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The Happiest Professions

Jul 19, 2019   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

It was a rather quiet week as investors digested early earnings announcements.  Many banks reported earnings and almost all met or beat expectations despite falling net interest income.  Given the nature of information these days, it is rare for a company to surprise analysts either to the upside or downside.  By law, companies are expected to disclose events that would have an adverse impact on earnings.  On the other hand, it is hard to predict what companies will issue for forward guidance and it is in this realm that stocks can move on new information.  The next few weeks will see some companies rise while others fall on future expectations.  We’ll be reviewing the earnings data and guidance closely.

Aside from earnings announcements, we learned that China’s growth has slowed yet again.  Although China’s GDP has been slowing for the past decade, it is hard to ignore the impact tariffs are having on the country’s exports.  Weakened by trade tensions, China’s economic growth decelerated to 6.2%, the slowest pace in 27 years.  However, don’t expect China to take this lying down.  It seems uncertainty isn’t just an American thing.  China’s companies are feeling the pressure too.

As far as the United States goes, the U.S. economy keeps humming along according the Federal Reserve’s Beige Book.  The latest report said economic activity kept expanding at a modest pace overall, from mid-May to early July.  In most districts, sales of retail goods increased slightly overall while vehicle sales were flat.  Home sales picked up “somewhat,” however residential construction was flat.  Manufacturing production was generally flat while employment grew at a modest pace.  It was a mixed bag of data points all suggesting that overall economic growth is slowing slowly (if that makes sense).

For company news we couldn’t not talk about Amazon’s Prime Day.  The company announced it sold over 175 million items over this year’s two-day period.  Amazon claims sales topped the previous Black Friday and Cyber Monday totals combined, but didn’t break out specific numbers.  At a time of increased scrutiny from regulatory bodies, now might be a good time for Amazon to downplay the success before it finds itself in front of a Congressional committee accusing it of being a monopoly.

In company news, Netflix announced good earnings but shocked analysts with a huge miss on new subscriptions.  Many had expected Netflix to gain approximately 5 million new subscribers in the quarter but fell far short with only 2.5 million, leaving some to question whether the increased competition from Disney, Hulu, HBO, and soon to be NBC (in 2020) are eating into this company’s prospects.  While Netflix had a huge lead in the streaming industry, its competitors are both taking back content previously licensed to Netflix and creating new original content of its own.  In the future, we may all get the a la carte menu we’ve always wanted, it may just come at the expense of cost and convenience.

In closing, I came across a survey by Bloomberg purporting to tell us the happiest and least happy professions.  I know most of you are well on your way with regard to your career and unlikely to make a switch at this point in your life, but you may have children or grandchildren that could use this information.  Also note, happiness as measured in this survey does not necessarily equate to income.  That aside, the most contented professions are firefighters, pediatricians, communications professors, guidance counselors, and mine cutting and channeling machine operators.  Those least happy with their chosen professions include mail clerks and sorters, court and municipal clerks, housecleaners and maids, insurance claims and policy clerks, and telemarketers.  Take all of this with a grain of salt since satisfaction, to a large degree, can be defined in a myriad of ways.  But at least according to this survey it might be worth looking into becoming a firefighter.  Now you know.

July 19, 2019

Auf Wiedersehen Beetle

Jul 12, 2019   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

It was a good week for stocks with the Federal Reserve all but assuring investors it will lower interest rates at its next meeting at the end of this month.  With little in the way of company news, and before the start of earnings announcements next week, investors hung on every word from two days of Congressional testimony regarding monetary policy.

If one thing is clear from his testimony, Chairman of the Federal Reserve, Jerome Powell is concerned about the heightened degree of uncertainty present today.  In his opening statement, he uttered the phrase no less than twenty-six times.  But perhaps the most telling line was when Mr. Powell refused to call the market “hot.”  “To call something hot, you need to see some heat,” he said referring to inflation which has been below expectations for some time despite low unemployment.   With his testimony, he paved the way for at least one rate cut in a couple weeks’ time.  The markets reacted accordingly.

In other news, the Healthcare Sector had a court ruling, a reversal of policy, and a potential executive order all hitting in the same week.  A U.S. District Judge blocked a Trump administration rule requiring drug makers to put prices in television ads, which is a central part of the President’s push to lower the cost of prescription medications.  The judge ruled this would violate free speech and exceeded the Health and Human Services Department’s statutory authority.  The second item is the White House reversal of policy on its plan to end drug rebates.  Pharmaceutical distributors collect the rebates and, in theory, pass along the cost savings to consumers.  While the White House has backed down on this plan, it is suggesting a new executive order to lower drug prices may be forthcoming.  This new plan will tie Medicare and Medicaid reimbursement for drugs to the lowest prices paid internationally.  This latest plan has the potential to save the U.S. government billions annually, but will undoubtedly face stiff lobbying efforts and is likely to end up in the courts if it is ever signed into law.

In company news, it was announced this week that Procter & Gamble plans to roll out a line of household insecticides safe for pets and people.  The new Zevo brand is the first creation to hit stores from P&G’s Ventures unit and one of the bigger launches in general since Tide Pods in 2012.  Also worth noting, the last Volkswagen Beetle has rolled off the assembly line in Mexico, serenaded by a mariachi band, and surrounded by proud factory workers.  The iconic car has been around in one form or another since 1940, but failed to navigate the current swerve in consumer tastes to SUVs.  If you have ever wanted to buy a new Volkswagen Beetle, it’s now or never.

In closing, I want to pass along a bit of information that I somehow missed.  Gas taxes were raised in 12 U.S. states as of 7/1/2019, ranging from 19 cents a gallon in Illinois and 10.5 cents per gallon in Ohio to just one-tenth of a penny in Nebraska and Michigan.  In Ohio, the additional gas tax is expected to cost a motorist who drives 15,000 miles per year and gets 25 miles per gallon an extra $63 per year.  The tax increase is expected to raise an additional $865 million in revenue, which will be split 55/45 between the state and local government and is earmarked for road and bridge repair.  The gas tax was last increase in Ohio in 2005.  Proponents cited the buying power of the tax has been eroded by inflation, Ohioans are driving more miles, and cars are more fuel efficient so less gas tax revenue is coming in per mile driven.  If you happen to drive a hybrid car or an electric car, you too will bear some of the cost.  The legislation charges electric vehicle owners $200 a year and hybrid owners $100 a year as an extra registration fee.  The good news is that starting July 2020, we are no longer required to display a front license plate in Ohio.  Now you know.

July 12, 2019

Reinventing the Gas Station

Jun 28, 2019   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Only seven days into Summer and the doldrums have officially set in.  Markets are taking a wait-and-see attitude ahead of earnings announcements coming in the next few weeks.  Expectations are for moderating growth and stable guidance.  As always, those companies meeting or beating expectations should be fine.  However, with the heightened level of trade uncertainty, we might experience more volatility that usual this earnings season.

A large part of this week’s lassitude is that investors are waiting for the outcome of President Trump’s meeting with President Xi on Saturday.  Some have called it a “drive-by” meeting in the sense that not much is expected to be accomplished other than an extension of trade negotiations to the end of this year.  In a sense, that would be a victory.  In recent weeks, the President has threatened adding tariffs on an additional $300 billion of Chinese products, essentially taxing everything coming into the United States from China.  Delaying further tariffs will be a win, and should give both countries time to hammer out an agreement over the next six months.

In company news, Boeing can’t seem to catch a break.  While the company is in talks to reimburse airlines for the grounding of the 737 Max since March, a pilot’s class-action lawsuit, and liability over the two crashes earlier this year, it was announced the FAA has discovered another “potential risk” in the plane’s software that will likely ground the plan for longer than expected.  Talking about breaks, Citigroup is breaking with tradition and rolling back credit card perks on many, if not most, of its credit cards.  Among those perks being eliminated are price-protection guarantees, free trip insurance, and car-rental and lost-baggage insurance.  The company claims these rewards saw low utilization rates.  If you are a member of Costco and signed up for the Citi Costco Visa Card, this applies to you too.

If you have been car shopping lately, you might have experienced sticker shock.  The average price of a “light vehicle” (read: not a truck) today is $37,500.  What may be even more shocking is the average price of a full-size pickup truck is $48,000 as of last year which is a 20% increase in just the last five years.  Considering the acceleration of automotive pricing, I was surprised when I read this week that General Motors is eyeing the first $100,000 pickup truck.  It is in the process of rolling out a new version of its heavy-duty Chevy Silverado that could become the first to list for six-figures.  Ford’s Limited-Edition F-Series Super Duty truck can run at $95,000 when fully loaded.  With large margins, and a consumer willing to pay for the creature comforts, it is no wonder Ford and GM are pushing the boundaries with pickup trucks.

In closing, I often talk about ways in which the world is changing or has changed.  As people have become busier over time, convenience has grown.  For example, twenty years ago you might have laughed if I suggested a food delivery service like DoorDash or Grubhub.  So keep an open mind when I tell you the latest service being marketed as a convenience: a gas station on wheels.  Booster, a 4-year old company, delivers millions of gallons per month in twenty cities, using purple-branded trucks to fill up tanks on corporate campuses.  Fortune 500 companies such as eBay, HP, and Cisco user Booster to provide a fueling perk for employees.  Users can request gas from an app on their smartphone and a Booster truck shows up soon after to refuel the vehicle.  The kicker is the price paid is comparable to prices offered at local gas stations, and in many cases, is even less expensive because of its low overhead and lack of physical locations.  The day will soon be here where you can hit a button on our phone and the gas station will come to you.  That day is already here for some.  Now you know.

June 28, 2019

Is the Fed Getting Ready to Surrender?

Jun 21, 2019   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

With only one week to the end of the second quarter, we couldn’t be more pleased with how Q2 is shaping up.  The big news this week came out of the Federal Reserve (Fed) after its meeting on Wednesday.  The Fed’s statement was a clear signal it is now moving closer to easing interest rates which investors took very positively.  With only a week left in the quarter, money flowed into the markets driving prices higher.

Stocks (and more broadly “risk assets”) continue to rise after the Fed kept rates unchanged but hinted it could ease policy in the months ahead.  While not saying outright that a cut was ahead this year, the Fed dropped the word “patient” from its statement and said it would “act as appropriate” to sustain the economy.  The Fed’s interest rate projections indicate that half the FOMC members anticipate two rate cuts this year.  This comes as a bit of a surprise since investors had expected only one rate cut in December.  Two rate cuts with one possibly happening next month sent a jolt through the markets, driving investors back into stocks.  You might remember the same thing happened earlier this year when the Fed signaled it was done raising interest rates.  Whether because the Fed is concerned with a slowing economy or perhaps is feeling the pressure from President Trump, who this week threatened to fire the Chairman of the Federal Reserve, it is evident the Fed is now fully committed to economic accommodation and easing interest rates in the months ahead.

In company news, Boeing and Airbus are going head-to-head at the annual Paris Air Show.  In its first day, Boeing received absolutely no orders which created considerable concern.  However, by the end of the week it looks like both Airbus and Boeing logged $35 billion each in commitments.  Perhaps the big surprise was that Boeing scored a stunning order of 200 737MAX planes from British Airways which was an absolute rout for Airbus.  Also reported this week, and perhaps poor timing in my opinion, Boeing announced it is looking to speed up testing for new aircraft by easing requirements.  It looks to reduce the scope and duration of certain costly physical tests to certify its new aircraft.  Specifically, it looks to cut hours off airborne testing by using computer models to simulate flight conditions, and then present the results to the FAA as part of the basis for certification.  I’m not sure many will find this solution palatable given recent events.

In other news, Discover Financial announced it is eliminating all deposit account fees.  This move applied to customers with checking, savings, money market, or CD accounts with Discover Bank.  In addition, there will be no fees for monthly maintenance, checkbook orders, replacement of debit cards, insufficient funds, excessive withdrawals, falling below minimum balances, and stop-payment requests.  What makes this remarkable is that banks make a considerable amount of revenue from these fees.  We hope other banks take notice and adopt similar practices.

Also interesting, Amazon announced it is offering a new surveillance service.  While we all joke Alexa is secretly spying on us (and there is evidence to suggest this could be true), Amazon wants to help protect your property while you are away.  The company wants to use its network of delivery drones to keep watch over customers’ houses by forming a flying Neighborhood Watch program.  Customers could request that Amazon’s drones visit their property hourly, daily, or weekly, while the drones would look for signs of a break-in, such as broken windows, doors left open, and intruders lurking on the property.  This sounds a bit far-fetched but this is the future we’re hurtling toward.

In closing, I wanted to share a mystery that has been bugging art aficionados for some time.  In 2017, Christie’s broke a record by selling a work by Leonardo da Vinci for $450 million.  The work entitled “Salvator Mundi” thought to be the only remaining work by Leonardo da Vinci in private hands, disappeared shortly after its sale.  The purchase was made anonymously leaving many wondering who purchased the artwork and where it might be.  It turns out leaked information leads us to Saudi Crown Prince Mohammed bin Salman, one of the richest men in the world.  The Saudi family has an estimated net worth of $1.4 trillion.  And in case you’re wondering, the painting resides on his $500 million superyacht floating somewhere in the Mediterranean.  Now you know.

June 21, 2019

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