Dear Reader,
The top of the top of the top, deaths and causes, hangryness, the World Cup, M&As, and drivers of returns. S&P 500: $2,779 Dow: $25,080 Nasdaq: $7,745 Oil: $65.01 10 Year: 2.92 The Market. Friday the 15th has been shaped by renewed fears of a trade war with China. The Trump Administration is set to impose a 25% tariff on $50 billion worth of tariffs on China. This is all because the White House believes China is taking advantage of the United States in regards to IP (intellectual property). 68% of these will come into effect on July 6th, with the remaining to undergo further evaluation and apply at a later date. Furthermore, the White House threatened more tariffs should China retaliate with tariffs of their own…which is exactly what the foreign power proceeded to do. Beijing announced their own $34 billion worth of tariffs which also be taking effect on July 6th. Perhaps of even greater note is the backtracking of the supposed agreements that took place last month when Chinese officials met with U.S. officials. At the time, China agreed to purchase more U.S. goods in an effort to reduce the trade deficit. All that went out the window as of today, and it looks like we are right back where we were over a month ago. Progress! Good thing we can still get our Fourth of July decorations purchases in. The rich are getting rich faster. Global wealth reached $201.9 trillion last year; 12% gain from 2016. Most of the wealth is held in Asia, but the US holds the largest number of people with more than $100 million. Time to Go Hiking. This past Wednesday, the Federal Reserve announced the second rate hike of 2018, raising the short term interest rate to 1.75-2%, up 25 basis points (1 BP = .01). In the announcement, Chairman of the Fed Jerome Powell said that economic growth was "rising" and that unemployment was "declining". Basically, Mr. Powell said the economy is doing great. He also reiterated the rational behind rising the rates in layman terms. He said something to the effect of "Raising rates back to more normal levels (they have been low for the past years to allow the economy to fully recover from the economic crisis of 2008) is the best way the Federal Reserve can ensure success for American businesses and households." Since the economy is doing so well, there are likely to be two more rate hikes in 2018, marking 4 for the year. Not everyone agrees with the Fed's decision here. Many people think that the consistent and planned rate hikes of 2018 are pushing the Treasury Yield Curve dangerously close to inversion, in which long term rates of return are less than short term rates of return. Historically speaking, an inverted yield curve is precursor to a recession. In 2007, we experienced inversion. As of Thursday, June 14th, the spread between the 10-Year Treasury yield and the 2-Year Treasury Yield is 35 basis points. This is eerily similar to the spread that came just before the burst of the dot com bubble at the start of this millennia and the Great Recession. John Authors of the Financial Times has gifted the world with a brilliant yet simple explanation of this situation, far greater than what I can offer you. Millions of deaths go unrecorded across the globe every year. Without an accurate measure of deaths and their causes, it is much harder to fight disease. If you do not know the cause of death, how can you prevent it? In Malaysia, a third of deaths are listed as “old age” which is not helping. Recording deaths properly and promptly can alert public officials to early signs of an influenza or other epidemic. What a week. Here’s a rundown of what happened this week in international politics.
I’m not me when I’m hangry. Your physical state can shape your emotions and cognition. When you’re hungry, your body releases hormones including cortisol and adrenaline, often associated with stress. Hunger can make you feel more tense, unpleasant, and primed for action. When you’re hungry, you may view things in a more negative light than when you’re not hungry. Hunger only becomes relevant in negative situations because hunger itself produces unpleasant feelings. The World Cup is here! As with any major tournaments there are predictions, betting, wins and losses, and tons of money swirling around. Where there is money, you can be sure to find banks. Many of the largest banks in the world are buying into the fun of predicting the outcome of the World Cup, however unlike individual fantasy brackets these banks are relying on fancy algorithms, AI, and other techniques that are normally used to pick stocks or offer balance to investor’s capital. Goldman Sach’s team decided to use artificial intelligence to try to predict the outcome, with Brazil earning the winning spot over Germany. Apparently Goldman Sach’s has predicted Brazil to win the last three world cups, so let’s hope they don’t use the same AI to predict winning stocks in their portfolios. USB (the Swiss Bank) decided to pursue a route that seems quite promising, considering they have the previous champions and one of the favorites winning again. That is Germany. They made their predictions by simulating over 10,000 tournaments and then count how many times each time won. !0,000 that’s a lot of tournaments. Hopefully they are right. Lastly, ING, the Dutch bank, decided to model teams based on total value. Each player would contribute to the total value based on their current worth in the global soccer economy. Spain came in first with a total value of $1.16 billion and tight on their heels is France with a combined value of $1.03 billion. However, despite these fantastic approaches to predicting the winners, there are those variables that can never be foreseen such as red cards in a final, injuries, lack of confidence, momentum, luck, and so many more factors that we cannot even comprehend. That is what makes sport so incredible to watch, and so risky to bet on. For those that don’t play the odds, it is still fun to sit back with a cold one and enjoy the spectacle! Emotional intelligence. Defined as recognizing, understanding, and managing our own emotions and influencing the emotions of others. Here are 10 qualities that comprise the emotionally intelligent person: empathy, self-awareness, curiosity, analytical mind, belief, needs and wants, passionate, optimistic, adaptability, and desire to help others succeed and the desire to succeed for yourself. Do you have these qualities? Drivers of returns. The factors that determine just how successful an investment portfolio is in terms of net, inflation-adjusted returns include: security selection (stock picking), costs and expenses, asset allocation, when you start investing and when you start withdrawing for retirement, longevity of your life, and behavior and discipline. Keep Climbing, The Alchanati Campbell & Associates Team Dear Reader,
Unprepared for retirement, time to prepare for a recession, the G-7 conference, investment takeaways, life hacks, life on Mars, and cryptocurrency. The Market. With the VIX at a 131 day low, a lot of things that people feared in February when the first correction in two years occurred have abated. Earnings are great, trade wars are not viewed as so bad, and concerns about rising rates isn’t as pronounced. Summertime seasonality, dealer positioning and lower correlations among stocks should keep volatility lower. But there is increased chatter of a recession happening within the next 2 years and there is increased chatter of investors taking profits after this next earnings quarter. The world is unprepared for retirement. The responsibility for preparing for retirement has shifted from the government and employers to individuals. Retiring at 65 is no longer financially viable for many workers. Many people are not doing enough to protect their long-term health and good health is essential for people’s ability to work longer and enjoy the retirement for which they’ve worked so hard. Many lack the financial literacy required to make sound decisions about their retirement savings and investments. Time to prepare for the next cycle. Late cycle blooms typically mark the end is near. Volatile and plateauing asset prices precedes bear markets. There is nothing in the economic data to suggest that a global recession is near with global expansion still having more room to run being evidence to support this. Higher inflationary pressures caused by expansionary fiscal policy will eventually cause monetary policymakers to push rates higher and higher. Most responses to monetary tightening are consequences in the form of a recession. G6 + 1 + Russia? The G7 Summit in Quebec kicked off today as trade tension between the US and its G7 counterparts come to a boiling point. Besides arriving late to the summit, Trump continued to stir controversy in an interview prior to his departure from the White House, saying that, “we have a world to run and in the G7, which used to be the G8, they threw Russia out. They should let Russia come back in”. The G7 kicked out Russia in response to the countries annexation of Ukraine in 2014. Despite this bombshell, trade is still the dominating topic of discussion. In response to new steel and aluminum tariffs imposed by the US, French President Emmanuel Macron said, "a trade war doesn't spare anyone", while Justin Trudeau called Trump's citing of ‘national security’ to defend his tariffs as “laughable". The summit promises to bring more controversy as it continues throughout the weekend. Check in with us next Friday for updated coverage of the G7 summit. Investment takeaways for this current market. At current yield levels, US Treasuries are not cheap, but provide diversification benefits. Credit spreads start to widen well before equities peak. With credit spreads still tight, investors should focus on shorter maturities. Mortgage-backed securities look more attractive than low-rated corporate bonds which indicates a solid US housing market. Liquidity, diversification, and flexibility will be key to protect portfolios. Life hacks. Do something newsworthy. Write everyday for years. Read a book, when finished, read another. Trust people and pay them well. Give compounding interest the decades it requires. Email people you admire and ask them out to coffee. Lower your ego and live below your means. Work harder than is expected of you and be nice to people. Deserve to be loved (something I need to work on). Realize the consequences of being unproductive. Life on Mars. Well, not yet but several of the Curiosity Rover’s new discoveries lead scientists to believe it is more possible than previously thought. NASA’s new reports state that Curiosity has found a variety of organic molecules including carbon fragments that suggest they were part of larger compounds that support the existence of life. The rover also found evidence of a seasonal methane cycle in Mars, which may suggest there are lifeforms underground releasing methane as a waste product. What these two discoveries also show is that it is very possible that Mars once had an environment similar to Earth right before the first signs of life began to emerge. While these discoveries are exciting and may suggest there is or has been life on Mars, NASA continues to stress there is still no evidence that there has been ever been life on Mars. Unfortunately, Curiosity is not equipped to go searching for life as its official mission was to find evidence that Mars at one point could have supported life, which it accomplished at its landing site, a crater named Gale. In 2020 two rovers, one from NASA and one the European space agency, will be sent to Mars with the purpose if finding life. What does this mean for the world of finance? Evidence that Mars could support life could make permanently settling on Mars a real possibility. This would open up trillion dollar industries including space exploration, mining, tourism, terraforming, and just about any other industry you could think of when colonizing a new world. Crypto replacing the USD. Over the past two years, cryptocurrency has seen an incredible explosion in popularity and value. This explosion has led many to discuss the possibility of cryptocurrency replacing the US dollar (fiat money). Undertaking the replacement of such a widely used currency will be no easy feat considering the interconnectedness of the globalized economy. The US dollar is the most widely used currency in the world and more of it is used outside the United States than within, so any replacement would have to be adopted worldwide. However, upon digging deeper, it becomes clear that the replacement of the US dollar throughout the world is not necessarily the biggest problem. What will be the toughest thing to disband is our web of debt and IOUs that pervades all of our institutions. Cryptocurrency was created to rid the debt standard and create a currency that could not be tampered with. If it were to become the currency of choice, banks and governments would have to change the way they use money and this becomes hard when looking at the massive debt that the United States and many other countries currently hold. If debt were to remain a factor while using cryptocurrencies, it would be much more regulated and secure. The use of smart contracts would force repayments automatically and keep track of who owes who. While this looks like a negative outlook for the replacement of the dollar, there are advantages to the implementation of cryptocurrency. One of the largest is the decentralization of money, which is a fantastic way of both combating the devaluation of money and creating a cheap expedient way of transacting with parties across the world. Because cryptocurrencies have a finite number of coins or tokens the intrinsic value of each coin increases as population increases. Lastly, the decentralization allows ordinary people to hold the power of their money, instead of institutions determining the value of money and earning interest on the money we allow them to use. Every person would have the power to be their own lender and the risk would be minimal with the use of smart contracts, as mentioned earlier. Since there are positives and negatives for this new technology, replacement will come when the benefit outweighs the downside. Suicide rate extremely high, oye. The beloved Anthony Bourdain, a man of great culture, has passed away this June 8th, 2018. At the age of 61, Bourdain committed suicide by hanging in France. He is survived by his 11-year old daughter, Ariane. Our condolences to her and all of Anthony's loved ones. This news is following the passing Kate Spade, monumental fashion figure, on June 5th, 2018. The cause death was suicide. With both of these high profile tragedies, along with recent deaths such as Robin Williams, we thought it appropriate to discuss this escalating issue. From 1999-2016, suicide rates have increased dramatically in nearly every state. 25 of the states saw increases greater than 30%, and only Nevada saw a decrease (-1%). While mental illness is obviously one of the huge factors in a person having suicidal thoughts, there also lays another, seemingly unrelated aspect. The economy. Put simply, money creates stress. People experience stress if, for example, they are unable to pay their rent. They could stress that they can't afford to send their children to school. The unfortunate dimension of this is that, often times, the stress is everlasting. In this day and age, it is increasingly difficult to move up in the world without some advanced education degree. Its certainly possible, just more difficult. People that don’t have a degree and are working jobs to make their bills don't have as many options to move up in the ladder. Thus, that feeling of "Oh my goodness, money is going to be tight this month" could be a continuous feeling. When that happens, people may feel like there is only one relief. To examine this, the infamous recession can be looked at. Prior to 2008, suicide rates in the county were rising about .12 deaths per 100,000 persons. When the recession began in 2008, that ".12" turned into a ".51". That 400+% increase is far to great to be coincidental. I'm no statistician, but I am confident that there is a causality here. Now, people like Bourdain, Spade, and Williams prove (on the surface) that money isn't the true factor in suicides, at least for wealthier people. This brings me to the last point: Money isn't everything, and never put it above the things that really matter to you. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
Tariffs, the jobs report, psychology and discipline, the tax rate, saving versus investing, and college versus a job right out of high school. The Market. Stocks rallied and bonds fell after the latest jobs data release. S&P 500 closed this week in the green, .24% 5-day yield to 2,734.62. Dow closed this week in the red, -.49% 5-day yield to 24,635.21. Nasdaq closed this week in the green, 1.62% 5-day yield to 7,554.33. Crude oil dropped -.51% this week to $65.71 per barrel. Gold dropped -.31% this week to $1,297.90. And the EUR/USD is at 1.16, just in time for holiday in Europe. The trade war is back on! However, there is a hitch this time. Instead of going head to head with China, our Commander in Chief is imposing tariffs on steel and aluminum to Canada, Mexico, and the EU at 25% and 10% respectively. As expected, each nation and the EU have issued statements of retaliation. Canada has vowed to match the tariffs dollar for dollar on all sorts of goods ranging from lawn mowers to toilet paper, Mexico will slap tariffs on cheese, pork, and blue jeans to name a few, and the EU will impose tariffs on Harley Davidson motorcycles and Kentucky Bourbon. Put together, each of these nations account for over half of our imported steel and aluminum. What does this mean going forward? This could have a wide ranging effect on the overall economy. Although these tariffs will be helpful to the steel and aluminum companies, it is far more detrimental to those who use these metals, which far outnumber producers. For example, the API (American Petroleum Institute) is worried about the potential weakening of our national security. Oil companies use specialized steel in many of their operations and the tariffs would make domestic oil more expensive and this comes at a time when the price on foreign oil is at a major high. Additionally, industrial behemoths Boeing (BA.N) and Caterpillar (CAT.N) stocks are down 2.3% and 1.7% respectively. EU trade commissioner Cecilia Malmström has described the US tariffs as illegal under the WTO rules and described the agenda as “pure protectionism”. If the WTO finds the Trump tariffs to be illegal, the G7 counterparts will be allowed to impose billions in retaliation levies. The US Aluminum Association also disapproves of the new tariffs, claiming that the Trump tariffs are “potentially alienating allies and disrupting supply chains that more than 97 percent of U.S. aluminum industry jobs rely upon”. Only time will tell if the Trump Administrations macro-economic solutions will prove advantageous for consumers and industry, however, for the time being, this escalation of “America First” is undoubtedly putting a strain on international and industry friendships. Lowest point in half a century. With more people coming into the labor market and with employers taking more from the unemployment pool, the unemployment rate dropped to 3.8% this month, a 48-year low (The economy added 233,000 jobs in May). African American unemployment fell to a record low and the gap between white and African American unemployment narrowed. Trading psychology and discipline. The ability to understand a company’s fundamentals and the ability ti determine the direction of a stock’s trend are key skills for a trader, but neither are as important as the ability to contain emotion and exercise discipline. Discipline will help with sticking to preplanned trading strategies and knowing when to take a loss or a profit. Quantifying fear will help with isolating and identifying feelings that can threaten your profit potential. Knowing how to deal with greed (“pigs get slaughtered”) will help you make rational decisions (not hanging on to winning positions for too long). Lastly, having rules and plans like creating a profit target, setting up a stop-loss order, and laying out guidelines on your risk-reward tolerance will help with mastering your psychological component to trading. The tax rate. The Gaffer Curve shows the relationship between tax rates and the amount of tax revenue collected by the government (tax rate 0%, the government will earn no revenue and if the tax rate is 100%, the government will get all of the revenue). The less an activity is taxed, the more of it is generated and as taxes increase from low levels, tax revenue collected by the government also increases. But as tax rates hit a certain point peak, it would cause people not to work as hard or not at all. So what is the proper tax rate and what is better: the “trickle down” strategy (tax breaks and benefits for corporations and the wealthy will trickle down to everyone else) or the “tax-and-spend” strategy? Saving versus Return. There are two engines of growth in an investment portfolio: the rate of return generated by the portfolio and contributions made by the investor. Which has the greater impact? The answer is based on your age… Older investors should place a bigger emphasis on saving more than building aggressive portfolios with a higher risk of loss. Younger investors should focus on starting early, contributing regularly, and investing more aggressively. Millennials are investing less. Younger Americans are still fearful of investing their money in stocks and only 37% of adults younger than 35 have money in the stock market. Lack of faith, an uncertain administration, and market volatility is the blame for this. “Price is what you pay, value is what you get.” Starting valuation matters much less over much longer time frames. Investors should always be conscious of starting valuation when pacing bets. Dividend Discount Model (calculates the true value of a firm based on dividend payed), Discount Cash Flow Model (using a firm’s discounted future cash flows to value the business), and the Comparables Model (comparing the stock’s price multiples to a benchmark to determine if the stock is undervalued or overvalued) are good starting valuation methods to use. College versus A job right out of high school. 40% of teenagers don’t enter college immediately and some don’t even graduate from high school. Teenagers have two options: either go the college route and get a degree and then get a job or skip college and go right for the job. Which one is better? Option 1 is great because of the education aspect, but it comes with hefty student loan debts and the uncertainty of not even being able to get a job out of college. Option 2 saves money and time, but it will not allow you to be institutionally educated and you have the possibility of being stuck with your minimum wage job (because you do not have a degree) if you can find a job. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
Dodd-Frank, all-cash, the summit in Singapore, costly gas prices, oil, and mortgage rates. The Market. A red day for the S&P 500 and the DOW left the two juggernaut indices entering memorial weekend at 2,721.33 and 24,753.09, respectively. The tech heavy Nasdaq was green for the day, ending the week at 7,433.85. Also in the red for the day is Crude Oil (67.50) and Gold (1,301.20). And of course, that darn VIX is green. This was an eventful week, both on Wall Street and on the political front with various headlines to drive the market. However, despite all the news, the up-and-down week had the market feeling a bit...boring? No, that’s not right. Stagnant? That sounds slightly better. Either way, we're here to talk about it before clocking in for some summertime fun. Rollback of Dodd-Frank. Just 10 years ago, the 2008 US financial crisis almost brought down the global financial system and safeguards were put up to prevent a repeat. But now, Congress is deregulating banks and loosening the safeguards. The Crapo bill was passed this week: raising the asset level at which banks start to face stricter regulation, banks will soon no longer need to have public annual stress tests (AKA banks will have the ability to take on more risk), and relaxes a rule that requires banks to hold more capital against some of the riskiest commercial real estate loans. All-cash offers. Ribbon is a start-up that launched last week. Their contribution to society: giving the cash-offer advantage to everyone. When purchasing a home, all-cash offers are 97% more likely to be accepted than the “mortgage application route”. Cash offers remove much uncertainty associated with obtaining a mortgage for the transaction. The National percentage of homes sold to cash buyers was about 30% in the first quarter of 2018. Ribbon provides a guaranteed offer to facilitate all-cash transactions in exchange for a 1.95% fee. Ribbon backs the buyer so it can make an all-cash offer and secure their property and then the buyer gets financing for the home either before or after closing the deal. Kim got stood up! Trump canceled his planned June 12 summit with North Korean propaganda referencing a potential nuclear clash with the US. Fears of not concreting a denuclearization pledge from North Korea caused Trump to cancel. The summit would have legitimized Kim and would have made Trump look weak. US markets reacted to this news by jumping up and down less than a percentage point. The costliest driving in 4-years. The price of regular-grade fuel has climbed 47 cents (19%) since the beginning of 2018; highest since 2014 due to a spike in crude oil prices. The spike in oil prices was due to OPEC teaming up with Russia in slashing production and the US exiting the Iran deal. The last time gasoline exceeded this much, inflation-adjusted consumer spending increased. A correlation between higher gas prices and an increased amount of household spending might sound strange, but households are not fazed by higher gas prices because of the favorable response from tax cuts, a decrease in the unemployment rate, and a moderate pick up. Liquid Explosive Dinosaur. Okay, Okay. So maybe the title above isn't the most correct description of oil. But, the inner kid inside all of us wants to believe, okay? Lets get down to it. Many analysts would say that oil has been the dominant driver of the market this week over the ongoing love saga between Donald Trump and Kim Jong-Un, which is saying something. Oil prices took a spill this week, as both Brent and West Texas Intermediate finished down for the week. While there many factors influencing oil prices, as we've discussed in past weeks, this most recent plunge can largely be attributed to an increase in production from some major players. St. Petersburg is playing host to a pivotal meeting between energy officials from Saudi Arabia, the United Arab Emirates, and Russia to discuss output. These nations are looking to ease up on production curbs as the price per barrel has rallied to concerning amounts. For the past years, oil output amongst OPEC and friends has been reduced by roughly 1.8 billion bpd (barrels per day). This agreement is set to expire in the upcoming year, and it looks like the parties involved are already discussing ramping up production for the back half of 2018. Why exactly do they want to do this? A few reason, and the everyday consumer is probably one of them. Think about it. For as long as most people can remember, people have been non-stop discussing oil prices. Constantly and consistently, people are afraid that the price of an oil barrel is rising to high. Khalid al-Falih, Energy Minister of Saudi Arabia, has voiced that this consumer distress is on their radar. Another reason relates back to simple supply and demand economics. Oil is a commodity, and like everything, it is not perfectly inelastic. For those that don’t know, if a good is "inelastic", than changes in price will not cause a relative change in quantity demanded. While oil, or more effectively, gasoline, is definitely inelastic, i.e. people will still purchase it if the prices rise, it has a breaking point. It can be argued that nothing in this world is perfectly inelastic (lets not get into a discussion about immortality), and oil is no exception. If the price rises to much, the quantity demanded will go down. The recent events in Iran (U.S. pulling out of the nuclear deal, in which new sanctions will hurt their production), along with turmoil in Venezuela, has production reaching a dip that might push the price of oil past the point. By increasing quantity supplied and reducing the price per barrel, demand can be stabilized. At least that’s the plan. Interest on the rise. The housing market is booming. Housing prices are predicted to go up 5.5% in 2018 to a median value of $220,800. Despite this animal-spirits, market prosperity is coming at a cost. As of Q4 2017, the US owned $9.9 trillion in mortgage debt with the average amount of $137,000 in mortgage debt per borrower. Because of this, many at the FED have suggested that they will begin to increase interest rates. Many predict that the FED will increase interest rates in their next meeting on June 12-13. Some of these predictors include mortgage lenders. Mortgage interest rates on 30-year fixed-rate mortgages have jumped nearly a full percent increasing from 3.81%, in November 2016, to 4.66% as of May 24, 2018. If the FED follows through with their increase, credit card users will likely owe an extra $6 billion in credit card interest. The FED’s open deflationary posture has suggested that credit will be harder to come by in the future. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
Gambling laws changed, sorrow in Santa Fe, China’s trade agreement, the wealth agreement, and prevention. The Market. The S&P 500 finished in the red for the week, ending Friday's session at 2,712.97. The Dow finished in the red for the week, ending Friday's session at 24,715.09. Additionally, the Dow carried over an 8 day streak of gains into the early part of this week. The Nasdaq finished in the red for the week, ending Friday's session at 7,354.34. Crude Oil finished green for the week, ending at 71.35 per. Remember this news is coming after the events of last week with Iran, as well as the rising tensions in the Middle East that have been escalating this entire week. (Some events factoring into these price changes include, but are not limited to: that trade war thing people are talking about, the price of oil (touched on above), and the U.S. economy performing so well.) China gives in..? So, China sent over some trustworthy individuals to engage in trade talks with some of America's trustworthy individuals. Essentially, the two powerhouses came to an accord to reduce the U.S. trade deficit (or the Chinese trade surplus, depending on how you look at life) by $200 billion, leaving it at approximately $175 billion. Trade surplus is when exports exceed imports. This means China is exporting more to the US than they are importing from the US. That seems like a sizable amount. Of course, that’s what the Trump Administration had to say. Chinese news outlets, on the other hand, offered all but confirmation of such an accord. Either way, the fact that the powerhouses negotiated and have discussed deals should be taken as a good sign. In order to decrease the deficit by $200 billion, there would have to be drastic increases in imported American products, a drastic reallocation of Chinese imports, a drastic reduction in Chinese exports, and a restructuring of the supply chain. America’s 16th this year, 16th school shooting… 17 year old student fatally shot 10 people and injured another 10 others using a semi-automatic pistol and a sawed-off shotgun in a high school shooting in Santa Fe, Texas. It is said that the shooter wanted to carry out this attack for awhile. He wrote in his journal about his thoughts and plan of carrying out the attack and committing suicide after the shooting, but he “didn’t have the courage” to take his own life. Correlation between mass shootings and gun sales. Over the past years, when shootings occurred across the country, there was a sizable increase in demand for newer, tighter gun regulation. This has generally led to firearm companies, such as American Outdoors Brands Corporation, AKA Smith and Wesson($AOBC) and Sturm, Ruger and Company ($RGR) to experience boosts in their stock prices. There are two main reasons for this:
Notably, Democrats and Republicans tend to have two contrasting views on firearm regulation. Put simply and generally, the former believe in more regulation, while the latter does not. With a Democrat being President for 8 years from 2012 onward, the concern for rising regulation was more urgent. However, now that Donald Trump is in office, there is less of concern because, well, he is Donald Trump, a Republican (on paper), who isn't about to allow increased regulation on firearms. So, with less of a concern on regulation due to the current administration, firearm stocks during his term have not seen nearly the same reaction that they did under Barack Obama. In my opinion (which probably isn't good representation of anything), this is one of the prime examples of politics and finance interacting with each other, and it is remarkable to watch the two powerhouse fields to push and pull with each other. While in my mind this doesn’t necessarily work as an example of the butterfly effect because there isn't too much distance between the two fields, it is a nice example of how social events can have colossal changes in highly quantitative, sometimes algorithmic, fields such as finance. Fools Gold. So you are looking to buy a house, but you have bad credit. Your mortgage broker offers you a new mortgage class called the adjustable rate mortgage (or floating rate mortgage). You take the deal. During the loans initial period, your principal and interest rate remains relatively low. After paying down the loan for two years, your principal and interest payments jump to 12%. What do you do? If for the past two years your home price has increased in value, you can refinance to pay down your loan. Such borrowing practices lead to the financial crisis of 2008 and investment banks are not done dealing subprime. The Wall Street Journal recently revealed that from 2010 to 2017 Wells Fargo, Citigroup and others lent out $1.4 billion to subprime auto loan brokerages. Default rates on these loans are now at 5.8%, higher than the 5% default rate on subprime mortgages in 2008. To make predictions based on the past is a fools game, but the lending conditions in today's market are eerily similar to the ones in 2008. Vegas baby! And maybe New Jersey and every other state too. The Supreme Court ruled that States can allow betting on individual sporting events. Americans illegally bet an estimated $150 billion on sports games each year, and with betting becoming legalized, States could see more money flowing onto their balance sheets. But Las Vegas is not afraid… The Wealth gap. Income inequality describes the gap between a six-figure salary and minimum wage, and the gap between a household’s total assets minus debts. The wealth gap is much worse among families with children, which has been widening in the past years. A huge reason for this are policies that have eroded public spending and private income for families with children. With college tuition, employment changes, and debt (mortgage and student loans), the separation of the rich and poor is becoming massive. The right and wrong of failing. You have two options. One, openly examine past mistakes and learn. Two, avoid a reckoning and repeat them. The latter needs to go and the stigma that surrounds failure needs to go. The best way to avoid failure in the future is to embrace and learn from past failures. Prevention. It is said that the best way to ‘contain’ the next financial crisis is to make sure financial institutions are strong (raising capital and liquidity requirements), subjecting banks to stress tests, and requiring them to create plans for their own unwinding. The structural resilience of the financial system is the first line of defense in promoting financial stability, with monetary policy of maximizing employment and price stability second in line. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
Yield curves, foreign tension, life advice, competition, and the U-curve. The Market. S&P 500 up .17%, Dow up .37%, Nasdaq down .03%, Crude Oil at $70.51/barrel, and Gold down .29% at $1,318.40/ounce. Flatness in yield. The Treasury Yield curve was at its lowest level since August 2007 from weaker-than-expected US inflation and high demand for bonds at the recent bond auction. Flattening of the yield curve signals that inflation is not a problem. But the curve flattening toward inversion (when 3 month yields are higher than 10 year yields) has historically preceded recessions, but there are still two additional rate hikes planned this year. Smart Beta versus Factor Investing. Smart Beta weights by company fundamentals, ranks companies by their size, has a long position only, and measures volume, liquidity, and momentum. This strategy trims positions in companies whose price is rising, but their fundamental value isn’t changing, and buys companies whose prices are falling, but their fundamentals remain the same. Factor investing weights by market capitalization, helps investors understand the behavior of an asset, buys out-of-favor companies, and has long and short positions. This strategy uses ‘factors’ like value, small-cap, momentum, low volatility and quality(dividend payers), and yield. Life advice. Be true to yourself- live the life you want to live. Focus on what is true to yourself. Take a break, meditate, or take time off. Don’t forget to show love- be selfless. It’s not about the hours in the day, it’s how you use them. Right is might, and when you do your work and figure it all out, all the other noise will disappear. Don’t give up. You need to know your limitations- you shouldn’t do what you don’t understand. You always live to fight another day. Do something you love. Everything you do really means two things. Find the smartest people you can, surround yourself with them, and shut up and listen. Competition is bad. Americans live in a competitive world. Our universities, job markets, and sports teams all instill within us a competitive drive. Venture Capital investor and Co-founder of PayPal, Peter Thiel disagrees with this notion. In his book Zero to One, Thiel lays down the criteria he uses to determine what companies to invest in. One of the criteria is competition vs monopoly; only invests in companies that are designed to be monopoly businesses. Theil uses Tesla as an example. The automotive industry is multi-trillion dollar industry, with a plethora of highly competitive firms vying for a slice of the pie. A company who plans to compete in this broad market is doomed to fail. Successful firms in this market, like Telsa, are firms that refine their market to a small niche. Tesla is the only company that is producing a luxury, eco-friendly automobile. Because Tesla defines their market in such refined terms (Luxury x Eco x Car), they are able to succeed within the larger automobile industry (Car). When determining what companies to invest in, determine whether the firm is competing in a large market or if it is the only player in a niche market. Theil offers in conclusion, “All failed companies are the same: they failed to escape competition”. Throwback to 2015. Iran had been trying to develop and enhance its nuclear program maintaining that its program would only be used for peaceful purposes within the country. However, that was not the leading belief amongst the rest of the world, as most countries feared that the program would be used for nuclear weapons which could decimate any country. To curb this, economic sanctions were imposed on Iran. In 2015, Iran agreed on a deal with the United States, the United Kingdom, France, China, Russia, and Germany to lift the devastating sanctions. In return, Iran agreed to let these countries closely monitor the development of its nuclear program, as well as restricting the usage of key elements of nuclear…anything. It’s a bit too much science for a market letter, but it is an interesting process to read up on. Flash forward. This past Tuesday, President Trump re-imposed economic sanctions on Iran, withdrawing the United States from the aforementioned deal. While the U.S. is only one of the countries involved in the deal, the remaining European powers within the deal will need to "pick up the slack" in a sense, and economically help Iran. If they are unable to do that, its likely that Iran will dramatically speed up its nuclear program to a level akin to 2015. If the nuclear tension wasn’t enough, his U.S. violation of the 2015 deal will also lead to billions of dollars in lost deals that U.S. companies agreed to within Iran. Boeing, for example, will be missing out on roughly $20 billion. Conflict. Emmanuel Macron, President of France, stated that the U.S. decision would eventually lead to conflict. This is unfortunately appearing to be the case. Since the events on Tuesday, tensions within the Middle East have increased at an exponential rate. Particularly, foreign tensions between Iran and Israel have escalated. Tuesday night, Israeli troops were put on alert, anticipating airstrikes on Israeli sites within Syria. Residents of Golan Heights, which shares a border with Syria, were told to prepare to take cover in shelters, indicating that civilians are in the crossfire. By Thursday, both Iranian and Israeli forces were targets of airstrikes, with Syria unfortunately being used as the battleground. Oil. Whether it is justified or not, one key thing stands out when thinking about the Middle East from a market standpoint: oil. However, Crude Oil prices tend to follow a hidden, private algorithm. It truly is virtually impossible to see exactly how oil prices will react to geopolitical events. Following the renewed sanctions, Iran's ability to produce barrels of oil is obviously hindered. With a decrease in production, its reasonable to assume that crude oil prices will rise. However, Saudi Arabia has the capability to more than make up for the barrel production that will be lost with the Iran deal withdrawal. This would help stabilize the prices. Still though, it is likely that there will be a fairly significant lag between the U.S. decision and a prolonged change in oil prices, as Theresa May, Prime Minister of Britain, stated that there would need to be a discussion with President Trump on how the sanctions would impact foreign companies operating within Iran. Additionally, the decrease in exports would take time to come to light. Who caused the Bay Area’s Housing shortage? 48% of those polled say tech companies are a major reason and 57% say that developers are a major reason. Before ‘Silicon Valley’ came to be in the Bay Area, it was more affordable. Benefits of ‘Silicon Valley’ are there are more jobs available and real estate values are skyrocketing. A solution to this shortage is an increase in new housing. The U-curve. Happiness through adulthood is U-shaped. Life satisfaction falls in our 20s and 30s, hits a trough in our late 40s before increasing until our 80s. The “midlife crisis” is a stereotype and is simply due to the passing of time. At your “midlife”, you might have feelings of discontent and a feeling of wasted life, but as the years pass, how you feel about life changes. Older people feel less stress and regret, dwell less on negative information, and are better at regulating their emotions. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
Elon Musk, money and happiness, volcano eruptions, and lost art. The Market. S&P 500 closed up 1.28%, DOW closed up 1.39%, and Nasdaq closed up 1.71%. Apple led the market up 4% after Berkshire Hathaway added 75 million shares of Apple in Q1. Fortnite in the Blizzard? Now, unless you’ve been oblivious to social trends throughout 2018, you've obviously have heard of something called Fortnite. What exactly is a "Fortnite"? Its simply the hottest, most popular video game in recent memory. With 45 million players as of January 2018, its easy to see Fortnite as a wrecking ball within the video game industry. As millions of players flock to the game, they are leaving other games behind them. Investors are taking notice, with major video game publishers being down since Fortnite's domination began. Activision-Blizzard ($ATVI) and Take-Two Interactive ($TTWO) are both down double digits since March. The big three publishers of the aforementioned two and Electronic Arts are releasing their 2018 Q1 results throughout the beginning of May. Activision Blizzard led the way as the first major interactive entertainment company to release Q1 results, as they reported their numbers this past Thursday. Nearing the end of trading hours on Thursday, Dow Jones made a mistake; it released incorrect headlines for Activision-Blizzard based off of old numbers before the actual earnings was released. This led to a 6% intraday drop at one point. Eventually, all this confusion was settled as the shares made back their loss and then some based off strong numbers. The company made their own record revenue for Q1, and coasted past estimated earnings. The company accomplished while competing against perhaps the fastest rising game of all-time, Fortnite, and without having a release of a major title. Officials within the company attributed this to the ability for their game franchise's long-lasting capabilities. Furthermore, the company put across the message the impact of Fortnite is short-sighted, as signature released during the fall gaming season should allow all major video game companies to bounce back. The Musk attack. Tesla’s shares fell as much as 8.6% Thursday after Tesla’s conference call. Elon Musk said, “I think that if people are concerned about volatility, they should definitely not buy our stock…” This past quarter, Tesla burned through $1 billion of cash, EPS beat estimates at -$3.35 with revenue beating estimates at $3.41 billion. The company says it expects profitability in Q3 and Q4. No excuses now for not getting a job. Unemployment rates just hit their lowest point in 18 years. Today, the Department of Labor Statistics revealed that the US unemployment rate has fallen to 3.9%, the lowest since 2000’s 4% rate. April marks a record setting 91 consecutive months of job growth. Wages have increased just above the rate of inflation at 2.6%, prompting the FED to consider three benchmark rate increases this year in this weeks meeting. Recent history tells us that when the economy is producing such high volumes of jobs, downturn is imminent. Both the 2000 low of 4% and the 2007 low of 5% were followed by significant recession and job loss. Eruption on the main island. Hawaii’s Kilauea volcano erupted Thursday. Lava spewed into a residential neighborhood, prompting mandatory evacuations. Since the last eruption in 1924, most of Kilauea’s activity has been nonexplosive. Money can’t buy happiness. A study shows that people seem to be happiest right before they buy a coveted item and once they have that item, their joy fades quickly. Highly materialistic people are more happy than their peers shortly before buying their desired item. The reason for this is because they think this item will somehow transform their lives for the better. People with low levels of materialism were less prone to believing big purchases could have a great impact on their lives. People expect more and overestimate their purchases and then are let down. One recommendation is to put more thought into your purchases. Growth versus value. Growth stocks have been beating value stocks in this bull market. But some believe that the valuations for growth stocks remain stretched. During the last 5 years, the S&P 500 Value Index was up 46% while the S&P 500 Growth Index was up 85%. Historically, value has outperformed growth and now with interest rates rising, value stocks are more favored. “The Museum of Lost Art”. Our understanding of art history is skewed by survivorship bias (AKA the pieces that are still alive). What has been destroyed includes “more masterpieces than all of the world’s museums combined.” To understand the art we still have, it is critical to put it in the context of what’s been lost. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader
Real estate, the Koreas, Amazon, billionaires, sweating, and the 10-year Treasury Yield, The Market. Markets closed mixed. The S&P 500 up a mere .11%, Nasdaq up a mere .02%, and the Dow down a mere .05%. US GDP growth slowed to 2.3% in Q1, but above estimates of 2%. Fears of the stock market being way ahead of economic growth make headlines. The current bull market began 9 years ago on March 9, 2009 with a return of 377%. With crazy growth and returns, and record high valuations, investors have had unwavering bids for equities. US market returns have exceeded economic growth, creating a gap where companies are priced to deliver excellent results into perpetuity. Real estate booming! Home prices in 20 US cities grew at the fastest pace since mid-2014. The 20-city property values index increased 6.8% year-to-date. Real estate sales got a boost from the strong labor market and from borrowing costs still being low. At the same time, there is a shortage of available and affordable listings sending prices higher. US new-home sales increased in March to a four-month high, with single-family home sales rising 4% month-to-month. Their first date! So cute. The first summit between the two Korean nations in 11 years took place this week. Kim Jong Un, North Korea’s leader, became the first North Korean leader to cross the border into South Korea. This summit marked “a new history’ and an “era of peace” for these nations. Agreements to resolving their 68-year conflict and defusing Kim’s nuclear arsenal are in the pipeline. Good vibes and high-spirits ended the day with the South Korean won up .4% against the dollar. Amazon. Amazon released their earnings report on Thursday and more than doubled its profits. They also announced a $20 increase in their prime subscription and made a $130 million deal with the US National Football League to stream Thursday night games online. The forecast beat expectations and sent shares up 7% to a new record high, adding $12 billion to Jeff Bezos’s net worth. “I think, therefore I am”. Statistically speaking, neither the mindset of visualizing yourself as wealthy nor “just think it and it will happen” are likely to make you wealthy. This placebo effect is part of horoscopes and crystals, a list of things that have never been proven to have much value. But here is a list of what billionaires do believe in: be reality-based, work hard, focus on process, read widely, be lucky, and be humble. Sweating is now attractive. It is estimated that our ancestors, the apex predators of the planet, began consuming meat about 2 million years ago. But hominids didn’t begin using the tools of stones and sticks until 200,000 years ago. According to research, between 2.3 million and 200,000 years ago humans ran game animals to death. The ability to sweat allowed our ancestors to wear out other animals. Human sweat is arguably the most effective cooling system in the animal kingdom. 3%. The 10-year Treasury yield hit a high of 3% this week.With the treasury yields rising, finance stocks are becoming more attractive. Recommendation of the week: Spend more time understanding the world and more time traveling around and studying the non-US part of the globe. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
Time Warner & T, sad day for the EDM world, risk, the rich, veggies, denuclearization, weed, and market strategy. The Market. As the markets closed, it ended on a negative trend. Equities were dragged down on Friday by tech and concerns over the 10 year yield. Despite the consecutive days in the red, the Dow, S&P, and Nasdaq were all able to squeeze out weekly gains of 40, 50, and 60 basis points, respectively. Apple and Chips. Apple fell another 4.1% today, marking the third straight day in the red. This is the result of recent news that iPhone sales are below expectations. This week, Taiwan Semiconductor ($TSM) lowered its revenue guidance for the year to roughly $7.8 billion, which was far less than the Wall Street estimate of $8.8 billion. Shares of TSM slid, and along with it went shares of APPL. Taiwan Semiconductor is the largest chip supplier for Apple, so the lower guidance has consumers and, more notably, Morgan Stanley, concerned about demand for iPhones, particularly the iPhone X, which is notoriously expensive. Once this Morgan Stanley concern was made public on Thursday, Apple stock took a dive. Along with it went tech, finishing -1.5%. Justice? You may or may not be familiar with the current situation regarding Time Warner and AT&T. Allow us to give you bedrock of the situation. Time Warner is attempting to merge AT&T. They agreed on a deal way back in 2016 for approximately $85 billion. The issue is that the Department of Justice is not about to let this unfold and the parties involved have been locked in judicial combat this week. Jeff Bewkes, Chief Executive at Time Warner, played the necessity card, saying that this deal was needed in order for the companies to compete against the behemoths of Silicon Valley who are rich in data and technology. Randall Stephenson of AT&T generally got the same point across as Bewkes, with both officials stating that the DOJ concerns were ludicrous. The officials said that there is no way collusion will take place, as the refusal to offer Time Warner content to AT&T's rival providers will only lead to a loss in revenue for the companies, which would make no sense for them. Should the deal go through? Will the deal go through? Find out next time on Data: The Ongoing Suspicion of Corruption! (You know because Time Warner is a cable company..) DJ Avicii. Swedish DJ, Time Bergling, passed away this morning. He is a Grammy nominee and an EDM rockstar who changed the world of music. Dead at age 28. Biggest risk to global growth is the US. The International Monetary Fund projects global growth of 4% this year, and US growth of 2.9%. These are strong growth percentages that beat most estimates, but they do not factor in the risks. The first risk is hiking interest rates which will put stress on economies grown accustomed to cheap money. The second risk is the new enacted Tax-Reform Law and budget which adds to the debt that is 110% of GDP. The third risk is the tension over trade. With President Trump going against America’s longstanding commitment to open markets and liberal trade, he has initiated a trade war that he “expects to win” which would cause stormy weather for world markets. The rich live longer. If anyone ever tells you, “money isn’t everything”, tell them this: The richest 1% of American women by income live more than 10 years longer than the poorest 1% of women, and for men, the gap between the richest and poorest is 15 years. It costs money to live with expenses like health care that are expected to grow which would cause it to be more expensive to live longer. [Don’t] eat your vegetables. The US Centers for Disease Control and Prevention has released a warning about an E. Coli outbreak connected to romaine lettuce grown in Yuma, Arizona. 53 people in 16 states have been affected and 31 of those have been hospitalized. The path of denuclearization. North Korean leader, Kim Jong Un, has announced the closure of their missile testing program and nuclear test sites. North Korea decided to open up a new chapter for their nation that included economic growth. Just blaze. Today, Chuck Schumer, D-N.Y., announced that he would be introducing a bill to decriminalize marijuana federally. Since the The Controlled Substances Act of 1970, marijuana has been listed as a schedule-I controlled substance alongside heroin and cocaine. Schumer’s proposed legislation would remove marijuana from the list of controlled substances, provide funding for more research on the drug’s public health impact, and maintain federal authority to regulate commercial advertising of the drug. "It's time we allow states, once and for all, to have the power to decide what works best for them," the senator said in a tweet. With 29 states having legalized medical and 9 states legalizing recreational marijuana, a posture of deregulation is becoming more popular, and for good reasons. In a study released this year, the legalization of marijuana was found to have added $58 million to Colorado’s local economy. Wall Street is also rewarding the marijuana business, with cannabinoid drug maker W Pharmaceuticals PL-ADR (GWPH) gaining 1,110 percent since its inception. With decriminalization being introduced federally and legalization passing state by state, a deregulated marijuana market could mean big gains for investors. Market Strategy. Increased volatility, high valuations, rising interest rates, and a long bull market can cause investors to fear. But this fear should not cause you to not put your money to work in the market. There are three market strategies for deploying large cash allocations into this market: 1) Invest a limp sum and ride the market 2) Wait for the market to fall and invest at a better entry point 3) Dollar cost average into the market and spread your risks Research has shown that investors would do best by investing a lump sum and that lump sum investing beat dollar cost averaging about 2/3 of the time. But now with this market valuation, the smarter market strategy is dollar cost averaging which will help decrease current market risk. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
Global debt, the Model Y, divorce, wisdom from the wise, new market strategy, behavior economics, and the impact of higher interest rates. The Market. As trading day came to its end on Friday the 13th, equities were sitting in the green for the week (though they are down on the day). The Dow, S&P500, and Nasdaq were all positive. Notably, the stock market is almost recouping all of its losses that occurred in the earlier, volatility riddled months of 2018. Lets talk about it. CPI. The Consumer Price Index was released on Wednesday. There are two main types of inflation measures out there: CPI and PCE. Now, within these two types, there are another two types. Basic vs. Core. When looking at the core inflation, food and energy are excluded from the calculation due to their wild volatility. For the month of March, it put Core CPI at a 2.1% increase year over year (higher than estimated). Core Personal Consumption Expenditures (PCE) came in at 1.6%. Important to note, the PCE is the inflation measure that the Federal Reserve primarily cares about. Moreover, they've held a target of 2% for the PCE. We're not quite there, but many analysts and economists alike believe that it will hit that mark this year for a multitude of reasons, including the tightening labor market, the weakening of the USD, the massive corporate tax cut that came into effect in January, and an increase in government spending. These higher inflation measures are leading many to believe that the Fed will hike interest rates 3 more times in 2018, not 2 more times as was anticipated. ’Tis the Season. Friday the 13th marks the unofficial/accepted beginning of earnings season. Investors are highly anticipating a strong earnings season, thanks in no small part to the tax plan we talked about previously. Today, JP Morgan Chase (-2.71%), Citigroup (-1.55%), and Wells Fargo (-3.43%). JP Morgan and Citigroup both beat their estimated earnings. Wells Fargo posted a 6% increase in profit, but is facing a $1 billion settlement as they are being investigated. This investigation stems from the opening of fake accounts by their employees. Zuck vs. The Mob. Facebook CEO Mark Zuckerberg faced Congress this week to address recent concerns over user privacy and the company's overall business model. For two days, Zuck was asked over 600 questions by 100 lawmakers, including questions into whether the company should be regulated, whether it intentionally censors conservative ideas, and whether the Russian government disrupted the 2016 election using the platform. Despite the grilling, Zuckerberg's appearance in the capital seems to have had a positive effect on investors, with Facebook stock increasing 4.5 percent. The future of the stock is unclear. Regulation and a more easily accessible opt-out policy could significantly damage Facebook's quarterly reports. With questions of regulation looming, investors should be skeptical of Facebook bulls. The Model Y. Tesla plans to begin production of the Model Y in November of 2019; the new all-electric crossover. Divorce. 54% of baby boomer women and 61% of millennial women leave major investing and financial planning decisions to their spouses. 59% of widows and divorcees wish they had been more involved in finances while they were married. Now after being divorced, the financial decisions become their responsibility and when you had no prior experience with dealing with money management and finances, you can be in trouble. The New Market. Markets hate uncertainty, but the world is always an uncertain place, When the Ebola pandemic began a couple years ago, US equities dropped 9%. But this can be justified: if millions died and global commerce halted, a 9% correction is reasonable. The stock market engages in catastrophic thinking. When presented with risk, it immediately images the worst. This new view of the market can be seen recently when the risk to trade and protectionism dropped the markets into multiple corrections. This abrupt behavior from the stock market must be considered when investing from now on. Regret. Senior citizens flashback to their youth and give advice on what they would change about their financial planning. Here are some of the mistakes they made:
“We shape our buildings and afterwards our buildings shape us” -Winston Churchill. Do stock market investors take more risk when working on higher floors? Just like how people are more creative in rooms with high ceilings and just like how people are more likely to donate to charities in brightly lit settings, people are more prone to take more risks when on higher floors. Higher rates are coming! Global debt reached a record $237 trillion in 2017. Higher interest rates will increase the financial distress for highly indebted corporations and countries, it will generate large losses on existing debt holdings, it will drive investors to invest in bonds than in stocks, it will divert cash from investing to increase economic growth to servicing debt, and lastly, higher interest rates will male it more expensive for the US to deploy fiscal stimulus. Keep Climbing, The Alchanati Campbell & Associates Team Dear Reader,
The US either has relationship problems and needs to seek couples therapy or it has anger management issues because it is mad at the world! Sparking a trade war with China (“China devotes to fight to the end”), imposing sanctions on Russian tycoons and allies of Vladimir Putin, childish tantrums against Amazon on Twitter, multiple rate hikes this year… let me refer you to my therapist. S&P500: (-2.19%) Dow: (-2.34%) Nasdaq: (-2.28%) Russell: (-1.92%) 10 Year: (-2.01%) Oil: (-2.50%) Gold: (0.66%). The Market. That sense of stability that seemed to be poking its head when Larry Kudlow spoke earlier this week is all but vanished. In the blood bath that was April 6th, there wasn’t much left standing. The 3 major indexes were down by over 200 basis points. As a result, the yield for the 10 year treasury bond also was driven down approximately 200 basis points. Remember, bond yield moves inversely to bond price. As equities were taking a beating, investors moved toward debt investments. This caused the price of the bond to go up, which then led to a decrease in yield. Trump unleashed the most recent $100 billion wave of tariff threats to China last night, which only stirred the pot that Kudlow tried to settle earlier this week. China responded by lacing up their figurative boots. The Tension. Today, President Donald Trump sent the markets into a spiral. Thursday night, the president seemed poised to continue escalating trade tension with China. The White House said that Trump was considering a $100 billion tariff on more Chinese goods. In a statement, Chinese officials threatened to retaliate if Trump's new tariff were to be imposed. Investors may bearish because of the increased cost the tariffs cause for business owners. Many US businesses rely on Chinese products and supply chains to keep costs down. The Beer Institute claims that the 10% aluminum tariff would add $350 million dollars of extra cost to American brewers. Whether for good or for bad, markets look more and more bearish as Trump and China continue to beef. Because China is more of an exporter than an importer and because of the trade surplus China has with the US (China can not impose any more tariffs on the US because they only imported $131 billion in US goods last year and the US announced imposing $150 billion in new tariffs; 150 > 131) Chinese authorities can consider selling a large holding of US Treasuries or limit further access of US companies to Chinese markets. Goldman Sachs recommends buying shares of companies with large domestic sales exposure. Something to keep an eye on. The Philadelphia Semiconductor Index ($SOX), which attempts to track the semiconductor industry, fell 3.06% today. This can be attributed to fact that, as a whole, approximately 25% of semiconductor industry revenue is from business with China. We don’t need to spell out what could happen should these steep tariffs go into effect without negotiation. The Nonfarm Payroll came out today, which is essentially a more broad measure of unemployment. The results were below estimates, but not necessarily concerning. In March, the U.S. added approximately 103,000 jobs compared to analyst's expectation of 185,000. The unemployment came in at 4.1%, which is consistent with the past few months. Also, the Department of Labor revised their estimates for January and February jobs, with positive and negative corrections. The net change was approximately 50,000 jobs. While this puts our economy at a weaker level than expected, it is not cause for change in regards to the Federal Reserve's anticipated rate hikes. Jerome Powell, Chairman of the Fed, stated that his view of the economy hasn’t changed much with all that’s been going on lately. In regards to the potential trade war, Mr. Powell feels that it is too soon to know how the tension would impact our economy. However, Mr. Powell does know that the Fed needs to keep raising interest rates as expected in order to fight off inflation. The confirmation of more rate hikes this year undoubtedly had a hand in driving the markets down. Shorting. You’ve undoubtedly heard the someone say "I'm long on XYZ." Being long on something basically means that you think it is going to go up in price. So, if I'm long on a certain stock, I am probably going to invest in that stock. On the other hand, there is shorting. In case the antonyms don’t give it away, being short on something means you think it is going to go down. With all the turmoil in the markets at the moment, some people may think about shorting. There are a few ways to do this:
*This is NOT investment advice. This is simply information on how to bet against the market. But you already know that. It’s over with confidence. A study proves how a little learning can turn cautious and conscious decision making into confidence that over exceeds accuracy. Knowing very slim amounts of data might cause you to form quick and self-assured ideas. But with increased experience, overconfidence declines. Personal finance can be an example of this. With primary and secondary schools not teaching the basics of financial literacy, people learn by trial and error. As young adolescences age, overconfidence and financial illiteracy decrease. Your daily dose of sports. Elgin Baylor, who was the "Kobe before Kobe" as the Los Angeles Lakers head coach Luke Walton put it, is finally getting honored with his own statue outside the Staples center, he will be joining lakers legends Magic Johnson, Kareem Abdul-Jabbar, Jerry West, Shaquille O'Neal, legendary announcer Chick Hearn. Baylor, 83, played 14 seasons for the Lakers both in Minneapolis and in L.A. In the world of golf, that guy from Stanford, four-time green jacket winner Tiger Woods, is making his first Masters appearance since 2015, he's currently tied for 41st place; Woods had been listed as the betting favorite at 9/1 odds of winning it all pre-tournament. To the NFL we go, the LA Rams making some serious off season moves, vamping up their already elite offense who tied the Pats last season with 28.9 points per game for second place behind the super bowl winning eagles. Some of their most notable moves have been the additions of Brandon Cooks WR and Ndamukong Suh DT. Finishing on top of the NFC West with an 11-5 record, the Rams look for another playoff run next season. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
Negotiating, cannabis and soda fighting for sales, auto financing, hedging, building, and VIXing. Could it be? The VIX tracks fear in the market. Theres fear from the trade war with China, fear from possible tech regulation, fear from huge debt deficit, fear from bad earning reports… there is fear everywhere! But what if this fear were to be eliminated. What if the trade war saga was just a hoax and what if Tech companies didn’t have problems with hackers steeling data. Then would there be economic growth? The Market. S&P500: (1.16%) Dow: (0.96%) Nasdaq: (1.45%) Russell: (1.29%) 10 Year: (0.14%) Oil: (0.39%) Gold: (-0.15%). As trading began, it seemed as if today would be a continuation of yesterday's bloodbath as China announced further tariffs on U.S. products. Nearly everything was plunging. However, as the second half of the day kicked off, the market bounced back nicely to see the results posted above. The majority of this can definitely be attributed to the words of Larry Kudlow, the newly appointed Chief Economic Advisor for Donald Trump. Essentially, he explained that there isn't a trade war brewing, and that there are currently negotiations taking place between the two global economic superpowers. This, of course, eased the fears held by investors who fled equities in the first half of the day. They went to investments like gold, which was up sizably during the day but ended lower amidst the stability brought by Kudlow. This stability also led to VIX posting a loss of 4.93% after being up at the front end of the day. Coupled with an expected increased inflow into equities as earnings season approaches, the market was able to end the day with a more stable outlook for the near future. Losers. One such is Boeing (-1.02%). Boeing has been a target for speculation in regards to the tariffs. Since the U.S. announced tariffs on steel and aluminum, Boeing has been down over 9%. The newly announced Chinese tariffs on U.S. goods includes aircrafts, such as an older Boeing model. Boeing's new 737 model is not in the clear yet, as the details of the tariff and its target products are unclear. What is clear, however, is that the new model airplane for Boeing is being counted on as a major revenue generator. Should the tariff include this aircraft, Boeing and the U.S. would suffer, as our country currently is exporting about $15 billion worth of aircraft to China per year. Boeing is definitely a prominent stock to watch as the dance continues between these countries. Panic…or fear? A survey was recently released by the Institute of International Finance which found that U.S. markets saw $40 billion in equities pulled in the end of March. This could have been due to a number of things including fear of a trade war, or newly hiked interest rates. Either way, the investors responded by pulling out of the equity market. From here, it is easy to see why and how the VIX was climbing. While not one in the same, panic and fear are similar. Fear often leads to panic, but not always. In my opinion, the fear drastically spiked amongst U.S. investors. Investors like a sense of stability, and that stability has been taken from them as new events have transpired. However, there has been little panic. Panic, in my mind, would be to sell everything and stuff your money your mattress (or in a bank account with FDIC insurance, same difference). This was more systematic. While the amount withdrawn was quite large given the magnitude of events and how it is more speculation than hard facts, this is generally what investors do. When equities are having a rough go, investors move to other products like commodities or debt (bonds). So, while there has been an increase in fear amongst investors, that fear has not necessarily led to panic; thus, the U.S. markets should be able to rest easy for now as earning season approaches and two of the global economic powerhouses are sitting down at the table together. Negotiations? The Trump administration announced that it’s “willing” to “negotiate” with China. Early today, China disclosed an additional 25% tariff on about $50 billion of US soybeans, automobiles, chemicals, and aircrafts. Pot vs. Pop. The US legal Cannabis Industry has been booming the past couple years with 9 states including Washington D.C. legalizing recreational marijuana use The industry is expected to reach $75 billion in sales by 2030. Soda sales were $76.4 billion last year, and $78.3 billion in 2016. The decrease in sales is caused by the increase in health-conscious consumers. With more than 1 in 5 American adults allowed to smoke and use recreational marijuana in anyway they please, the Cannabis Industry is set to rise in the coming years. Zero to One hundred real quick. 0% auto loans were very popular in the height of the 2008-2009 recession. Now with rising interest rates, carmakers’s borrowing costs are rising as well. Total 0% auto loan offers fell to 7.4% last month from 11% the previous year. This means that less carmakers are offering 0% interest auto loans (AKA no interest on the money you borrow to buy your car). This month, the average interest rate on new car loans rose to 5.7%; the highest auto loan interest rate average since 2009. One of the most significant indicators is rising debt. Being able to buy a car with a 0% annual percentage rate is very risky for carmakers. This could lead to an increase of buyers who are not creditworthy and who have a higher probability of defaulting on their car payments. With more defaults on auto loans, the already auto-debt market bubble could burst. Building the wall. Early this week, Trump announced that he will be deploying the military to guard the US-Mexico border. With a lack of funding for “the wall”, Trump said he would resort to the military until “the wall” is built and proper security is met. When shit hits the fan. When the market crashes, history has taught us that Gold, emerging markets, and International equities are good investments. History says Gold is a safe haven and a hedge. When the market crashes, the US dollar loses its value from increases in money supply from monetary policy and debt expansion from fiscal policy as well as inflation increasing. Emerging markets and International equities are suppose to be a fair safe haven, but now with the trade war between China and the US, are these good hedges against our falling market? Brazil is said to benefit if the trade war continues. Their soy beans will take the markets from the US. The VIX. The VIX is an index that shows the volatility (the movement) in the S&P 500 index. During the 2008-2009 recession, the VIX spiked about 370% from around 17.00 to 80.00. Recently during the early February correction caused by disappointing Q4 earning results for big Tech firms, the VIX rose about 212% from around 12.00 to 37.50. Maybe its time to look into options trading for the VIX… Your daily dose of sports. It was reported that a letter from Lebron’s agent was sent to Nick Saban, head coach of Texas A&M’s football team, which claimed that their barber shop show “Shop Talk” violated copyright trademark rights. On Tuesday, Saban said publicly that they are going to continue with the show regardless of James’s legal threats because there’s no copyright infringement’s happening. In the MLB, Shohei Ohtani, a Japanese baseball player who plays for the Los Angeles Angels, had a huge game yesterday and homered in his second straight game today. Wednesday's home run was a two-run bomb in the fifth inning against the Indians. In the NFL, RGIII signs a one year deal with Baltimore after not playing at all last season. In 2016, he had a short stunt with the Browns which ended after he went down due to injury. He’s a great player, you can see it in his play, but he just has to stay healthy and take care of himself. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
The rebound, please don’t stop the music, Tesla fights back, and the controversy between markets and news. Lackluster day. S&P500: (1.26%) DOW: (1.65%) NASDAQ: (1.04%) 10 Year: (1.90%) Oil: (0.89%) Gold: (-0.13%). The stock market enjoyed a nice rebound today after plunging yesterday due to a multitude of reasons: newly placed tariffs from China, worries over tech regulation, and an overall outlook of "sell" as we've entered correction territory. With a climb just north of 70 points, the NASDAQ retrieved some of the 2018 gains that were completely wiped out as of yesterday. For those that do not know, the NASDAQ is extremely tech heavy. With tech seemingly leading the market with every climb and plunge, it should be an index of much focus. While this is of course subjective, the NASDAQ may just be the best measure of the market in todays world in which tech becomes more pressing everyday. While the NASDAQ gets most of the heavy hitting tech stocks, that’s not always the case. Welcome to the party Spotify. Spotify Technology SA (ticker $SPOT) began trading on the New York Stock Exchange today. The minimum set price by the NYSE was $132/share and at opening jumped to $165.90/share, and then closed at $149.01/share. Patience is key. The President vs. Amazon. One big headline that’s been circulating this past week is President Trump's verbal assault on Amazon. He is attacking them due to his belief that their business with the USPS is costing the Postal Service money, and that they are taking advantage of them. This attack by the White House (along with other reasons) has sent Amazon stock down in the past week. However, White House officials stated that there are currently no plans to take action against Amazon. Shareholders responded by sending Amazon stock up 1.46%. This should be taken as good news for the entire industry, as reluctance to go after a heavy hitting tech company could show that there will be less interference/regulation from the government. However, this country has bore witness to the Trump Administration reversing its views, so tech names shouldn't be patting themselves on the back just yet. The President vs. Trade. And the plot thickens... President Donald Trump has unveiled a new $50 billion tariff on Chinese semiconductors, car and aircraft parts, and machine tools. The tariff comes as a reaction to yesterday's $3 billion tariff by China. The growing conflict deepens the divide between the world’s two largest economies, the effects likely to impact US supply chains and product prices. The Trump administration is also likely to set quotas on Chinese investment into the US. Traders should expect tech industry and industrial stocks to remain volatile. Sleeping on the job. Elon Musk, Tesla’s CEO, jokingly tweeted a photo of him sleeping in the Tesla factory on Sunday with speculation of production of the Model 3 not meeting the target level. Today, Tesla announced it built 2,020 of its Model 3 sedans in the last 7 days. The target production rate of 5,000 units per week is the goal Tesla plans too achieve in the next 3 months. With this news, Tesla does not need to raise any equity or debt this year. Tesla was up 6% at closing. Markets drive news. A very interesting contrary to the widespread belief of news driving prices is prices driving the news. Many believe that all known information is incorporated into prices and we all know how random day-to-day prices can be and how quickly they can reverse themselves. Because of disproportionate coverage, news media can cause a distorted view of the world. The lesson to be learned is: the tendency to pay attention to stories and not real data can be disastrous for investors. Your daily dose of sports. Last nights Championship game was close throughout the first half. It wasn’t until the second half when Michigan became careless and fancy. Turn over after turnover fueled the Super Nova and Donte DiVincenzo to have a scoring burst to leave behind the Wolverines and seal the second National Championship for the Wildcats in three seasons. More in basketball, the Lakers look to snap their five game losing skid tonight against the Jazz and the number 1 seeded Raptors are in the land facing a three seeded Cavs team who are finally looking like themselves at four o’clock pacific time. Tiger Woods will begin his quest for a fifth Masters on Thursday. Stay tuned and we will keep you updated for more on these contests. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
Welcome to Q2, what a bloody mess, Apple is not a team player, and China does not like avocado toast. The Market. S&P500: (-2.23%) DOW: (-1.90%) NASDAQ: (-2.74%) RUSSEL: (-2.41%) 10 Year: (-0.33%). Today, we witnessed a murder of tech. Giant companies such as Amazon, Microsoft , and Tesla saw sizable drops amongst other companies. While there are multiple reasons for declines in the stock price of each of these companies, there is undoubtedly an influence from trade war worries. Below the 200-day. The S&P 500 fell below its 200-day moving average and this marks the first time it has done this since June 2016. The 200-day is a technical level used to indicate long-term momentum. Before today, the S&P 500 closed above its 200-day moving average for 443 sessions. The Dow Jones and Nasdaq are still able their 200-day moving averages. Is this Facebook's fault? We say NO. Are they helping the matter? Also, NO. The whole data selling scandal that rocked Facebook in late March is definitely contributing to this tech sell-off, and this sell-off is definitely anchoring the market down. As Facebook is being investigated, we can already smell the freshly printed regulations on tech companies in regards to sensitive consumer information. Okay, Okay. Maybe its not that far along yet, but don’t be surprised if it gets there. Worries of increased regulation on tech companies is a partial cause of the sell-off in tech companies. Investors are worried that if tech companies have more regulation, they will be more limited in the corners they can cut. This would in turn lead to a decrease in profitability and the like. While the Trump Administration did run against regulation, it shouldn’t surprise people to see them act against that view. This sell-off in tech is far too complex to be the result of one event. It is relatively rare to see one event shake the market too this degree (officially in correction territory). It is the culmination of multiple events: The fear of a trade war between two economic superpowers that would shake the entire global economic landscape, the fear of regulation in a sector (tech) that has anchored the U.S. markets to new heights, and the overall fear that one day the U.S. markets would stop climbing on a consistent basis.The common denominator in these events is fear. We suppose that its no wonder that pesky VIX keeps on going up. The Red Scare. There’s blood in the water. Today, the second largest economy slammed the US with 128 tariffs - including a 25% on pork and a 15% tariff on nuts and fruit (including dried avocado?). The tariffs come as a huge blow to American agriculture, one of the US’s largest export markets to China. Tyson foods is down 4.6%. Coincidentally, the tariffs also target one of Trump's largest voting blocks: rural voters. China's response follows a turbulent March, where president Donald Trump repeatedly provoked threats of steel/aluminum tariffs and “trade war”. Remember, all this started when President Trump expressed his concerns at the growing trade deficit with China. Furthermore, the U.S. is claiming that doing business with China requires partners to sacrifice IP (intellectual property). If this is true (China says no), it can be extremely detrimental especially considering that the U.S. and China are often racing towards the most innovative technology. Apple to Intel, “Sorry, not sorry.” Apple is planning to use its own processing chips in Mac computers. Their current chip provider is Intel and Apple provides Intel with about 5% of its annual revenue. This is said to begin as early as 2020 and this would be a huge blow for Intel. Intel is down 6% at closing. Chaos is chaotic. Chaos Theory is the science of surprises of the unpredictable, where we expect the unexpected, where nonlinear things are not impossible to predict, and where chaotic behavior and unpredictability can have perfectly deterministic equations. Was today’s market selloff “chaos”? Some of the principles of the Chaos Theory are the Butterfly Effect and Unpredictability and this is our explanation of why it was chaos: The Butterfly Effect. When President Trump first announced Tariffs on China at the end of March, a cause of this trade war can be a real nuclear war. Trade wars can cause starvation, wage disparity, and can cause an increased pressure on power struggle. In the countries that are benefiting from the tariffs, the tariffs increase their real exchange rates and increase their currency. The trade war against the US and China has caused the US markets to fall below key indicators, erase returns, and cause a scare for investors. The same effects can be seen in China with Chinese companies and in Europe with their markets being impacted by this. A real nuclear war being an effect from the trade war is due to the zero sum game and the reasons listed above. Zero sum game is a game theory which each participant’s gain or loss is exactly balanced by the losses or gains of the other participants. A trade war can be detrimental for both nations and can get out of hand very quickly. Unpredictability. President Trump does not know the effects his tweets have on the US economy and the World economy as a whole before he sends them out. Today, the President tweeted criticism against Amazon and how they are destroying the US Postal Service and how they are not paying an appropriate amount of taxes. This is a continuous hatred Trump has towards Amazon. Amazon is down 5% at closing and 12% in the last five trading days. Your daily dose of sports. With no NBA games scheduled for today, we go straight into the Mens NCAA tournament. Michigan beats Loyola Chicago behind Moe Wagner's stellar performance and Super Nova exploded connecting on 18 treys to set a new NCAA record Saturday night. Kansas never really had a chance, Villanova had eleven threes in the first half; they came out hot. Tonight is the championship game. Two teams left standing, Villanova and Michigan. Now don’t forget, this is college basketball, anything can happen. Even though Nova are the heavy favorites, an eleven seed did make it all the way to the final four and a sixteen seed did upset a one seed. We will be back with the results tomorrow, stay tuned. Keep Climbing, The Alchanati Campbell and Associates Team We will be off tomorrow for Good Friday and Passover, so please enjoy the longer read.
Dear Reader, 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. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
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. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
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. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
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. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
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. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
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. Sincerely, The Alchanati Campbell and Associates Team Dear Reader, 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. From,
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AuthorWHAT'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. Archives
July 2020
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