a bit. Even now the Nas is being rejected at 12,000.

May 25, 2022 3:41 pm

Iranian oil exports could be set to fall, rather than rising as markets expect

USO +0.07%May 25, 2022 1:29 PM ET20 Comments

Many commodity strategists have assumed an impending Iran nuclear deal would add ~1.0mb/d of oil to global markets (USO) (XLE). Mixed messaging in recent weeks showed slowing progress; however, comments Wednesday suggest the deal could be on life support. Furthermore, supplies currently ducking sanctions to be sold into the export market may fall.

Testifying in front of Congress Wednesday, the head of the US envoy to Iran said, "we do not have a deal with Iran and prospects for reaching one are, at best, tenuous." The comments came the same day the Wall Street Journal reported Iran secured access to secret International Atomic Energy Agency "IAEA" documents, which is used to conceal information related to nuclear activities in the past. Calling into question the effectiveness of the agency tasked with overseeing Iran's nuclear activities under the JPCOA.

While a failed Iran deal would withhold incremental supply from the market, supply many expect to materialize, increased enforcement of sanctions could reduce existing Iranian supplies. Wednesday, the US imposed fresh sanctions on what it described as an oil-smuggling network "backed by senior levels of the Russian Federation government" that include Chinese companies and a former Afghan diplomat. The Treasury went on to say that the network raised hundreds of millions for Hezbollah and helped Tehran support proxy militant groups. In a separate statement, Secretary Blinken said, "we will strictly enforce sanctions on Iran's illicit oil trade."

Iran currently produces ~2.5mb/d of oil and domestic demand is often assumed to be ~1.0mb/d. Suggesting that ~1.5mb/d of Iranian crude is being exported, despite sanctions. Removing even a small portion of Iran's exports from global markets would likely send prices higher, working against the Administration's goal of lowering gasoline prices. However, in the context of rumors that President Biden is set to meet with Saudi's Crown Prince, tightening sanctions on Iran could be seen as a step towards securing additional Saudi barrels for global markets.

Business uncertainty holds roughly stable in May

May 25, 2022 11:05 AM ET

May Survey of Business Uncertainty: Sales Growth (smoothed) 4.45% vs. 4.46% prior.

Employment Growth (smoothed): 4.61% vs. 4.64% prior.

Earlier, Durable goods rose less than expected in April

Generac stock pops after Northland Securities initiates coverage with outperform rating

GNRC +5.29%May 25, 2022 11:02 AM ET1 Comment

Generac Holdings (NYSE:GNRC) shares have popped 6% after Northland Securities initiated coverage on the stock with an outperform rating, citing attractive positioning for "energy transition."

The PT was set to $370, implying a 72% increase from last closing price.

Northland Securities analysts justified the OP rating with three reasons: (1) GNRC dominates the growing U.S. home standby market, with enduring competitive advantages and ~75% market share; (2) is ideally positioned to understand and navigate the terrain of the energy transition and therefore get the most out of its burgeoning clean energy business; and (3) has a large global footprint acquired from 2010-2018 that flies under the radar and could serve as a latent force multiplier

Earlier this month, the power equipment maker reported better-than-expected Q1 results, while raising its full-year sales guidance.

GNRC shares are currently up 6.27% to $229.16, but have slipped 34% YTD

Report on Abbott baby formula plant took months to reach top FDA official – WaPo

ABT -0.23%May 25, 2022 10:53 AM ET14 Comments

A whistleblower report sent to the U.S. FDA in October 2021 alleging unclean conditions at an Abbott (NYSE:ABT) baby formula plant didn't reach the agency's top food safety official until four months later, The Washington Post reports.

"It wasn't sent to me and it wasn’t shared with me internally. How does this happen?” FDA Deputy Commissioner for Food Policy and Response Frank Yiannis told the newspaper.

Yiannis also said he hasn't been much of a part of the FDA's oversight of Abbott's Sturgis, Mich., facility. He added that he began work on a corrective action plan, but was then told to "stand down" by Janet Woodcock, principal deputy commissioner and acting commissioner at the time.

An FDA spokesperson questioned Yiannis' allegations, saying that he is managing an agency-wide group to combat the formula crisis.

FDA Commissioner Robert Califf is testifying before a House subcommittee today on the formula issue.

ECB's Knott is 'fully onboard' with Lagarde's new policy schedule

EWG -0.45%May 25, 2022 10:45 AM ET4 Comments

European Central Bank Governing Council member Klaas Knott, is supporting President Christine Lagarde’s desires to exit negative interest rates by September.

“I’m fully on board, I fully support everything that is in the blog,” Knott said during a panel discussion in Davos Wednesday. “I think it nicely charts the policy course,” he added.

The ECB's deposit rate has been negative for the past eight years, currently standing at -0.5%, meaning depositors must pay to keep their money at the bank.

The Dutch central banker's remarks come as inflation expectations further increase amid supply chain issues exacerbated by the war in Ukraine. Knott said inflation is more driven by the supply side in Europe than in the U.S.

European ETFs: iShares MSCI Germany (NYSEARCA:EWG), iShares MSCI Italy (NYSEARCA:EWI), iShares MSCI France (NYSEARCA:EWQ), iShares MSCI Spain (NYSEARCA:EWP) and iShares MSCI Austria (EWO).

Last week, (May 20) ECB Governing Council member Ignazio Visco said the central bank can move rates up from negative in the coming months.

May 25, 2022 3:44 pm

Northern Dynasty's planned Pebble Mine hit with new EPA pollution restrictions

NAK +0.47%May 25, 2022 10:33 AM ET2 Comments

The U.S. Environmental Protection Agency on Wednesday proposed restrictions that would hinder plans for Northern Dynasty Minerals' (NYSE:NAK) planned Pebble Mine in Alaska's Bristol Bay region.

Under its proposed requirements, the EPA would bar Pebble Mine from disposing waste near the site because of the potential harm to the area's salmon fishery.

The EPA's move effectively revives and updates restrictions once proposed but not finalized under former President Obama that the company said were unfair, arguing that the project should have a chance to go through the permitting process.

The Pebble Partnership, which is owned by Northern Dynasty (NAK), is appealing a 2020 decision by the U.S. Army Corps of Engineers that denied approval of a key permit.

Dell pops as Evercore upgrades ahead of Q1 results, citing 'robust' trends

DELL +5.21%May 25, 2022 10:26 AM ET

Dell Technologies (NYSE:DELL) shares rose on Wednesday after investment firm Evercore upgraded the IT provider, noting that although the supply chain continues to bewilder many, the demand trends for its products and services are "robust enough" for the company to beat estimates and raise its guidance.

Analyst Amit Daryanani raised the rating on Dell (DELL) to outperform with a per-share price target of $60, noting that any type of boost to its guidance would be a "rarity in this environment."

"In our view, Dell's full year guide is a low bar as the company is using its [long-term] framework as a guide (3-4% [year-over-year topline and ~6% year-over-year for EPS)," Daryanani wrote in a note to clients.

Dell (DELL) shares rose more than 3% to $42.22 in early Wednesday trading.

In addition, Daryanani said he believes that the spending environment for IT products is "stronger than the guided topline growth suggest and while supply chain is a wild card we think Dell is one of the best supply chain companies globally to navigate these issues."

Dell (DELL) is set to report first-quarter earnings after the market closes on May 26 and a consensus of Wall Street analysts expect the company to earn $1.39 per share on $25.26 billion in revenue.

Daryanani also pointed out that Dell (DELL) could boost its fiscal 2023 guidance, citing little impact to order placements from the Chinese Covid-related lockdowns, though supplies and logistics have made forecasts choppy.

Separately, even though the PC market does appear to be slowing, Dell (DELL) saw its units rise 6.1% year-over-year, according to figures from research firm IDC.

Last week, media reports indicated that HP (HPQ), Dell Technologies (DELL) and Samsung (OTC:SSNLF) were among the PC vendors that may cut notebook orders for the rest of the year.

PhilStockWorld May Portfolio Review

DELL – You have got to love algo selling! $41.10 is $31.2Bn and Dell makes over $5Bn a year. At this point we're just waiting for Buffett to show up. What's more bang for the buck, doubling down on the $40 calls or rolling them to the $30s at $13.50? Well that roll is $6 ($15,000) and gives us $25,000 more upside while the DD is $18,813 and gives us $37,500 more upside. Double down it is! That's because we still believe in the target and also, we're not covering the new calls yet – that will eventually knock off about $10,000.

And THAT is how we play this game!

May 25, 2022 3:50 pm

Phil / APD – so if you had cash what BCS would you suggest?

May 25, 2022 3:51 pm

Submitted on 2022/04/04 at 4:01 pm

DELL/John – They are really not getting credit for their Solutions Group, which has improved margins greatly and essentially drives 80% of the revenues now but it's mixed in with hardware sales and people still think of them as a hardware company. Getting rid of VMWare in the fall really spooked investors and they are down about 20% but I agreed with DELL and think cloud has run it's growth course and I think they cashed out ($9.3Bn) on top there. They also went right back into cloud services with Apex – so I don't really see a negative getting out of VMW. They project good, solid growth in the Integrated Service Group and some short-term fast growth in Consolidated as well:

The bottom line is Dell projects $104.5Bn in revenues for 2023 (they are one of those companies that starts in Dec) with $5.2Bn in profits and that's very good for $37Bn at $49.50. Goldman just said this about them on Friday and sent the stock tumbling:

Dell Technologies (NYSE:DELL) shares fell slightly in premarket trading after Goldman Sachs downgraded the the IT company and removed it from its Conviction Buy List, citing outperformance and fundamental headwinds.

Analyst Rod Hall downgraded the stock to neutral from buy and lowered the price target to $61 from $68, noting that since Dell completely spun out VMware (VMW), the value has been unlocked.

"We continue to believe DELL remains inexpensive compared to its peers, but we see increasing fundamental headwinds hindering this value unlock," Hall wrote.

Lowering their target to $61 shouldn't stop us from buying them under $50, right? I wouldn't want to get too crazy but, in the LTP, we have no fear of owning 1,000 shares for $50 – so it's essentially free money to us to sell 10 of the 2024 $50 puts for $7.50. If they drop to $25 – we're happy to buy 1,000 or 2,000 more to lower the basis and sell more puts and calls, right? So $7,500 is free money and we take that and pick a sensible spread like:

Sell 10 DELL 2024 $50 puts for $7.50 ($7,500)

Buy 25 DELL 2024 $40 calls for $12.50 ($31,250)

Sell 20 DELL 2024 $55 calls for $5.25 ($10,500)

That's net $13,250 on the $37,500 spread and I'll be very disappointed if all we do is make $24,250 (183%) at $55+ (10% higher than we are now) but what we have is a nice, uncovered gap where we can sell 5 or 10 short calls, like the June $52.50s, which are $1.55 so if we sold 10 for $1,550, we'd be using 74 (11.2%) of our 655 days to make 11.6% of our net entry back.

That seems worthwhile but we'll wait for it to get higher in the channel or, if it goes lower, we could sell 20 of the July $50 calls, which are now $3 ($6,000) and use that money to roll our 25 2024 $40 calls to the $30 calls, which are now $20 for hopefully $5 or less so $12,500 and then we'd buy 10 or 15 more for maybe $16 so let's say we bought 15 more for $24,000 and then we'd have

10 short 2024 $50 puts

40 long 2024 $30 calls

20 short 2024 $55 calls

20 short July $50 calls

And we would have spent $13,250 – $6,000 + $12,500 + $24,000 = $43,750 for the $100,000 spread so instead of looking to make $24,250 at $55, we're now looking to make $56,250 and, of course, we could still reduce that cost along the way with 18 more month to sell when the short Julys run out and, if they don't – we can easily roll them up at least $5 and our spread would be back on track so – on the whole, we'll basically be very disappointed if all goes "well" and we only make 183% on this one.

May 25, 2022 4:06 pm

APD/Batman – Well, they fell to $170 in 2020 and found a lot of buyers there back to $220 but then $300 was rejected for 18 months and now $240 so perhaps the 2024 $240 ($32.50)/280 ($16.50) bull call spread at $16 but keep in mind you need to roll it before the price of the long calls falls below $16 if things aren't going well.

Ugh, very disappointed the Nas couldn't hold 12,000. I don't know if we can stay bullish in the STP with a holiday weekend coming if we can't do better than this. RUT 1,800 too and /ES 4,000 – we need ALL of those to stay bullish into the long weekend.

At least the VIX is calm(ish) so hopefully they are consolidating for a move up.

Investor Confidence was actually up. Globally 97.1 in May, up from 92.3 in April. US 99.1 from 94.1. Europe down 8.7 to 67.5 – yikes!

May 25, 2022 4:08 pm

Phil / APD – thanks

Tomorrow we have GDP, which is going to be depressing (but just a revision) and Corporate Profits but then Pending Home Sales likely to suck and the KC Fed at 11 and a 7-year note auction at 1 but the Fed is still buying so no worries yet.

Still, not a good recipe for breaking over our levels if the Dollar isn't weaker and why should it be after those Fed Minutes?

News:

May 25, 2022 5:15 pm

Fed minutes point to more rate hikes that go further than the market anticipates

By: Jeff Cox