A Cornucopia of Corporate News

Aug 30, 2019   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Sensing the heightened level of uncertainty, and no doubt watching the market volatility pick up last week, the President walked back a lot of his bluster with regard to China and tariffs this week.  Not that tariffs are off the table, but that China “wants to make a deal very badly” and is willing to hold off on imposing further tariffs on the United States.  At this point who knows what is truth and what is spin, all I know is that the markets felt a little more reassured that a deal will eventually be reached and reacted accordingly.

Since I seem to talk more about economics and geopolitics lately, let’s talk about company news for a change.  Costco opened its first store in China with crowds reportedly waiting in line for upwards of six hours to have a chance to shop.  The crowds apparently got so rowdy, with fistfights breaking out, the store had to limit the number of customers in the store to 2,000 at a time.  I can only imagine how big this store must be.  In other news, Boeing was hit with its first lawsuit from a 737 MAX customer.  I’ve been wondering for some time how long it would take for the airlines to want compensation for the grounding delay and lost income.  A Russian aircraft leasing company has sued Boeing for a breach of contract.  It expects a return of the $35 million it paid Boeing with interest, plus $75 million in “lost profit,” and $115 million in compensatory damages, as well as punitive damages.  I wonder if others will follow suit?

Another bit of company news is that Philip Morris is in talks to merge with Altria.  You may remember, in 2007 Philip Morris spun off Kraft Foods.  In 2008, it spun off Altria in an attempt to unlock value by splitting the company into a domestic tobacco company and an international tobacco company.  It came as a surprise this week when we learned that the parent company wants to once again combine the companies into the largest global tobacco company under one corporate structure and management team.  The company cites benefits of scale and geographic reach.  But also, the company has expanded outside of tobacco in recent years to include its purchase of Juul for $12.8 billion in 2018 , the leader in vaping, and a $1.8 billion 45% stake in Cronos Group which is in the nascent cannabis industry.

Here’s an interesting development.  Like Canada’s oil sands and the North Sea, Alaska is receding into a second-tier oil producer as field depletion, cost-cutting, and the rise of shale diminish their appeal.  BP announced this week it plans on completely pulling out of Alaska after a 60-year presence.  The company has estimated its net oil production from the state this year will average 74K bbl/day.  At its peak, Alaska once pumped 2M bbl/day of oil, enough crude to rival some OPEC members, but it’s now only the sixth-largest producing state in the United States behind Texas, North Dakota, New Mexico, Oklahoma, and Colorado.

I had mentioned a few weeks ago that Fifth Third Bank raised its minimum wage to $18 per hour and wondered if other banks would follow suit.  It didn’t take long.  This week we learned that Citigroup has quietly raised its minimum wage to $15 per hour.  It seems last year JPMorgan raised its starting pay to $18 per hour and Bank of America plans to boost its minimum to $20 per hour over the next two years.  It seems the arms race in the banking industry has run to new heights.

Also worth mentioning, for those so inclined, Fifth Third Bank sees achieving 100% renewable power three years ahead of its original 2022 target.  The company opened a solar facility in North Carolina last year.  The solar farm is expected to generate clean power that is more than or equal to the amount Fifth Third uses in a year and will be resold at market rates into the local electricity grid.  Built by solar developer SunEnergy1, the solar farm consists of over 350,000 solar panels and covers 1,400 acres.  I know we have some clients who are more environmentally mindful and I just wanted to let those clients know there are alternatives.

In closing, I turn to the rising cost of college and more importantly, how to make the value proposition pay off.  Each year a report is generated which highlights those majors which are most valuable and those which command much lower salaries.  I’m not suggesting that money should be the determining factor when choosing a major and career path.  However, it doesn’t hurt to know which majors lead to higher salaries and less unemployment.  Among the top 100 majors, it seems engineering comes out solidly on top.  Eleven of the top twenty-five majors involve some discipline of engineering.  However, others in the top twenty-five include genetics, materials science, applied mathematics, computer science, meteorology, and rounding out the list nursing.  If you have children or grandchildren, you may want to share this information with them.  To see the full report, click on the following link.  Now you know.

August 30, 2019

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