Personal Income and Outlays Slowing Trending Higher

Personal income rose 0.3% and spending rose 0.4%. The consumer is making a little more money and spending a little more money at the same time, while inflation is very low. That’s an alright combination. It’s not good, but it’s not bad either.

Wages and salaries rose +0.5 and +0.6 percent over the last two months. Turning to spending, the gain is 0.4 percent which is 1 tenth above consensus with July revised 1 tenth higher to 0.4 percent also.

Stock traders track the Personal Income and Outlays report because it helps them gauge the strength of the consumer sector and ultimately where the economy is headed. Income gives households the power to spend and that consumer spending keeps the economy growing.

GDP Stronger Than Thought +3.9%

Second quarter GDP came in at +3.9 percent. Very nice! The main reason for the better than expected number was that personal spending was stronger than originally thought.

Consumer spending also pushed the final sales component up +3.9 percent for a 4 tenths upward revision.

The third quarter GDP is forecast to come in much lower at around 1.5% or less than half of second quarter GDP.

Stock traders track the GDP because it is the broadest measure of economic activity across the economy. Traders like to see solid economic growth because solid business activity translates to higher corporate profits.

New Home Sales Highest Since February 2008

New home sales came in at 552K for the month of August. The consensus range was 500K to 531K. This is the highest level since February 2008!

The chart of new home sales show a clear strong uptrend:

Stock traders track new home sales because they have a powerful multiplier effect throughout the economy. When someone buys a new house not only does it generate revenue for the home builder, the real estate agent, and the bank that financed the purchase, it also generates revenue for the makers of: washers and dryers, furniture, refrigerators, and so on. This creates a powerful “ripple effect” throughout the economy.

Durable Goods Orders Drop -2% In August

Durable goods orders dropped -2% in August. This reading makes sense as last week’s industrial production data was also weak. The rising U.S. dollar and the global economic slowdown are hurting the factory sector.

Both aircraft and motor vehicles were weak. Orders for aircraft fell -12 percent in August while vehicle orders fell -1.5 percent.

Durable goods orders will not be lifting the Q3 GDP estimate.

Stock traders track orders for durable goods because it shows how busy factories will be in the months to come, as manufacturers work to fill those orders. The report shows demand for things like cars, refrigerators, computers, industrial machinery, and electrical machinery. If businesses spend more on equipment, they are obviously experiencing growth in their business.

Existing Home Sales Slow But Still Strong

Existing home sales came in at 5.31 million for August. Although that’s a slight slowdown, existing home sales are still in a powerful uptrend. July was revised down to 5.58 million.

Existing home sales are up 6.2 percent year-on-year. The year-on-year median price is up 4.7 percent to $228,700, which is the lowest since August 2014.

Stock traders track existing home sales because people have to be feeling pretty comfortable and confident in their own financial position to buy a house. There is also a multiplier effect through the economy. Once the home is sold, it generates revenues for the realtor. Home buyers also tend to buy washers, dryers, refrigerators, and furniture. The economic “ripple effect” can be substantial.

William Blair Raised XRAY to Outperform

Enters merger of equals with DENTSPLY (XRAY Updated Trend Analysis); intends to conduct $500M buyback as soon as possible, post close.

Sirona shareholders will receive 1.8142 shares of DENTSPLY for each existing Sirona share. The exchange ratio reflects an “at market” combination based upon the 20 and 30 day average volume weighted trading prices for each company. Upon closing of the transaction, DENTSPLY shareholders will own 58% and Sirona shareholders will own 42% of the combined company. The stock issuance in the merger is expected to be tax-free to shareholders of both companies.

The new company will have net revenue of approximately $3.8 billion and adjusted EBITDA of more than $900 million on a pro forma basis for the last twelve months.

Jeffrey T. Slovin, President and Chief Executive Officer of Sirona, will serve as Chief Executive Officer of the combined company and will be a member of the Board of Directors.

Bret. W. Wise, Chairman and Chief Executive Officer of DENTSPLY, will serve as Executive Chairman of the combined company.

The combined company will be called DENTSPLY SIRONA and trade on the NASDAQ under the symbol XRAY (XRAY Updated Trend Analysis).

DENTSPLY SIRONA (XRAY Updated Trend Analysis) intends to execute a $500 million share buyback as soon as possible after closing to drive incremental shareholder value. The new company plans to maintain DENTSPLY’s current dividend level of $0.29 per share. The combination of DENTSPLY and Sirona is expected to deliver $125+ million of annual pre-tax synergies by the third year following the completion of the transaction. The new company plans to achieve meaningful cost and revenue synergies by capitalizing on a broadened product offering, expanded customer base and scalable infrastructure. The combination is expected to unlock significant shareholder value and be accretive to each company’s shareholders on an adjusted earnings per share basis within the first year.

The transaction is expected to be completed in the first quarter of calendar 2016.

DENTSPLY International Stock Chart

Updates:

September 21, 2015: DENTSPLY International Inc (XRAY Updated Trend Analysis) William Blair Raised XRAY to Outperform from Market Perform.

September 18, 2015: DENTSPLY International UPDATE: Northland Capital Raised XRAY to Outperform from Market Perform

September 16, 2015: DENTSPLY International (XRAY Updated Trend Analysis) Baird Raised XRAY to Outperform from Neutral.

September 16, 2015: DENTSPLY International (XRAY Updated Trend Analysis) Barrington Raised XRAY to Outperform from Market Perform, price target: $60.

Fed Hawks Reasons Why Rate Hike Should Have Happened

Two Fed hawks gave their reasons why they thought rate hikes should have happened in September. The Richmond Federal Reserve President Jeffrey Lacker is a voting member, while the Federal Reserve Bank of St. Louis James Bullard is not.

Let us briefly look at each of these two bankers opinions on why the Fed should have hiked rates.

The Fed’s Jeffrey Lacker (hawk, FOMC dissenter), was the only dissenting vote at the FOMC. Laker’s reasons for dissenting are:

– Higher rates are needed considering the current economic outlook and conditions; US economy is strong enough to justify a rate hike. Its time the Fed recognizes the significant strides made by the economy even though the recovery has been disappointing in some ways.

– Below target inflation is transitory and has been near 2% since January 2015.

– The 25 bps rate hike now would have left policy exceptionally accommodative; further delay of liftoff would be a departure from past Fed behavior.

The Fed’s James Bullard (hawk, non-voter), gave the following reasons for why the Fed should have raised rates in September:

– FOMC should have raise rates this week, the case for rate liftoff is “quite strong”, the Fed’s objectives have essentially been met.

– Should have raised rates; Policy is still at emergency levels.

– There is little chance monetary policy will be restrictive anytime soon.

– Will be many years before policy is restrictive; there is a long way to go before rates have normalized. Policy will remain exceptional accommodative through the medium term.

Philadelphia Fed Business Outlook Survey

Buried in the wake of the Federal Reserve news stories that saturated markets yesterday was the Philadelphia Fed Business Outlook Survey.

We have been tracking the Philly Fed Business Outlook Survey for months now and the way I have chosen to interpret this report is that the rising U.S. dollar and slowing global growth is seriously hurting the U.S. economy by way of the manufacturing sector.

In fact, the Empire State Index has been in deep negative territory for the last two months.

The Philly Fed Outlook survey came in at -6 for the first negative reading since February 2014.

The chart looks horrible folks. The Fed has already been using contractionary monetary policy by talking up rate hikes and the Obama Administration has also been contracting with fiscal policy. You can see the effects of that contractionary monetary and fiscal policy in the chart above.

Stock traders likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more moderate growth so that it won’t lead to inflation. The Philly Fed survey gives a detailed look at the manufacturing sector, how busy it is and where things are headed. Since manufacturing is a major sector of the economy, this report has a big influence on market behavior.

Advanced Energy Announces $150M Share Buyback


Advanced Energy Industries (AEIS Updated Trend Analysis) makes power conversion and control products. Its power conversion systems are used by semiconductor, solar panel, and similar thin film manufacturers, including flat panel display, data storage, industrial hard coating and ophthalmic optical coating equipment makers, and architectural glass manufacturers.

AEIS EPSAnalysts have been raising the EPS forecast over the last month. The P/S of 1.82 suggests the stock is currently undervalued in relation to the amount of sales the company is doing. The P/B of 2.2 suggests the company’s market value is attractively priced in relation to the assets it has. The forward P/E of 12.6 suggests the company is undervalued in relation to its forward earnings.

AEIS RevenueThe company’s sales have increased by 29% on an annual basis, over the last 5 years. The company’s EPS has increased by 19.8% on an annual basis over the last 5 years. The company appears to be adequately funded for 6 months or more. There is no immediate short term cash problems. The company has enough current assets to cover its current liabilities and its fixed expenses for the next six months.

Advanced Energy Industries Stock Chart

UPDATES:

September 16, 2015: Advanced Energy Industries (AEIS Updated Trend Analysis) unveils capital deployment strategy and announces $150M share repurchase program over next 30 months (14% of market cap). Advanced Energy’s capital deployment strategy encompasses the following:
– organic investments to grow its market leadership in semiconductor applications, expand into industrial markets and increase its geographic presence;
– acquisitions to increase the company’s total addressable market with a particular focus on industrial products and applications;
– share repurchases to meaningfully reduce share count over time; and
– a more flexible capital structure that may include debt instruments to fund key investments.

Overall, the company aspires to deploy approximately 70% of its future free cash flow to organic investments and acquisitions and 30% to share repurchases. The company also announced today that its Board of Directors has authorized it to repurchase up to $150 million of its common stock over the next 30 months. As of June 30, 2015, the company had approximately $183 million in cash and marketable securities and approximately 41 million common shares outstanding.

August 05, 2015: Advanced Energy Industries Susquehanna Raised AEIS to Net Positive from Net Neutral, price target: $35
– Price target raised to $35 from $22
– Firm notes that execution and restructuring leading to higher earnings power
– Firm notes that new team at AE has continued to execute while divesting the Solar Inverter business, leading firm with increased conviction on $2.60+ EPS power
– Firm introduces their CY16/CY17 (ex. Solar Inverter) EPS estimates of $2.60/$2.65

Disclosure: I do not hold any position in any stock mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.