We will be off tomorrow for Good Friday and Passover, so please enjoy the longer read.
End of Q1, still in the meeting, mergers and acquisitions, Amazon you do you, the one-eyed man is king in the land of the blind.
Could it be…? S&P500: (1.38%), DOW: (1.07%), NASDAQ: (1.64%), RUSSEL: (1.08%), 10 YEAR: (-1.23), CRUDE OIL: (0.84%), GOLD: (0.06%). Pardon all the capital letters, we're just excited to see the other half of the Christmas lights again. It feels like we haven't had a green market day in weeks. That seems to be what happens when we, as consumers, are so accustomed to continuously gaining markets. After all, that’s what happens when the Dow Jones Industrial Average sees 9 consecutive quarters of positive growth. However, all good things must come to an end, and that is exactly what occurred as of today. YTD (year to date), the Dow is down just over 2%. With the markets closed Friday 3/29 due to Good Friday (Happy Easter to all who celebrate!), today was officially the last day of trading in the first quarter of 2018.
What. A. Quarter. It was extremely chaotic (or exciting, depending on your view…shorters). It started off great for investors. Everything was running smoothly. The Dow was setting record after record, soaring to over 26,000 in late January. Then it all came crashing down. Could it have been the uncertainty of the Trump Administration, foreign tension, or monetary policy changes? While nobody knows the true reason for the sudden drop, it was likely the result of a volatility spike. The VIX (-12.68%) spiked to 37 on February 5th. Also known as the fear gauge, it climbed 115% that day. Mayhem ensued. The only thing to be known for certain is that investor expectations of volatility based on the S&P 500 rose. Its impossible to know for sure if the VIX itself caused the drop, or if there was a change in the underlying perspective of volatility. Afterwards, the market was forced to fight off days of red with some green sandwiched in between. There were slugfests (Walmart stepping into the online retail ring with Amazon), rollercoaster sectors (looking at you, tech) and just a touch of heartbreak (Toys "R" Us going under, along with our childhood). Either way, we are glad the market ended the eventful quarter on a high note.
Elon Musk is put on suicide watch. Tesla recalled 123,000 Model S cars over potential power steering failure. Concerns of not hitting Model 3 production target. Credit ratings cut for Tesla debt. Tesla having problems raising capital. Recent fatal accident in California involving Tesla’s Autopilot system. Elon, I hope it gets better soon. I really do.
Cyber-attacking personal health. We’ve talked about Facebook. You've most likely heard everyone else talk about Facebook. So instead of burning you out on Facebook (because we're going to be talking a lot more about them as new events transpire), we are going to talk about a different type of data breach. Today's cyber victim is Under Armour (1.13%). In late February, an anonymous company stole the data of roughly 150 million users of the "MyFitnessPal" application. Fortunately, the data stolen only included usernames, passwords, and emails. We say only because it could have been much worse had credit card information or social security information had been stolen. Still, 150 million is a lot of people, and that magnitude alone should be cause for concern.
So if they didn’t get my payment or SS information, what's the point? Usually, information of this type is illegally sold on the internet. It can prove valuable to robot-generated emails. Such emails include phishing attacks, in which the offender will try to lure the victim into releasing more sensitive information about themselves. Due to the fact that this information was stolen from an app about personal health, the attackers can be sure that the email addresses and information they are getting is legit.
Meet me half way. On April 27, both Korean (North and South) presidents will be meeting at a summit. Kim Jong Un, North Korean’s president, will make history and become the first North Korean leader to enter South Korea. This is a major step towards peace on the Korean Peninsula.
Renault-Nissan merger. Renault and Nissan are in talks of a merger. Renault currently owns 43% of Nissan, Nissan currently owns 15% of Renault, and the French government owns 15% of Renault. It might get complicated… Renault closed at $98.50/share, up 5.79% from it’s opening, and Nissan Motor Co. closed at $20.68/share, down .65% from it’s opening.
Trump sets sights on Amazon. Despite the recent Cambridge Analytica scandal that has shrouded Facebook in controversy, the president set his sights on Amazon today. In a tweet, Trump criticized Amazon for paying “little or no taxes”, using the Postal Service as the companies “Delivery Boy”, and putting “thousands of retailers out of business”. When compared to Amazon’s taxes paid and its effect on the Postal Service, Trump’s tweet does not hold true. In 2016, Amazon paid $412 million dollars in taxes and last year’s revenue for the Postal Service increased 11% to $19 billion, largely due to Amazon’s success . Trump's third point, however, is cause for concern. In late January, Amazon announced it would enter the healthcare market with help from Berkshire Hathaway and JP Morgan. Since then, CVS stock has fallen 30%. Toys R Us also blames the e-retailer for its bankruptcy with recent news that Amazon is looking to buy Toys R Us locations. While most of Trump’s tweet can be taken with a grain of salt, his critique of Amazon as a disruptor shouldn’t be dismissed.
Mr. Disruptor. Amazon is at it again. Last month they disrupted the healthcare industry with their partnership with JPMorgan Chase and Berkshire Hathaway towards the goal of cutting health costs and improving services for employees. Now they are going after the $16 billion housekeeping industry. Their new service will be called “Amazon Home Assistants” and trials just started in Seatle at an estimated cost of about $156 for a 1,500-square foot home.
I see you by Jutty Ranx. Eyes thicken, stiffen, and even calcify the more we use them. Now by using them, I mean checking your phone on an average of 75+ times per day, reading in the dark, watching YouTube videos into the early hours of the morning, etc. Then something starts to occur. You start to squint when watching those YouTube videos and you have to change the size of the font on your phone to a preschool level size to be able to read the text. Your presbyopia is then treated by reading glasses and you continue your calcifying habits furthermore. Ice fisherman can go snow-blind. Welders can suffer arc eye. But we, the texters, have smartphone blindness. We are long Allergan, Inc. (a pharmaceutical company that specializes in the development of ophthalmology products).
Your daily dose of sports. Results from Wednesday’s nights game went a little something like this: the Cavs lost to the Heat by 19 points. This win pushes the Heat to the seventh seed in the East. On the other side of the country, the Lakers played last night and beat the Dallas Mavs by 10 points (103 - 93). They are finishing their season with 8 of the last 9 at home, officially out of the playoffs. They will most likely look to develop their youth in the remaining contests.
The Alchanati Campbell and Associates Team
Markets bleeding red, GDP is green, Apple is going back to school, Tesla is dying, and bears are coming out of hibernation.
The market suffered losses for the second straight day once the dust settled on Wednesday's trading session. S&P 500: (-0.29%), DJA: (-0.04%), NASDAQ: (-0.85%), RUSSEL: (-0.04%), 10 Year:(-0.39%), Gold: (-1.33%), and Oil: (-0.89%). At one point during the day, nearly all of the above looked poised to be in the green. Alas, stock market was dragged downward, in part because of a continuing sell-off in technology. Except for that pesky VIX.
The deal with GDP. Gross Domestic Product is arguably the most important economic metric for a Nation in terms of financial health. While it is important to view it with a per capita (per person) outlook, we like to see GDP as the bottom line; and the bottom line was looking good as of this morning. In a report by the U.S. Department of Commerce, the fourth quarter of 2017 saw GDP grow 2.9%. This beat out the estimated growth of 2.5%. In 2017, GDP rose a total of 2.3%. This was much more than the 1.3% growth it saw in 2016. Additionally, Gross Domestic Income increased by 0.9%. GDI is the other side of the coin that is GDP. GDP is all about the production, while GDI is all about the income that is a result of the production in GDP.
So the economy is good…why is my portfolio red? A common misconception is that the economy and the markets (whether it be equity or debt, capital or money) are directly tied to one another. While they definitely have impacts on one another, they are not always so in sync. Take, for example, what occurred last week with the hike in rates. The rate increased is a result of a strong economy. Essentially, it is to prevent the economy from burning out, as well as fighting inflation. The rate going up is an example of contractionary policy. The economy is not always going to be in a good place. The next recession is always coming. It might not be for an extended time period, but it is on its way. When it does come, we will experience expansionary policy. The rate will go down to encourage borrowing, thus encouraging spending to get the market back on track. While the markets and the economy are generally moving in the same direction, they are not in sync. And that’s a good thing. Just because the market is not doing well does not mean that the United States is losing its way. At the end of the day, we as consumers should want this to be the case. After all, the economy of our country is of more importance in the long run.
Please give a warm welcome to our new classmate, Apple. Apple recently started an education campaign to reach kids in the classroom. They created a new 9.7-inch iPad that’s integrated with the Apple Pencil; $299 for students. They also created a new education service called Schoolwork for the teachers use in the classroom and Classkit which are educational apps in Schoolwork. Apple only has 17% of the ed-tech $17.7 billion market whereas Google has 60% of the market. Apple hopes to change this soon.
Electrocution for Tesla. Tesla shares fell as questions about a fatal Model X crash spurred up. The driver was killed on Friday and authorities are still trying to determine if the driver had engaged the vehicle’s Autopilot system. This is not the first Tesla crash involving Autopilot concerns. Tesla is down more than 26% in the last month and down more than 16% year-to-date. Tesla closed at $257.78/share and created a new 52-week low today.
How to profit from inflation. Inflation is a sustained increase in the price of goods and services and over time, inflation erodes the value of a Nation’s currency. Inflation is currently 2.21% for the month of February and as an investor, you should be aiming to earn a return greater than the rate of inflation. To do this, you would want to have investments intended to protect you against inflation like real estate, gold, oil, stocks, and inflation-indexed bonds.
Financial crisis indicators. Most indicators consider high volatility as a warning signal, but some argue that this signal is sparked after the crisis has begun which would mean it comes too late. A better alarm is provided by low volatility. Observers of low volatility are incentivized to increase risk. When volatility is low, the appetite for risk increases which increases lending of loans that are more risky which causes an increase in loan defaults. The defaults signal a banking crisis which then increases volatility.
The Alchanati Campbell and Associates Team
Techies bring down Wall Street, Brits flying non-stop to Australia, Kim Jong Un travels abroad, and Spotify is a hero.
Tech leads late selloff. Facebook and Alphabet lead the selloff with declines of 4.9% and 4.47% respectively. Tech companies have been under pressure recently with concerns of government regulation and privacy questions surrounding Facebook. Facebook’s CEO Mark Zuckerberg agreed to testify in front of Congress. Year-to-date, Facebook is down 14% and lost close to $80 billion in market value. At closing, Dow Jones down 344 points (-1.43%), the S&P 500 down 45 points (-1.73%), and the Nasdaq down 211 points (-2.93%).
GlaxoSmithKline Plc agreed to buy out Novartis AG stake. GlaxoSmithKline will buy out Novartis’ 36.5% stake in its consumer healthcare unit for $13 billion. Novartis invested in Glaxo’s consumer health unit in 2014 and the original deal allowed Novartis the right to require Glaxo to buy out Novartis’ stake in the business.
Anti-crypto Twitter. Twitter banned ads of ICOs (Initial Coin Offerings) today. Bitcoin fell below $8,000. A growing number of companies are starting to ban cryptocurrency advertising on their platforms. They fear damage to their reputation if their users are left penniless after buying into one of these risky, unregulated ICOs. Alphabet and Facebook banned the advertising early this year.
Qantas Flight 9. The first scheduled non-stop flight between London and Australia touched down in Heathrow Airport Sunday. In 1947, it took 4 days and 7 stops to travel from Australia to the UK. Now, the 9,009 mile journey is completed in just over 17 hours.
What a surprise! Kim Jong Un gave a surprise visit to Beijing early this week. China is North Korea’s biggest military ally, trading partner, and economic partner. This was Kim Jong Un’s first trip outside of the isolated country of North Korea since taking power in 2011. The train used for his travels is reported to be 21 cars long, bulletproof, and more powerful than a speeding bullet, but with a top speed of less than 40 mph because of its weight.
The savor of the music industry. Spotify Technology SA was founded in 2006 for the purpose of ridding the piracy problem from the music business. Spotify is a music streaming service that gives their users access to 35 million songs, podcasts, and other media. The creation of Spotify saved the music industry and the total global sales of music have grown 3 straight years after a 15 year decline. The company is valued at more than $20 billion, but it does not make any money. With music-rights holders taking $.75 on every dollar, Spotify is having a hard time becoming profitable. Spotify is going public in the beginning of April with a conventional IPO (issued stock beforehand to raise funds and letting existing investors to sell their shares directly to the public).
Hate it or love it. The US Treasury has begun to auction off approximately $300 million worth of bill and notes. This debt financing will be used to fund President Trump’s $1.3 trillion budget and it will be also used to help relieve some of the pressure put on by the tax cuts this past December. The yield for the 10-year T-bond fell again today. This is a result from investors moving towards safer investments as the stock market strayed into red again. As investors move into bonds, the price of bonds increase and as the price increases, the yield falls.
For people who like sports. A tragedy happened last night. The Los Angeles Lakers are officially eliminated from the playoff contention. Last night’s loss against the Detroit Pistons put the Lakers at 32-41 for the season. With nine games left, the youngsters have to go undefeated if they want to finish with an even record. Around the league, there's a really good prime time game tonight: Lebron and the Cavs are in South Beach to face Wade and the Heat who currently sit at the eighth seed. But with everyone's record so close in those last three spots (6th, 7th, and 8th seed), we might finally get a Cavs/Heat playoff series. We will keep you posted.
The Alchanati Campbell and Associates Team
Best day since 2015, U.S. Treasury going on sale, finding the truth and confidence within ourselves, and how bout them apples.
US Market Indexes are back up; Dow Jones sees biggest gain (660+ points) since August 2015. Stocks surge on report of talks about US-China trade negotiations. Trade negotiations began with the US requesting a reduction of Chinese tariffs on US automobiles, more Chinese purchases of US semiconductors and greater access to China’s financial sector. Microsoft powered the surge with a 7.5% jump following Morgan Stanley’s price target increase. Microsoft’s market capitalization climbed to $722 billion. Intel rose 6% with reports of Raymond James upgrading the stock to “market perform”. Remington, one of the oldest and most famous gun companies in the U.S filed for Chapter 11 bankruptcy. This comes after the tragically frequent shootings in the past weeks and as surviving students push for tighter gun regulation. Chapter 11 Bankruptcy reorganizes the internal structure of a company, usually to relieve heavy debt. This differs from the more well known Chapter 7 bankruptcy, which involves the liquidation of almost all assets.
US Treasury is auctioning about $294 billion of bills and notes this week. A major reason for US financing is a result of the tax overhaul. There is no doubt that the US can fulfill their borrowing needs, but the demand for 10-year notes has fallen to the lowest since October 2009. On top of the $21 trillion of debt the US already owes, the US deficit (an excess of expenses over income) is set to widen to almost $1 trillion next year.
We are always most gullible to ourselves. David Dunning, a social psychologist at University of Michigan, said, “To fall prey to another person you have to fall prey to your belief that you’re a good judge of character, that you know the situation, that you’re on solid ground opposed to shifty ground.” In 1999, Dunning and Justin Kruger identified the Dunning-Kruger effect: “People who are incompetent and lack knowledge in a field tend to massively overestimate their abilities because they don’t know enough to recognize what they don’t know." An example of this is: Participants in a 2013 study were asked a question about the trajectory of a ball after it was shot through a curved tube. Those who said the trajectory of a ball would be curved were wrong, but were just as confident in their answer as those who correctly stated the trajectory would be straight. (https://qz.com/1231534/the-person-whos-best-at-lying-to-you-is-you/)
“I got an apple for the teacher, gonna make a great success,”(An Apple for the Teacher by Bing Crosby). Apple Inc. saw a gain of over 400 basis points (1 BP = .01%). Apple announced that it will introduce new low-cost iPads and education software next week. Years ago, Apple products dominated the classroom. But as their prices rose, sales declined and competitors like Microsoft took the market. Now, times are changing.
For people who like sports. Over the weekend, the Golden State Warriors star point guard, Steph Curry, sprained his MCL. He will be out for 3-6 weeks and will definitely miss the first round of the NBA playoffs. This affects the entire league because the Warriors have been in three consecutive finals, but none without Steph. If he remains out, Houston will mostly snap their streak. In the college world, March Madness is currently in the final four with Villanova playing Kansas, both number 1 seeds, and number 11 seed, the Cinderella story Loyola playing number 3 Michigan. The two winners will advance to the Championship game on April 2nd.
The Alchanati Campbell and Associates Team
Not a good day… Dropbox IPO, U.S. battles China, Best Buy wants love, and shopping spree alert.
Welcome Dropbox! (Ticker $DBX). Dropbox launches its IPO today. Entering the market at $21/share, it jumped 35% to close at $28.48/share. Their successful day led to an increase of $4 billion to make its market capitalization about $12 billion.
Dow Jones drops 420+ points at market closing. Trade war fears? Capital markets took another plunge today with all three major stock indexes in the red. The S&P500, DJIA, and NASDAQ saw losses of 2.1%, 1.77%, and 2.43 % respectively. However with equity's plunging, the major commodities rose, as Crude oil, Gold, and Silver were all in the green. Something worth noting is that the VIX is rearing it's head once more after spiking during the stock plunge in early February. The VIX is up 6.5% today after climbing 20% yesterday. The VIX or volatility Index is essentially the fear gage. It measures investor confidence and fear based off the S&P 500.
$60 billion annual tariff on China Extended. Within the next 15 days, US officials will publicize a plan to tax up to $60 billion worth of Chinese tech imports. US 1 - 0 China
China strikes back. China is set to impose 15-25% tariffs on 128 different US goods including fresh fruit, wine, and steel pipes. US 1 - 1 China
Best Buy is the middle child and wants some love from daddy Trump. The electronics retailer will no longer sell phones from China’s biggest smartphone maker, Huawei. US 2 - 1 China
The U.S. is going shopping. Senators passed a $1.3 trillion spending bill that increases military and domestic spending. This bill will fund the government through September.
China owns 19% of the U.S.? The Chinese Ambassador, Cui Tiankai, stated that, “We are looking at all options,” when asked if China would reduce purchasing U.S. Treasuries. China is America’s biggest foreign creditor. China owns $1.7 trillion in U.S. government securities, and reducing purchasing would cause the U.S. to have to find other ways to pay for their government expenses. US 2 - 2 China
Who will win?
For people who like sports. With the regular season winding down, this means playoffs must be around the corner. The race to the playoffs usually tends to be tight, but this year is different. Only eight of fifteen teams in each conference can get a spot. In the West, we have eight teams, the third through tenth seed all separated by six games; a very slim margin. In the East, Philly is trusting the process and shocked the world sitting a game behind last years Eastern conference’s reigning champs. Each team has 8 - 11 games left to go. Stay tuned to see how this all unfolds.
The Alchanati Campbell and Associates Team
The bears won on Wall Street today, President Trump has a dislike for Chinese food, and the future of the ‘toys industry’ is online.
Trump ordered Tariffs against China on $50 billion worth of goods. Trump’s trade war was blamed for China hurting the American manufacturing sector, the loss of U.S. jobs, and intellectual-property violations targeting more than 100 different types of products. Dow Jones down more than 700 points at closing.
China fights back! China has plans of 25% tariffs on U.S. pork imports and 15% tariffs on U.S. steel pipes, fruit, and wine for now…
Financial relationships in play. Gold prices moved sharply higher and Bond prices moved sharply lower after the Feds raised interest rates and forecasted steeper hikes in the future.
Father of the Toy Business dies at age 94 after announcement of Toys ‘R’ Us closure from bankruptcy. More sad news has knocked on the door of Toys ‘R’ Us today, as the company’s cherished founder Charles Lazarus passed away, confirmed by the company’s Twitter page. This news comes a week after the company announced it was closing all of its domestic and international locations. Due to increased competition with Target, Amazon, and Walmart and a growing online retail market, Toys ‘R’ Us could not compete.
John Dowd’s resignation. Trump’s lead attorney working on the case of John Mueller’s collusion with Russia resigns. This is the result of an increasing disparity between Trump and Dowd. The former is rumored to be unhappy with Down and is apparently bringing in new legal team members. This comes as the investigation is heating up.
LA is the city of cities. Since the turning point of the 2017-2018 NBA regular season, our hometown squad, the Los Angeles Lakers, have gone 8-2; one of the best records in the league. We have been playing some of our best of the season. With 15 games left, let's see if the lake-show can string together a 10-5 finish to cap our record off at an even 41-41. This would be our first non-losing season since 2013 if that is the case.
The Alchanati Campbell and Associates Team
Wall Street was very exciting today. The Feds went hiking, Elon Musk became richer, and Mark Zuckerberg got invited to the UK to meet Parliament.
The new Chairman, Jerome Powell, led his first meeting today. Fed officials declared a hike of 25 basis points (.25%) and forecasted a steeper path of hikes in 2019 and 2020. As interest rates rise, consumers tend to save as returns from savings are higher. With less disposable income being spent as a result of the increase in the interest rate, the economy slows and inflation decreases. Bond prices fall as interest rates rise. As interest rates move up, the cost of borrowing becomes more expensive. This means that demand for lower-yield bonds will drop, causing their price to drop.
Elon Musk received a performance reward of $2.6 billion stock-options over 12 tranches in 10 years. This reward is tied to Tesla hitting key milestones.
Facebook disclosed personal data on 50 million users, stock tanked 7% in the last 5-days. Mark Zuckerberg is being called before Parliament, and the U.S. Congress and the Federal Trade Commission also want a chat with Mr. Zuckerberg.
Amazon passed Alphabet (Google) in market share, now the 2nd most valuable U.S. listed company. Behind Apple.
Apple is secretly developing its own device displays. Apple is investing in the next generation of MicroLED screens. This move may have a negative effect on suppliers like Samsung Electronics Co., Japan Display Inc., and LG Display Co. Shares of Universal Display Corp. (Ticker $OLED) fell as much as 16% on Monday.
Wall Streets biggest fear is ‘Trade War’. According to CNBC Fed Survey, worries over trade wars surpassed concerns about terrorism, inflation, and the Federal Reserve.
In World News…
Lawmakers in Brazil are considering lifting a ban on civilian gun ownership. 60,000 people are killed each year making Brazil the murder capital of the world.
WHAT'S UP FRIDAY? is a weekly newsletter that will give you a summary of "What's up?" on Wall Street, in the US and around the World written by The Alchanati Campbell and Associates Team. What makes us unique is we focus on long-term knowledge; knowledge that will still be useful to you 10 years from now.