This week’s bond review focuses on one of the nation’s largest publicly traded hospital companies. Community Health Systems, Inc. (NYSE: CYH). CYH has spent the past few years divesting hospitals in an effort to reshape its portfolio towards urban and suburban markets. The company continues to make that shift and has now added urgent care centers in some of those markets to help drive additional patients to its hospitals. Its fourth quarter and full-year 2018 results look to be an indicator that the transformation is gaining a foothold.
Category: Investments
Harvest Nearly 15% YTM with Pyxus International, Formerly Alliance One, Bonds Maturing July 2021
This week, Durig Capital looks at a longtime company that has adopted a new name to reflect its new direction. Pyxus International, formerly Alliance One, is well into its “One Tomorrow” transformation plan, where it has added new products to its product base of leaf tobacco. The company has entered into producing e-liquids, cannabis and CBD products.
GE: General Electric Warns Again
- General Electric (GE) warned industrial free cash flow will be negative in 2019 as problems persist in its troubled but core GE Power business. GE stock tumbled to its lowest level in weeks.
- The company is “selling its future” to try and maintain the present. GE appears to be selling higher return assets to pay for its lower return order book, with deteriorating net income.
Oil and Venezuela
- Oil dominates Venezuela’s economy, accounting for almost all of its export earnings. Its biggest customers have been the US, followed by India and China. But over the past decade, oil production and prices has collapsed and the country is in a deep economic crisis.
Bring Home 9.0% YTM with Conn’s Inc., Bonds Maturing July 2022
This week’s bond review delves into the retail sector with a specialty retailer of durable consumer goods who also offers its customers financing on their purchases. Conn’s Inc., which is headquartered in Texas, has a market presence that stretches across the southern United States. Conn’s set some records in its most recent quarterly results (third quarter for its fiscal year 2019).
- Record third quarter retail gross margin of 41.2%
- Record quarterly credit segment revenues of $89.9 million.
- For the first nine months of fiscal year 2019, the company registered its second highest nine month operating income ever
- Excellent interest coverage of 2.4x.
Top 6 Expected IPO’s in 2019
- Uber $76 billion: Uber Technologies Inc had $50 billion in total bookings for its ride-service and food-delivery businesses last year, a testament to the size and global reach of the company as it prepares to woo investors in one of the biggest public stock listings to date.
Do You Have an IRS Audit Coming?
- What the IRS audit programs looks for, including duplicate information, deductions, income level, credits, and other outliers from the median information: If you file something on your return that doesn’t compare to others in your income bracket, the system will flag your return, and it will be reviewed by a human. Just because the DIF system flags your return, it doesn’t mean it is an automatic audit. You could easily have a one-time bump in income from an inheritance or you make a substantial charitable contribution that is unusual for others in your income bracket.
Find Over 8.5% YTM with Owens & Minor, Bonds Mature September 2021
This week, Durig Capital looks to the healthcare industry, where a medical supply logistics provider has made some key acquisitions to broaden its revenue sources. Over the past 18 months, Owens & Minor has acquired Byram Healthcare, a direct to patient medical supply distributor, along with Halyard’s surgical and infection prevention (S&IP) business. Combined, these two acquisitions are slated to add $1.45 billion in annual revenues for Owens & Minor. The company’s last reported quarterly results (third quarter 2018) show revenue growth coming through these most recent additions.
Amazon vs Politicians on New York’s HQ2
- Starbucks CEO Howard Schultz: “Meanwhile, far-left activists succeeded in forcing Amazon to abandon plans to create a second headquarters in the New York City area, which would have brought 25,000 jobs and injected billions of dollars into the local economy. Where has common sense gone?“
How Big is the Big Data Market?
The global Big Data Market is anticipated to expand at a rapid pace over the forecast period (2017 to 2025) owing to the technology’s ability to effectively manage large amounts of data while reducing overall costs.
Microfinance Market Benefiting from Low Interest Rates
The global Microfinance Market is anticipated to witness steady growth over the forecast period (2017 to 2025). This growth can be attributed to rapid rise in number of small and medium enterprises (SMEs).
Where is the Cryptocurrency Market Headed?
Cryptocurrency or digital currency is a decentralized system operating on the blockchain technology. Blockchain is a database or distributed ledger shared across public or private computer network.
Retail Sales Down 1.2%, Where Did They Disappoint?
- Retail sales sank 1.2% in December, the U.S. Census Bureau said Thursday. It’s the largest drop since September 2009, a few months after the end of the Great Recession. Economists expected sales to be flat.
Alibaba Suspected of Cheating People Around the World
Recently, the “Meituan” take-outs increased the commission: from the original 18% to 22%, an increase of 4% commission. Such a blatant increase in commissions, which led to domestic criticism, domestic consumers and businesses have expressed dissatisfaction.
China, US Trade and the Economic Effects
- Markets anticipate a trade deal is coming and the truce will be extended. All sides want a settlement so we believe it will be achieved. Mnuchin and Lighthizer are set to meet their Beijing counterparts on Thursday with the goal of hashing out a deal ahead of a March 1 deadline when U.S. tariffs against China are set to increase to 25 percent from 10 percent on $200 billion worth of Chinese goods.
Federal Judge Approves Deal, Saving Sears
- Sears needed a miracle, and on Thursday, they got it. A federal judge approved the sale of Sears Holdings to chairman Eddie Lampert, through an affiliate of his hedge fund, ESL Investments, for $5.2 billion. The deal is expected to save 425 stores and 45,000 jobs.
An Introduction to Durig Capital’s Dogs of the Dow Portfolio Strategy
This week, Durig Capital reviews its own version on a time-proven investment strategy. The “Dogs of the Dow” investment strategy was introduced by Michael B. Higgins in the early 1990’s as a simple way for investors to design a portfolio around the “dogs” of the broader Dow index, and re-balance it annually. Durig Capital has created its own version on this investment strategy which has historically resulted in a less volatile portfolio and has produced excellent returns since its inception in June 2017.
Since its inception (June 6, 2017) Durig’s “Dogs of the DOW” Portfolio has generated a total return of 14.26% (as of January 22, 2019). Over the same time period, the greater Dow index generated a return of 11.37%. So, Durig’s “Dogs of the DOW” portfolio returned 25% more than the index.
Most notably, during the selloff in the fourth quarter of 2018, Durig’s portfolio was down -5.23% while the greater Dow index was down -11.30%. These figures are as of January 22, 2019.
Year-to-date in 2019, the Durig portfolio was up 1.56%, while the greater Dow index was up 4.71% (as of January 22, 2019). This statistic, along with the results from fourth quarter 2018 illustrate the portfolio’s reduced volatility.
Google Quarterly Businesses Breakdown
- Advertising: Cost per click on Google properties — the rough measure of what Alphabet charges advertisers for each ad served on its websites — dropped 29 percent from last year and 9 percent from last quarter. That’s the steepest rate of annual decline in at least 16 quarters and suggests a growing threat from Amazon could be causing a pricing squeeze.
- YouTube: The number of YouTube channels with more than a million subscribers nearly doubled in the last year. The number of creators earning five or six figures grew by more than 40% year-over-year. YouTube has nearly 2 billion monthly logged-in users.
Is Artificial Intelligence (AI) Moving into Everything? But Weapon Development Should Scare You!
- Credit Cards: Providers are using Artificial Intelligence (AI) to make it easier to not just choose your rewards, but offer the rewards consumers want the most. In this drive for hyper-personalization of our rewards, artificial intelligence banking is benefiting all parties involved.
- Flavors: Artificial intelligence to create new flavors and products through a research collaboration as the use of artificial intelligence just might provide the key ingredients that make that next meal taste better.
Find Nearly 9% YTM with Magnachip Semiconductor, Bonds Mature July 2021
This week, Durig Capital ventures to the technology sector to review an issuer involved in the design and manufacture of semiconductors. Magnachip Semiconductor (NYSE:MX) has been around for over 30 years and is the largest independent supplier of OLED display drivers to panel makers for smartphones. The company’s latest reported quarterly results (three months ending September 30, 2018) were excellent.
Adjusted EBITDA increased 13% year-over-year.
Gross profits were up 10.8% over the prior year period.
Operating income increased by 17.9% over Q3 2017.
Revenues were up 16.6% year-over-year and were at the highest levels since Q4 2012.
Interest coverage over 3x for the third quarter.
Apple’s Quarterly Businesses Breakdown
- iPhone installed base is now over 900 million, adding almost 75 million over the past year. Predictions were that the iPhone installed base would hit one billion by the end of 2018, for instance. Apple may have missed that estimate, but it did grow the iPhone installed base by 9% over the past year.
- Apple Subscription – Over the last four quarters, its sales of apps, movies, games, Apple Music, AppleCare, iCloud subscriptions, and Apple Pay fees have generated roughly $39.6 billion for the company, with a 62% margin in the most recent quarter.
Are Oil Prices About to Gush?
- The President of Venezuela’s opposition-dominated National Assembly Juan Guaido will announce new boards of directors for state oil company PDVSA and its U.S. business, Citgo, UPI reports. U.S. Treasure Secretary Steven Mnuchin said the he’ll hold PDVSA’s proceeds from crude oil sales to the United States, adding that the company could avoid being sanctioned if it recognized Guaido as the legitimate president of Venezuela.
- Saudi Arabia is determined to restore the balance on the oil market and is cutting deeper than required in the OPEC+ deal, with February crude production likely close to 10.1 million bpd, compared to the 10.3-million-bpd ceiling in the production cut agreement.
New SALT Taxes are Going to be Shocking to Many
- State and Property tax deductions capped at $10,000. On this year’s tax forms, deductions for state and local taxes — known as SALT deductions — is the one that is going to impact middle class taxpayers the most. It will particularly affect those living in states like California and New York, which both have above-average state income tax and property tax rates.
- If you paid a lot of state and local taxes in 2018, buckle up this tax season — new laws cap how much of those payments you can deduct on your federal tax return. That means more of your income could be taxable this year.
Will Bitcoin Be Valued at Zero?
- Jeff Schumacher predicted Bitcoin going to zero and said that Bitcoin as a currency was not based on anything, but added that he liked the technology behind it adding “if it became the standard currency and because of the Proof-of-Work model that it sits on; if it got to be the gold standard… if Bitcoin was pegged against gold standard which is about seven trillion-ish dollars it would be responsible for 20% of the world’s co2 production. So just by that alone tells you it’s not it’s not gonna be the go-forward thing, at least for my view.” Glenn Hutchins said that he agreed partly with Jeff Schumacher and said that Bitcoin will not be the major coin in the industry.
- Understanding the key differences between Bitcoin and Ethereum can provide a better grasp on the broader cryptocurrency and blockchain industry as a whole, as they are both integral components of the market with large open-source communities and influential developments.
- The drop in Bitcoin prices from around $6,500 throughout much of October to below $4,000 now has increasingly pushed margins further and further negative for just about every region except low-cost Chinese miners.
- Bitcoin became widely-known before blockchain did — there’s no doubt about it. Yet, Wall Street attendees of Davos‘ recent World Economic Forum annual event have stuck to the “blockchain, not crypto” script.
- Previous: Where is the Bitcoin Bottom?
What Countries are Causing the Global Economic Slowdown?
- The slowdown in Chinese growth has become the latest looming cloud over the global economy. The advice from Beijing was not to worry. China is slowing down but it’s not going to be a disaster. “China has been able to avoid financial crisis in the last 40 years. We have a very top down approach to financial risk management.”
- Official data suggested that Germany avoided a recession at the end of 2018 but confirmed a sharp slowdown in growth last year as Europe’s largest economy cooled off from boom times. Economic growth sank to 1.5 percent in 2018 from 2.2 percent in the previous two years, federal statistics authority.
- In emerging and developing Asia, the growth forecast will dip from 6.5 per cent in 2018 to 6.3 per cent in 2019 and 6.4 per cent in 2020. Despite fiscal stimulus that offsets some of the impact of higher US tariffs, China’s economy will slow due to the combined influence of needed financial regulatory tightening and trade tensions with the United States.
- A no-deal Brexit could trigger a further slowdown in global growth, the International Monetary Fund (IMF) has warned. The IMF fund noted the possibility of “a disruptive no-deal Brexit with negative cross-border spillovers” had risen in recent months, while increased euro-scepticism might impact European parliamentary election outcomes in May.
- Canada’s wholesale sales dropped 1% in November, the biggest one-month decline for the sector since March 2016. Factory sales were down 1.4%, the largest drop since January. Both sectors also recorded declines in volumes. The data confirm Canada’s expansion has likely entered what economists believe is a temporary slowdown that is expected to last through the first few months of this year.
- Previous: Is China Pulling Down the World Economy?
- Previous: USA China Truce Starts With Bomb Shells
- Previous: How the China Trade “Pause” Effects Stocks
Real Estate Ended 2018 in a Tailspin; So What is the Forecast for 2019?
- Existing-home sales ran at a seasonally adjusted annual rate of 4.99 million in December, the National Association of Realtors said Tuesday. That was the lowest since November 2015. Sales were down 6.4% for the month, and 10.3% lower than the year-ago rate.
- Commercial real estate over the next five years are going to be a lot tougher than they were the last five years, as cap rates increase. “We’re also seeing pressure on net effective rent with tenant improvement allowances. They are going up at a significant pace.”
- Looking ahead to 2019, expect weaker existing-homes sales as the new year ushered in a government shutdown and worsening economic uncertainty. Home sales have slowed after years of strong price growth and modest inventories hurt affordability. More properties are sitting on the market, as days until a signed contract increased to 46 from 40 days a year ago.
- According to Zillow, 25.1% of the nation’s newly-constructed homes had their sale prices cut during the fourth quarter of 2018, up from 19.2% of new homes in the first quarter of last year. At the regional level, Denver had the highest share of new homes with price cuts, at more than 40%. San Francisco and Los Angeles both had the steepest average price cuts at 8.5%.
- Economists polled by Reuters had forecast existing home sales falling 1.0 percent to a rate of 5.25 million units in December. Existing home sales, which make up about 90 percent of U.S. home sales, plunged 10.3 percent from a year ago. 2018, sales fell 3.1 percent to 5.34 million units, the weakest since 2015.
- Previous: Real Estate Market Outlook – Forecasts are Mostly Negative, Great for Cash Buyers.
Load Up On Over 9% YTM from Teekay Corporation, Bonds Mature January 2020
This week, Durig Capital takes a look at a leading marine transportation company. Teekay Corporation provides marine transportation, storage, and vessel leasing for the oil and natural gas industry. The company’s third quarter saw increases in its subsidiaries revenues over second quarter. Here are some highlights from its third quarter results.
Teekay Tankers nearly doubled its quarterly revenues from the prior year period.
Teekay Corporation recorded adjusted cash flow from vessel operations of $19.8 million as compared to $1.2 million a year earlier.
Teekay LNG revenues increased to $123.3 million as compared to $104.3 million a year earlier.
Once Great Sears and Kmart Survive…for Another Day.
- Sears may be down to its last 24 hours. Iconic retailer likely liquidates if no bid comes in Friday. The company’s last shot at survival is a $4.6 billion proposal, put forward by Chairman Eddie Lampert.
- Sears filed for Chapter 11 bankruptcy protection in October. At that time, it had 687 stores and 68,000 workers. At its peak in 2012, it had 4,000 stores. Sears was reportedly very close to liquidating. The exact details of the rescue plan weren’t immediately known.
- Roughly 425 Sears and Kmart stores in the U.S. will remain open, and 45,000 company employees will keep their jobs. Before it becomes official, Lampert’s takeover must be reviewed by a bankruptcy judge, which is reportedly expected to happen later this week.
- Sears’s awful quarters and a series of sweetheart real estate deals by Lampert to keep the chain afloat led one financial reporter to visit scores of locations to see what was truly going on. Snapping photos of derelict Sears and Kmart stores became an obsession. “I am watching one of the greatest retailers ever go out of business in real time.”
- Is a Sears Credit Card still good? The Sears credit card is a separate issue from Sears. The Sears credit card is issued and managed by Citibank. Further, if your Sears card is a MasterCard, you will be able to continue to use it at other merchants even if Sears goes out of business.
- Sears once owned brands – Kmart, Kenmore, Lands’ End, Craftsman, DieHard, Allstate Insurance, Coldwell Banker, Orchard Supply Hardware, Monarch Appliances, Wally Labs,The Great Indoors — here’s where they are now.
Let the Streaming Wars Begin
- Endeavor currently offers streaming for the NFL, NBA, UFC, and Euroleague. In announcing the launch, the newly formed division has added new clients WWE and their WWE Network, one of the largest sports-entertainment OTT platforms in the world.
- Comcast’s NBCUniversal plans to launch a free, ad-supported streaming service for pay-TV subscribers in 2020. For those who don’t subscribe to pay TV, the streaming product will cost about $12 a month. The timing launch means that it will likely include content around the 2020 Summer Olympics
- Netflix’s most popular plan, which gives a customer two simultaneous streams, will get the largest increase, to $13 a month from $11 (Still, it’s cheaper than HBO, whose streaming service costs about $15 a month). The $8 a month plan will now cost $9, and the high-end version, which allows for four simultaneous streams, jumps to $16 from $14.
- Amazon’s Fire TV may be moving into the lead among video streaming devices, with its lineup of products attracting “well over” 30 million active users, up from the 25 million Amazon disclosed in October, giving growth of 5 million new accounts in three months.
- Amazon is putting together a game streaming service that will beam titles from the cloud right to your devices, so you can play without installing them, or even owning a powerful machine to run them.
- Over the past year, Apple has deployed a $1 billion budget to develop streaming content from high-profile film and television stars, including Oprah Winfrey, Reese Witherspoon, M. Night Shyamalan and Steven Spielberg. The company has hired two top executives from Sony Pictures Television to lead the effort. Apple also hinted that there’s something big in store.
Soak Up 8% YTM from SolarCity/Tesla, Bonds Mature 2020
This week, Durig Capital reviews a bond from an issuer that was snapped up a few years ago by one of the most enigmatic figures in corporate America. In late 2016, SolarCity was acquired by Elon Musk’s company, Tesla. The acquisition made sense- combine the maker of electric cars and energy storage with a company that produces solar panels that produce energy (seemingly to ultimately charge Tesla’s vehicles). Tesla has since integrated SolarCity’s products into the Tesla portfolio. Tesla’s most recent reported quarter (Q3 2018) was truly historical.
Free cash flow of $881 million.
Operating income of $417 million
Cash flow from operations of $1.4 billion.
Interest coverage in Q3 of 2.4x.
PG&E the 10th Largest Gas & Electric Utility files Chapter 11 Backruptcy
- If PG&E is found legally responsible for some or all of the costs connected to the 2017 and 2018 Northern California wildfires, its liability could exceed $30 billion, according to the company’s filing with the Securities and Exchange Commission on Monday. And that figure does not include potential punitive damages, fines and penalties or damages related to future claims.
- Numerous reports indicate PG&E is in negotiations with lenders about debt restructuring. “They’re going to try to get people to accept less than what is owed,” In its statement announcing the likely bankruptcy filing, PG&E said it expected the process to “support the orderly, fair and expeditious resolution of its potential liabilities resulting from the 2017 and 2018 Northern California wildfires.” On Monday morning, a set of barricades appeared outside PG&E’s headquarters building in San Francisco, though no sign of protesters was evident.
- Vanguard held $227.9 million of PG&E debt in its $5.6 billion California Municipal Money Market fund as of Dec. 31, according to data compiled by Bloomberg. It held another $110 million of PG&E’s debt in its California intermediate and long-term funds and $94.5 million in its $18.3 billion national money market fund. USAA was the second-biggest holder of PG&E municipal debt with $86.6 million, while American Century Companies Inc. was the third-biggest, according to data compiled by Bloomberg.
- Shares of PG&E Corp. plummeted 55% in premarket trade Monday, that is after the stock has plunged 63% over the past three months through Friday.
- California Governor Gavin Newsom responded to the announcement, saying: “While PG&E announced its intent to file bankruptcy today, the company should continue to honor promises made to energy suppliers and to our community. Throughout the months ahead, I will be working with the Legislature and all stakeholders on a solution that ensures consumers have access to safe, affordable and reliable service, fire victims are treated fairly, and California can continue to make progress toward our climate goals.”
Dow Jones, S&P 500, and Oil Out of the Correction Phase with Nasdaq Still in Bear Market and Real Estate Unknown
- Thus far, the Dow has climbed 10.1% from its Dec. 24 low, while the S&P 500 has gained 10.4% from that Christmas Eve low, when stocks put in the worst trading action on the trading day before Christmas on record.
- After crude suffered a near record, 44% plunge in the fourth quarter, oil stormed back into bull market territory, as investors who’d abandoned crude just a month ago were lured back by an OPEC-led campaign to bring runaway supplies in check.
- Real Estate bear market? Expect home sales to continue on a downward trend in the next 12-plus months. And there’s a significant downside risk to housing prices, if housing is currently in a bubble then prices are very likely to fall.
- The Nasdaq Composite was up 12.3 percent from its Christmas Eve low, but remained 7.7 percent away from exiting a bear market — typically defined as 20 percent below a bull market peak — which it entered on Dec. 21.
- The most discouraging part about this now three-week rally is that it has occurred on relatively thin volumes. The high-volume selloff underscored the fact that sellers have had much more conviction than buyers over the last several weeks.
Dig Into Nearly 35% YTM with Legacy Reserves, Bonds Mature December 2020
This week, Durig Capital takes an updated look at an oil and gas producer whose focus is primarily in the Permian Basin in Texas. Legacy Reserves has recently made the successful transition from master limited partnership to C-corporation. In addition, the company posted another excellent quarter for Q3.
Production increased by 31% (year-over-year).
Revenue increase of 36% over the prior year period.
Adjusted EBITDA increased by 33% as compared to Q3 2017.
Large Leading Companies Announce Major Profit Shortfall with Some Surprising Growth
- Samsung Electronics dramatically cut its guidance for fourth-quarter profits Tuesday as demand falls for its memory chips and smartphones. The world’s biggest smartphone maker said it expects to see an operating profit of $9.7 billion, down nearly 29 percent from last year. Analysts had been expecting profits of more than $13.5 billion.
- LG – The world’s second largest TV manufacturer has forecasted profit of just 75.3bn won (£52.5m) for the three months to December last year, which is also an 80 per cent drop from analyst estimates of 387bn won by Refinitiv. LG pulled in 336.8bn won in the fourth quarter of 2017.
- Tesla came in pretty close to delivery and production expectations, but close is no longer good enough to win the cigar. The stock closed Monday at about $10 off (about 3%) its consensus price target, indicating that it may still be overvalued.
- What does the Apple shortfall mean for other U.S. corporations? China has been a golden goose in recent years for many American brands pursuing growth through global expansion. Starbucks’ 3,000-plus cafes dominate the coffee-shop market there, with more than 50% of market share. Similarly, the success of GM’s Buick and Cadillac, as well as cars produced by its local joint ventures such as Baojun, have made China the automaker’s largest retail market
- Nike executives remain bullish about the retailer’s growth in China, saying that the company has not seen any impact on sales in China despite trade tensions. We are bullish about our potential to deliver strong, sustainable growth in China.
US and China Feds Help Change the Market Outlook
- Fed Chairman Jerome Powell sparked a huge stock market rally after he delivered just the message investors wanted to hear — that the Fed will be flexible on policy and it is in no hurry to raise interest rates. The central bank’s balance sheet wind-down was on “autopilot.” He reversed that impression and reassured investors Friday that the Fed would be flexible with all of its policy tools, including the balance sheet.
- The Federal Reserve’s pledge to be more “patient” with its interest rate hikes erased one of the biggest obstacles to a stock market rally that went on for much of President Donald Trump’s time in office.
- The central bank “will be patient” as it weighs future interest rate hikes in light of low inflation, adding that policymakers will also take into account recent stock market volatility. Powell seemed to deliberately convey a more cautious approach to rate hikes this year than he did during a news conference last month after the Fed raised rates for a fourth time in 2018.
- Federal Reserve Chairman Jerome Powell said Friday he would not resign from his post if President Donald Trump asked him to. Powell also said he had not received any direct communication from the White House about unhappiness with the central bank’s rate policy, and no meeting with Trump has been scheduled.
- A further step by China’s central bank late Friday to secure liquidity to the slowing economy may also help assuage concerns. Apple Inc. last week cut its revenue outlook for the first time in almost two decades, citing weakness in China’s economy as one of the reasons. U.S. and Chinese officials will begin trade negotiations on Monday in the hope of reaching a deal during a 90-day truce between President Donald Trump and his counterpart Xi Jinping.
- Previous: World Markets: The Good, Bad and Ugly
- Previous: What is an Inverted Yield Curve and What Does It Mean?
- Previous: What is a “Neutral” Interest Rate? Powell and Trump Have Different Opinions
- Previous: Higher Interest Rates are Negatively Affecting many Markets & Trending others Investments Upwards.
- Previous: Is Fed Tightening Going to Cause a Recession? Many Experts Think Yes!
Apple Update: The Good, the Bad, and the Ugly
- We learned from Samsung’s soft sales of the Galaxy S9 through 2018 and Apple’s dramatically reduced forecast of iPhone revenues for the end of that year, it’s that most people who want a great smartphone already have one.
- Biggest miss in years. we believe Apple’s replacement rates are likely much more sensitive to the macro now that the company is approaching maximum market penetration for the iPhone.
- Never before has Apple faced such fierce competition from a multitude of rivals from around the globe, all vying for the lucrative premium smartphone market. Matching or exceeding Apple’s iPhone on hardware quality, these phones are arguably more capable, and often cheaper.
- Apple’s Siri pioneered voice computing on phones and remains a notable player in the market. But Siri has fallen far behind the competition, and Apple’s HomePod remains an also-ran in smart speakers as the company focuses on iPhones. These factors point to Siri likely being irrelevant in the upcoming market.
- One contrarian expects things to improve for Apple stock, saying the situation should stabilize in 2020 and EPS growth to resume. “The stock is now trading close to 10x our 2020 earnings expectation, a historic low in absolute and relative terms, and [we] see limited further downside to the stock.“
2019 Stock Market Bulls vs Bears Predictions
- The fear is that the economy may already be slowing, and raising rates too high would be a mistake by unnecessarily causing it to slow further. On the brightest side in this economic cycle the nation’s unemployment rate continues to decline, and job growth remains on a healthy pace.
- The question everyone is asking is: Are the gut-wrenching ups and downs in the U.S. stock market just noise? Or is the flirtation with a bear market an early warning sign of what the U.S. economy can expect in 2019? The Fed will be the ultimate arbiter of how things play out.
- 4 factors that could affect the stocks outcome: Technology stocks have unique challenges; Global growth has already been slowing; President Trump is a factor; Borrowing costs could hurt.
- “The decline in global growth will mean a weaker tailwind for global markets, which could begin to anticipate an end of the economic cycle as 2019 progresses, and solid domestic demand in the euro zone will not be sufficient to offset reduced export growth.
- One can legitimately worry about global geopolitical and economic uncertainties coming out of Europe, trade tensions with China, slowing global economic growth, and a hawkish Federal Reserve Bank (The Fed) raising interest rates.
- Deep and lasting market declines tend to make businesses and consumers afraid, and they pull back on spending, which is how the market can spill over into the economy and cause damage.
Gold Rising as Equities and Real Estate Fall; Which Will Prevail?
- There has been an extensive surge in the gold exchange traded fund holdings and there is absolutely no shortage of momentum there. Investors are buying gold as there are many uncertainties heading into 2019.
- Global gold production is expected to be somewhat stable in 2019, with one analytical firm forecasting a fall of half a percentage point and another looking for a rise of less than that.
- Silver production declining 0.7% to 851 million ounces, Analysts look for declines in Asia, South America and Europe, but increases in Africa, North America and Australia-Oceania.
- Russia increase demand for gold as sales were lower in 2018 compared with the previous year. To a greater extent it was caused by the activities of Russia’s Central bank, “which was our most active client this year and which was significantly increasing its gold reserves,” says VTB Capital.
- Gold has been tracking steadily higher through December… On the low side, there appears to be good support at $1,265 and we expect plenty of buying interest around the 200-day moving average at $1,251.” Much of this increased buying pressure is being driven by geopolitical tensions threatening to disrupt global markets, along with uncertainty in stock prices.
- Is gold a sell, Gold prices are primarily getting support on the back of safe-haven buying due to concerns about the health of the global economy and heightened volatility in risk assets.
- Upbeat US data and signs of easing trade tensions between Washington and Beijing limited demand for the metal. Robust sales during the U.S. holiday shopping season indicated consumer confidence was not entirely dented by recent volatility in the U.S. stock markets.
Pick Up Over 40% YTM with EP Energy, Bonds Mature June 2023
This week, Durig Capital takes another look at EP Energy, an oil and gas producer who has assets in the Eagle Ford, Permian and its newly renamed Northeastern Utah (NEU) asset. The company just posted exceptional results for its most recent quarterly results (three months ending September 30, 2018). Some of the highlights include:
Adjusted EBITDAX increased by 35%
Net cash provided by operating activities increased by 28%
Interest coverage of 1.9x
World Markets: The Good, Bad and Ugly
- A partial government shutdown, Treasury Secretary Steven Mnuchin’s questions about banks’ health and signals that President Donald Trump could fire Federal Reserve Chairman Jerome Powell upset markets on Monday, sending the Dow down. After markets tanked on Christmas Eve, Trump said Tuesday that he remains confident in Mnuchin, renewed his criticism of the Fed, accusing it of hiking rates too fast.
- Retail sales in the U.S. from Nov. 1 through Christmas Eve were up 5.1 percent to more than $850 billion. That makes this the best holiday shopping season in six years. The surge in spending comes amid the latest fluctuations in the stock market, worries on Wall Street about a potentially slowing economy and a partial government shutdown.
- The shock value of the price drop of oil and the lack of confidence about the global economy will cause a sharp pullback in energy investment. Big capital spending cuts in 2019 as Oil companies will have no choice even if they believe that this price crash is overdone, because the shareholders will not take too kindly to them if they are wrong.
- President Trump in a storm of tweets blames the Federal Reserve for the stock market’s comeuppance. The Fed has been slowly raising interest rates, which he argues is causing investors to sell. He is so mad about it, he has flirted with the idea of firing Fed Chairman Powell. The Fed didn’t cause the stock market carnage. President Trump’s ‘wrongheaded’ policies did, says Mark Zandi.
- Steady and consistent gains in jobs and wages have gone up, too. The labor market is tight — companies are scrambling to find enough workers to fill positions — consumer confidence is high and people have not been shy about holiday spending. Overall, we’re still in one of the longest economic expansions in history. GDP’s been hovering in the 3 percent range this year and economists generally expect it to slow to around 2 percent in the near future.
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- Previous: What is a “Neutral” Interest Rate? Powell and Trump Have Different Opinions
- Previous: Higher Interest Rates are Negatively Affecting many Markets & Trending others Investments Upwards.
- Previous: Is Fed Tightening Going to Cause a Recession? Many Experts Think Yes!
Facebook (FB) Multiple and Repeating Ethical Issues Are Not a Sign of a Well Run Company or Stock!
- There are many signs that the Street in general and investors in particular are losing confidence in the leadership of Zuckerberg and Sandberg. Arjuna Capital and Trillium Asset Management — recently called on Zuckerberg to relinquish the chairman role. FB is “a deeply troubled stock,” adding that “I don’t know where the bottom is and I am not sure anybody really does.” FB stock has plunged over 35% from its July highs.
- “Facebook’s consumers reasonably expect that Facebook will take appropriate steps to maintain and protect their data,” a Federal lawsuit says. “Facebook tells them as much, promising that it requires applications to respect a Facebook consumer’s privacy. Facebook has failed to live up to this commitment.”
- The Washington State Attorney General said Google will pay $217,000 and Facebook will pay $238,000 to settle cases alleging the companies failed to maintain legally required information for political advertisements placed on their platforms.
- Facebook gave companies including Netflix, Spotify and the Royal Bank of Canada the ability to read, write and delete users’ private messages. Facebook permitted Microsoft’s Bing search engine to view the names of nearly all of a Facebook user’s friends without consent.
- Facebook agreed to settle charges that it had deceived consumers by “telling them they could keep their information on Facebook private, then repeatedly allowing it to be shared and made public. The agreement, which became final in 2012, prohibited Facebook from misleading consumers about their data privacy and security.
- Facebook has admitted to hiring Republican opposition firm Definers Public Affairs to investigate Jewish billionaire George Soros. Facebook CEO Mark Zuckerberg and COO Sheryl Sandberg both stated unequivocally that they did not know about the hiring, but Elliot Schrage, the company’s head of communications and policy, says otherwise.
Drive Home Over 10% YTM from Hertz Global, Bonds Mature October 2022
This week’s bond review ventures into the auto world, specifically car rentals. Hertz is one of the leading auto rental companies in the U.S. and around the world. The company recently posted its financial results for its third quarter, presenting solid evidence that the 2017 Transformation Plan is continuing to bear fruit. Some of the company’s excellent Q3 results include the following:
A 52% increase in in global net income.
U.S. adjusted corporate EBITDA increased by 25% year-over-year.
Revenues for U.S. operations also increased 10% year-over-year.
The Jay Powell Show on the 19th at 2 p.m. Eastern Time
- The Federal Reserve will announce its next rate-hike decision and the stakes have rarely been higher. The Federal Reserve’s rate-hike decision on Wednesday will be one of the most important and closely watched in recent memory. Monetary tightening guidance from the central bank has been a major driver of stock-market fluctuations this year, and that’s certain to continue.
- The central bank should pause its double-barreled blitz of higher interest rates and tighter liquidity,” Drunkenmiller, a former member of the Fed board says. There are enough indicators to suggest the economy might need some monetary accommodation
- Jeffrey Gundlach quote: They shouldn’t raise them this week. The bond market is basically saying, ‘Fed you’ve got no way you should be raising interest rates.’ Look at the twos, threes, five-year part of the yield curve, which are flat at 2.7 percent. The problem is that we shouldn’t have had negative interest rates like we still have in Europe.
- It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the Victory! Trump has criticized the Fed, as well as Chairman Jerome Powell. The president has gone so far as to say the Fed has “gone crazy” with monetary policy, and thinks “the rate’s too high.”
- Jay Powell has been backed into a really tough corner right now with all the noise coming out in the market as to what they should or shouldn’t do, and basically what they’re mandated to do. Markets place probability of a fourth hike this year near 9o%.
- Previous: What is an Inverted Yield Curve and What Does It Mean?
- Previous: What is a “Neutral” Interest Rate? Powell and Trump Have Different Opinions
- Previous: Higher Interest Rates are Negatively Affecting many Markets & Trending others Investments Upwards.
- Previous: Is Fed Tightening Going to Cause a Recession? Many Experts Think Yes!
Is China Pulling Down the World Economy?
- In China, weak economic data has been coming in thick and fast. The country’s statistics bureau announced that retail sales in November grew at their slowest pace in 15 years, with car sales on course for their first annual decline in nearly three decades. Industrial output was also weaker than anticipated, growing at its slowest pace in nearly three years.
- China’s economy has slowed sharply in recent months, presenting the biggest challenge to its top leader, Xi Jinping, in his six years of rule. He faces difficult choices that could rekindle growth but add to the country’s long-term problems, like its heavy debt. On the world stage, he has been forced to make concessions to the United States as President Trump’s trade war intensifies.
- The Federal Open Market Committee is expected to raise its short-term interest rate — a benchmark for many consumer and business loans — by a modest quarter-point to a range of 2.25% to 2.5% after a meeting on Wednesday. This would be its ninth hike since late 2015. The central bank forecasts three more rate hikes in 2019, but softer global growth could cause a shift in its hawkish stance, as China announced that its industrial output and retail sales had slowed in November.
- With economic growth at its weakest since the global financial crisis, Chinese policymakers are ramping up spending, pushing banks to increase lending and cutting taxes to shore up businesses and ward off a more damaging slump. November industrial output and retail sales growth numbers showed that downward pressure on the economy is increasing.
- Xi wants to see the trade war resolved sooner rather than later given the disproportionate effect of trade on the Chinese economy when compared to that of the United States. China’s exports to America amounts to a larger segment of the Chinese economy than the amount to which China-bound U.S. exports represent to the U.S. economy. Last year China exported $500 billion worth of goods to America out of a total Chinese economy of $12 trillion. The U.S. exported $130 billion goods to China out of its GDP of $19 trillion .
Previous: Auto Industry: Tesla, GM, Ford, Trump and China Update - Previous: USA China Truce Starts With Bomb Shells
- Previous: How the China Trade “Pause” Effects Stocks
Has the Market Bottomed? A Lot of Smart People Think So!
- The stock market has reached a bottom following a tumultuous 10 weeks that’s seen the S&P 500 in and out of correction territory. Others have predicted a rally of up to 10 percent in the next 30 days. One investment strategist is standing by his 2,850 year-end S&P 500 price target, “A lot can happen in a month.”
- Renowned oil trader Andy Hall says he would bet that crude prices are more likely to go up than down following a collapse over the last two months. A correction like the one gripping the market tends to trim supplies and boost demand.
- The stock market is setting up for another rally, according to Elliott Wave theory. As long as the S&P 500 holds 2,640 points, the index could rise to over 2,800
- Cramer’s Conclusion? Don’t buy tech ETFs, buy winners. Yes, it is time for single-stock rewards. To understand the potential basis for a tech rally, we have to understand why we had a tech wreck to begin with. “I think the CPU shortages and the lack of investment say it’s time to buy — and for the first time in ages.”
- “We are going to start getting into this oversold territory. You’re going to see the buyers coming in and starting to pick up some bargains.” If trade doesn’t improve, and if the yield curve keeps flashing yellow or red, there’s still one point of optimism; the selling has to stop at some point. Here are some potential bargains.
- Previous: Is the Stock Market Going Up or Down? Lets Break Down Some Components.
- Previous: Are Markets Pricing in a Global Slowdown?
- Previous: Is Fed Tightening Going to Cause a Recession? Many Experts Think Yes!
Auto Industry: Tesla, GM, Ford, Trump and China Updates
- Chinese Vice Premier Liu He has plans to reduce tariffs on American auto imports from 40 percent to 15 percent in a move that could break an escalating trade war between the world’s two largest economies. Shares of General Motors, Ford and Tesla rose with the news.
- Tesla’s vehicles are consumers of the company’s main product: batteries, which are also used in huge storage power stations, homes and for all types of electrical installations. As GM and Ford are working to revive its core business, Tesla has green fields all around it.
- Ford Motor said it would spend $11 billion on a three to five year global restructuring program. Europe is expected to see the bulk of the action with big job losses. Ford Europe said it reshuffled its leadership ahead of an expected shakeup in the loss-making organization.
- CE Mary Barra’s plan frees up the resources to give GM a fighting chance in the market for electric cars. This is better than using the same resources to keep factories open running just one shift to make unprofitable cars and potentially requiring another government bailout.
- Volkswagen will be rolling out its last generation of combustion engine cars in 2026, as it looks to turn the corner on the “dieselgate” emissions cheating scandal. Volkswagen’s pivot towards e-cars has in part been spurred by efforts to shake off its ongoing “dieselgate” scandal.
- Previous: Elon Musk & Telsa’s Future: Turbo Charged or a Car Wreck ?
Apple, Qualcomm, and China
- Qualcomm just scored a major victory in its ongoing legal battle with Apple: the chipmaker won a preliminary injunction from a Chinese court that would ban the sale and import of many of Apple’s recent iPhone models in China, including the iPhone 6S, 6S Plus, 7, 7 Plus, 8, 8 Plus, and X.
- The market share for Apple’s iPhone in China has been shrinking for a little while. The back and forth over the patents isn’t likely to resolve itself soon. Qualcomm and Apple are fighting that battle on several fronts, including U.S. courts.
- China’s anger is growing over the arrest of a top Chinese tech executive wanted by the United States. What happens next will be decided Monday by a Canadian court. The company has said it was “not aware of any wrongdoing by Ms. Meng.”
- Chinese November trade data dwindles. China reported notably weaker than expected November exports and imports, which pointed to slower global and domestic demand and raised the possibility that Beijing may undertake more measures to boost growth.
- Previous: USA China Truce Starts With Bomb Shells
- Previous: How the China Trade “Pause” Effects Stocks
Find Over 16% YTM with Revlon, Bonds Mature February 2021
This week, Durig Capital takes a second look at an iconic cosmetic company that is continuing to refine its market strategy. Revlon, founded in 1932, has been identified with some of Hollywood’s biggest stars over the years. The company, under the direction of a new President and CEO, has recently posted some fantastic results for the third quarter including:
Adjusted operating income increased by 82% year-over-year.
A 35% increase in Adjusted EBITDA.
An increase in e-commerce sales of 23%.
Significant sales increases in China as well as North America.
USA China Truce Starts With Bomb Shells
- Huawei executive arrested on a U.S. extradition warrant in Canada because Huawei is suspected of trying to evade American sanctions on Iran. U.S. prosecutors have been investigating since 2016 whether Huawei violated U.S. export and sanctions laws by shipping U.S.-origin products to Iran.
- China is interested in expanding its strategic and long-term relationship with the Islamic Republic of Iran. The Chinese government and various political and economic institutions, emphasized the need for expansion of the banking and financial relations between the two countries.
- Iran and China have found a way for China to continue buying Iranian crude and pay for it without risking a U.S. sanction breach. China had a special bank dedicated to handling payments for Iranian oil during the international sanctions against Tehran earlier this decade, so finding ways around sanctions is hardly new.
- “I am a Tariff Man,” Trump announced to signal his devotion to import taxes–a remark that served to downplay the likelihood of ending his trade war with China. Fear that an escalation in tariffs would choke off economic growth and possibly send a global slowdown into a recession.
- That massive data breach that hit hotel group: Marriott believes the hackers were working for a Chinese government intelligence gathering operation. Marriott said that a hack that began four years ago had exposed the records of up to 500 million customers in its Starwood hotels reservation system.
- Trump claimed a “BIG leap forward,” But scant details and few public commitments by China on what its commitments would be under the verbal agreement between Trump and Xi erased some market exuberance over what was brokered between the world’s two largest trading partners.
- Previous: How the China Trade “Pause” Effects Stocks
What is an Inverted Yield Curve and What Does It Mean?
- The inverted yield curve has preceded many of the U.S. recessions. Due to this historical correlation, the yield curve is often seen as an accurate forecast of the turning point of the business cycle.
- The bond market just flashed a major ‘red flag’ — and it could be signaling a US recession — US 3- and 5-year Treasury yields have inverted, while the 2-year and 10-year benchmark is flattening.
- The 2-year note holding a higher yield than the 10-year note, which has preceded every U.S. recession since World War II — This has not happen yet.
- Fed officials acknowledged the yield curve inversion as a recession indicator. Atlanta Fed President Raphael Bostic and St. Louis Fed President James Bullard have warned against deliberately triggering the bond market indicator. But Fed Chairman Jerome Powell, have dismissed its role in the central bank’s decisions. The spread between the 2-year note and the 5-year note is not a common way to assess the curve’s slope.
- The latest shift is arguably more about a fairly typical hike in short-term funding rates at the end of the year. Large, banks having to raise higher-quality capital to satisfy regulatory requirements that come into full force this year. When lenders are forced to lock up large parts of their capital in relatively unexciting Treasuries, this means they need to push up interest rates elsewhere.
