Brexit: Season 3

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

As far as weeks go, this one was fairly quiet.  In the run up to earnings season, there is usually a lull in both market news and volatility as investors eagerly await earnings announcements. Boeing and General Electric continue to be a drag on the Dow Jones Industrial Average while JP Morgan gave the markets a lift today.  Earnings announcements will begin to dominate the news starting next week.

Despite the dearth of economic news, there were some corporate announcements worth mentioning.    Novartis (NVS), the world’s fifth largest independent biotech company by market cap, finalized the spin-off of its Alcon division.  Shareholders of Novartis received one share of Alcon (ALC) for every five shares of Novartis held on April 8th.

Chevron (CVX) announced today it plans on acquiring Anadarko Petroleum (APC) in a stock and cash transaction valued at $33 billion.  The merger will shore up Chevron’s upstream operations (the finding and producing of oil and natural gas) by strengthening its shale, deepwater, and natural gas resources.  Management anticipates annual synergies of approximately $2 billion, and expects the deal to be accretive to free cash flow and earnings in one year.

In other corporate news, we learned that Tesla will begin leasing its Model 3.  However, unlike a more traditional lease, customers will not have the option to buy their cars at the end of the lease as Tesla intends to use the vehicles for its long-planned Tesla Network ride sharing program.  If you’re in the market for a Model 3, a 36-month lease will start at $504 per month with $4,199 down.  The downside to leasing a Tesla is that the company gets the federal tax rebate of $3,750 per car plus any state incentive that your state may offer.  For Tesla it is a great deal.  For the lessee, not so much.

In recent weeks we have mentioned the rising minimum wage and its potential strategic benefit.  This week Amazon’s CEO, Jeff Bezos, challenged its competitors in its annual letter to shareholders.  He said, “Today I challenge our top retail competitors to match our employee benefits and $15 minimum wage.  Do it!  Better yet, go to $16 and throw the gauntlet back at us.”  Perhaps not too surprising, those competitors had a few things to say.  Walmart’s Dan Bartlett said, “How about paying your taxes?”  Amazon paid $0 in federal taxes on more than $11 billion in profits last year.  Macy’s CEO, Jeffrey Gennette responded, “We decided to put [tax savings] back into the community” while eBay CEO Devin Wening fired back, saying, “We don’t compete with our sellers.  We don’t bundle endless services to create barriers to competition.”  Sounds like the war of words is just heating up.

As for Brexit, the drama continues.  On Wednesday, the European Union (EU) voted to allow for an extension whose deadline was today.  This brings us to Season 3 of Brexit Forever, which raises the plot of whether Theresa May (Prime Minister) and Jeremy Corbyn (Leader of the Labour Party) will honor the will of the voters.  The new extension gives the UK until October 31st with certain conditions.  However, it is likely that a six-month delay gives the Conservative Party enough time to contemplate a change in leadership, i.e. Theresa May exit stage left.  In such a case, we could be talking about Brexit until the proverbial cows come home.

In closing, I came across a practice in South Korea that is unusual by Western standards.  In S. Korea, babies become 1 on the day of their birth and then get an additional year tacked on when the calendar hits Jan 1.  “Just two hours after Lee Dong Kil’s daughter was born on New Year’s Eve, the clock struck midnight, 2019 was ushered in, and the infant became 2-years old.  Every baby born in South Korea last year become 2 on January 1st.  It is unclear how this tradition started but some attribute it to the time babies spend in the womb, or to an ancient Asian numerical system that didn’t have the concept of zero.  It seems most South Koreans are simply accustomed to living with two ages.  Now you know.

April 12, 2019

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