Market Minutes for the week of February 20th:
“If you can spend a perfectly useless afternoon in a perfectly useless manner, you have learned how to live.” – Lin Yutang
Important: As many of you know, during the process of switching our phone and internet service from Comcast to CenturyLink, we temporarily lost service for a day and a half. We are now back up and running and everything seems to have returned to normal. Cascade Investment Group would like to express our gratitude for your patience and understanding as we worked our way through this unexpected and unfortunate series of issues.
Blaine Rollins, Founder and CEO of 361 Capital: “While politics and the new government’s agenda is still very much in the news, investor interest last week shifted to the bigger picture. Good economic data continues to hit the tape along with better-than-expected corporate earnings growth and outlooks. Rising inflation and interest rate expectations are pulling the Fed’s hand closer to the red button (which they still plan on punching three times this year). Credit spreads continue to tighten as corporate and consumer credit losses seem miles away from investors. A Border Tax seems less likely by the day as opposition, complexity and the molasses hallways of government slow its momentum. The upward sprint of the markets last week was clearly focused on the positives. Let’s see if that continues this week.”
Ed Yardeni President and Chief Investment Strategist of Yardeni Research: “Throughout all these corrections, people have been talking about an endgame. Maybe people have figured out that you can watch all the news you want and get upset, but that has nothing to do with earnings and the valuation of earnings in the stock market.”
Doug Kass: “To some (Trump’s critics), the parallels today are astonishingly similar to the depiction in director Hal Ashby’s iconic 1979 movie of Chauncey Gardiner (“Being There”), whose knowledge is totally based from what he sees watching television. To others (Trump’s devotees), our new president is Ronald Reagan reincarnated, bringing with his administration newfound support for our foundering middle class and introducing fiscal policy that will break the domestic economy out of its decade-long doldrums. To me, the stock market is always a dynamic and ever-changing volley of probabilities … I believe strongly that the lion’s share of the post-election rally was Trump-related. The upset election victory provided the spark for stocks, and it is the assumption that the president’s pro-growth initiatives will be realized in orderly fashion both in timing and magnitude that has continued that spark. As a consequence (and after the 12% rally since early November), the market outlook over the next few months will depend on the morphing of the president’s political promises into economic reality. Will that baton pass be smooth or will the baton be dropped? That’s the $2.5-trillion question – the amount representing how much the market capitalization of the U.S. exchanges has grown since the election.”
“Small businesses add up to a big portion of our economy. They currently employ 49.9 million workers, accounting for 40.5% of the private-sector payrolls, according to data complied by ADP. Since the start of data during January 2005, small business payrolls have increased by 5.9 million, surpassing the gains by medium-sized (5.0 million) and large (1.2 million) companies over the same period.”, more from Ed Yardeni.
The National Association of Realtors said that U.S. existing home sales rose 3.3% in January to reach a ten-year high of 5.69 million units annualized.
In January, The Commerce Department said that new home sales rose by 3.7%, to a seasonally adjusted 550,000 units. That is an increase of 5.5% over a year ago at this time.
The Treasury Department is looking into issuing 50- and 100- year bonds, benefiting from currently low interest rates according to new Treasury Secretary Steve Mnuchin.
According to the Insurance Information Institute, the average U.S. car-insurance premium rose to approximately $926 in 2016, an increase of 16% since 2011. Rates are rising in spite of predictions that they would drop as more cars left show rooms with high-tech anti-collision gear.
Why? Per Travelers, Hartford Financial and Horace Mann Educators Corp. who collectively insure millions of vehicles across the U.S., 4th quarter underwriting results for personal auto insurance was worse at all three insurers who said that distracted driving was partially to blame.
According to researchers at the U.S. Census Bureau, the average American couple has saved only $5,000 for their retirement and only one-third of working Americans are saving money in an employer-sponsored or tax-deferred retirement account.
Blomberg reports that delinquencies among lower rated auto-loan buyers has risen to the highest rate since 2009. Outstanding auto-loans now account for a larger proportion of total U.S. household liabilities, growing at the fastest pace in 14 years.
According to Qualtrics, a Provo-based survey firm, this is what millennials are spending their money on: Smartphones – 98%, Energy drinks – 64%, Organic foods – 54%, Housing – 53%, Any item over $2,000 – 40%, Tattoos – 40%, Musical instruments – 38%, Firearms – 26%, Siracha sauce – 16%.
Look for the price of Italian olive oil to jump by as much as 20% this year. Italy’s harvest was especially hard hit by the combination of early rains knocking buds off the trees and the threat of an olive fly that resulted in an early harvest, further reducing yields. All together, Italians consume about 20% of the world’s olive oil, followed by Spain at 16% and the U.S. at 10%.
Want to taste a $5,000 hamburger? Head to the restaurant Fleur at the Mandalay Bay resort in Las Vegas and Chef Hubert Keller’s kitchen will make you one. Start with $100 per pound Wagyu beef and douse it repeatedly with rich butter to seal in the juices. Sear a few slices of $45 per pound foie gras. Combine the duck fat with more butter and sauté a mound of sliced black truffles ($1,500 per pound). Assemble the three ingredients on a freshly backed brioche bun and pair with a $5,000 bottle of 1995 Petrus.
Vail Resorts is acquiring Vermont’s Stowe Mountain Resort for $50 million. Last August, the world’s largest ski area operator purchased Whistler Blackcomb in British Columbia for $1.1 billion.
Burger King parent, Restaurant Brands International, has agreed to pay $1.8 billion in cash to purchase Popeyes Louisianan Kitchen Inc.
Apple has teamed up with Broadcom to build wireless charging for the iPhone, according to JP Morgan analyst, Harlan Sur. Rumors are that the next iPhone will be mostly glass and the glass back cover is more conducive to wireless charging as it reduces the signal interference as opposed to a metal casing.
Google’s Project Loon, a network of balloons created to provide high speed internet access to remote global locations, is becoming a reality. Balloons were launched from Puerto Rico and directed towards Peru, where they stayed for up to 3 months.
UPS recently ran a test of a truck-launched drone delivery system for rural areas around Lithia, Florida. According to senior vice president for global engineering Mark Wallace, the van-top drones will only be used in rural areas where often the UPS trucks have to travel miles just to make a single delivery. UPS estimates that reducing delivery distance by just one mile per day, can save the company up to $50 million per year in fuel costs.
Boeing plans to open its first European plant in Sheffield, England. The £20 million facility will supply parts for Boeing’s 737 and 777 aircrafts.
European budget carrier Norwegian Air Shuttle ASA recently announced that it would begin flying single-aisle planes non-stop from the U.S. to Europe in June for fares as low as $65. To begin with, the company will connect Edinburgh, Scotland to Stewart International airport in New York, Green Airport in Providence, Rhode Island and Bradley International Airport near Hartford, Conn. The carrier will operate the new Boeing 737 Max and Airbus narrowbody (in 2019) for the hops over the North Atlantic.
According to Reuters, Facebook is in discussions with Major League Baseball to livestream one MLB game per week. The details are still being worked out.
Ford Motor’s self-driving cars, debuting in 2021, will not include steering wheels or gas pedals. Their tests have shown the human factor can effectively be removed from the equation.
Beginning in 2018 General Motors, in a partnership with ride sharing service, Lyft, is planning to dispatch a test fleet of thousands of self-driving electric cars. This is anticipated to be the largest test by an automaker before 2020 of fully autonomous cars.
Uber’s senior vice president Emil Michael says that autonomous driving technology is being perfected far ahead of schedule. So much so that the company is having difficulty finding enough test markets to take the cars out before they are available to the public. Since driverless cars are brand new, rules haven’t been established surrounding their legality. Consequently, Uber doesn’t always know which markets will be supporters until after they put the cars on the road.
Ride-hailing app Lyft has announced 50 new cities that it will begin serving this year. The company wants to have added 100 new cities before the end of the year.
Ferrari just introduced its most powerful production car ever built. The Ferrari 812 “Superfast” will replace the F12 model, taking that vehicle’s “insane power and sonic beauty” to a new level. The Super Fast’s 6.5 liter V12 engine cranks out 789 horse power. The top speed, 211 miles per hour.
JC Penny reports that they will close 130 to 140 stores over the next several months, continuing plans to downsize its fleet as sales weaken.
Wal-Mart reports 4th quarter earnings of $1.30 per share on revenue of $130.9 billion, an increase of 1.0% year over year.
Home Depot reports 4th quarter earnings of $1.44 per share on revenue of $22.2 billion, a 5.8% increase over one year ago.
Tesla reports 4th quarter earnings of -$0.69 per share on revenue of $2.28 billion, an 88.4% increase over a year ago.
Fitbit reports 4th quarter earnings of -$0.56 per share on revenue of $574 million, a decrease of 19.3% year over year.
Hewlett Packard reports fiscal 1st quarter earnings of $0.38 per share on revenue of $12.7 billion, a 3.7% increase year over year.
Next week: Earnings from: Priceline, Workday, Salesforce.com, Shake Shack, Costco, Best Buy, Lowes, Dollar Tree. Economic reports: U.S. Durable Goods Orders, Case Shiller Home Price Index/ Composite 20, U.S. Purchasing Manager’s Index, ISM Non-Manufacturing Index.
WTI Crude oil: $54.60 per barrel. 10-year Treasury note: 2.32%. 30-year mortgage: 4.10%.
Sources: Denver Post, Bloomberg, Wall Street Journal, CNBC, Real Money Pro, Seeking Alpha, MarketWatch, Estimize.com and USA Today.
P.S. Remember, if you are over 70.5 and are taking the required distribution from your IRA, you can donate that distribution to a qualified charity and pay no income tax on the distribution. There is no deduction for the donation but neither is the distribution from the IRA counted as part of adjusted gross income. AGI is a trigger for several important provisions. Minimizing AGI can help lower or avoid the 3.8% surtax on net investment income, payments for Medicare premiums and even taxes on Social Security payments.
Disclosure: This publication shall not constitute an offer to sell or the solicitation of any offer to buy or sell any securities of the companies mentioned. This publication is solely a compilation of recent news releases from the sources cited above.
Ken Beach, President and Managing Partner of Cascade Investment Group, member FINRA & SIPC. Cascade Investment Group is not a tax or legal advisor. You should always consult with your tax advisor or attorney before taking any actions that may have tax consequences.