Market Minutes for the week of March 20th:
“Always borrow money from a pessimist. He won’t expect it back.” – Oscar Wilde
Where do we start? This week we have had these headlines: Every investigative body of government saying they see no signs of an illegal wiretap of Trump Tower by Obama. The FBI director confirming an investigation into Russian meddling in the 2016 election. A Washington Post article referring to potential criminal activity between a disgraced ex-leader of Ukraine and former Trump campaign aide Paul Manafort. Talk of not enough GOP votes to pass the GOP healthcare plan. Trump creates more enemies as he threatens Republican lawmakers with the loss of their seats if they don’t play ball on the repeal and replacement of Obamacare. The attachment of the controversial “Border Tax” to the wider tax reform legislation with the worry it will derail tax reform. This is not what the market was counting on! As our own Rob Wrubel says: “It’s headline risk, not economic risk!”
Blaine Rollins, CEO and founder of 361 Capital: “[As the] GOP enters its 2nd quarter of total control, this market needs something else to look forward to in order to reward the 10-15% move in the U.S. Equity indexes since the election. We know how great things look in the rear-view mirror, but if we are shifting this America-made automobile into a higher gear, we want to see improvements in the windshield. The POTUS and the GOP need some wins before summer and the markets don’t want to see daily programs of government officials testifying in front of Congress. There is plenty of capital in the world looking for a home and if the U.S. government wants to be the mud and grass in our gears, then that capital will head overseas. The emerging and developed international stock markets are clearly cheaper than the U.S. and all they need is a catalyst to cause a rise in the momentum for foreign investment.”
The Fed said that U.S. industrial production rose a seasonally adjusted 0.5% in February as U.S. factories cranked out more autos, steel and computers. Mining output rose 2.7% spurred by more oil and gas drilling. Utility production fell by 5.7% as the need for heating was reduced by unseasonably warm weather.
As of the middle of March, the Mexican stock market is up 13.87% while the S&P 500 is up by 6.5%. Who would have expected that? The statistic should please President Nieto.
Baker Hughes said that the weekly oil rig count grew by 14 rigs last week to a total of 631. Drillers were operating 387 rigs in U.S. oil fields at this time a year ago.
The Energy Information Agency said that U.S. crude oil inventories rose by 5 million barrels last week, far above analysts’ estimates of a 2.8 million barrel increase. See the point just above.
The National Association of Realtors said that existing home sales for February declined by 3.7% to a seasonally adjusted rate of 5.43 million units last month. January’s pace of sales was unrevised at an annualized 5.69 million units, the highest level in a decade.
The Commerce Department says that new home sales for February rose 6.1% to a seven-month high and a seasonally adjusted rate of 592,000 units.
The Commerce Department says that orders for durable goods climbed 1.7% last month and an upwardly revised 2.3 in January. So far this year, orders are running 1.6% higher than the first two months of 2016.
Orders for commercial aircraft jumped 47.6%. Orders for primary metals rose while orders for automobiles slumped.
Hedge funds in 2016, shut down at a pace not seen since in 2008. A total of 1,057 funds were closed last year, exceeding the 1,023 liquidations logged in 2009, but shy of the record 1,471 funds shuttered during 2008. Last year, the asset-weighted hedge-fund index returned 2.86% whereas the fund-weighted index returned 5.47%. The S&P 500, with dividends, climbed 11.93% and the Barclay’s bond index gained 3.19%. With their aggressive, risk-on approach and 2 and 20 fee structure, these guys are expected to outperform the S&P 500, not underperform the bond market!
Over the course of 2015-2016, TripleMint, a residential real estate start-up based in New York, tracked the location of the visitors on its website hunting for housing. It ranked countries by a percentage of foreign searches for the year and then compared the results. Russia was the biggest mover in house hunting, jumping from #20 in 2015 to #2 in 2016. The top potential buyer for the second year running was the U.K. The biggest decline in searches came from Mexico which tumbled from #9 in 2015 to #18 in 2016. The Chinese are the largest immigrant group in New York City and in 2014 for the first time, purchased more apartments in Manhattan than the Russians.
According to CBRE, high-end office space rent in Chicago jumped by almost 20% in 2016 year over year. This marked the largest increase in the U.S. and second-strongest in the world. Chicago’s office-rent increase overshadowed Seattle, the next-biggest increase, at +11.6%. Only Belfast, Northern Ireland, heightened by “strong demand and a chronic shortage of prime space” experienced a larger increase at 25%. “Even with the big increase in 2016, Chicago remained a relative bargain compared with the world’s priciest cities. Rents in Chicago’s newest and best-located office buildings rose to $38.84 a square foot, up from an average of $32.40 for 2015. The most expensive market in the world for prime office space in 2016 was Hong Kong, with an average rent of $264.27 per square foot. The most expensive U.S. rate was Manhattan’s $144.37 per square foot”, reports Rachel Koning Beals of MarketWatch.
From 13D Research, “The Chinese government is investing billions of dollars to take the global lead in robotics and AI [artificial intelligence]. In its most recent five-year plan, the national government aimed to boost annual production of industrial robots to 100,000 by 2020 – and is poised to exceed that target.”
According to Darren Rovell, an Oklahoma State University sports fan, the university bought life insurance on 27 rich boosters, hoping to collect $10 million with each death. No one died. The idea cost the school $33 million in premiums. Brilliant, just brilliant!
Market Force Information is out with a new list restaurant rankings for 2016. The rankings were amassed from more than 11,000 people and aggregated into a composite loyalty index. That index measured satisfaction with food value, quality, service and overall restaurant experience. Here’s what they found: Favorite burger chain: In-N-Out Burger. Favorite Mexican chain: Chipotle Mexican Grill. Favorite pizza chain: Marco’s Pizza. Favorite chicken chain: Chick-fil-A. Favorite sandwich chain: Firehouse Subs.
Children’s athletic footwear sales were down last month by 22% to 334.6 million from 430.7 million a year earlier and Congress is to blame. Matt Powell, vice president of market research company the NPD Group, called it correctly. He predicted that a provision passed by Congress to slow down refunds for the earned income tax credit (EITC) would affect February sales in the sporting goods and apparel space. The provision gives the IRS more time to investigate fraud, which in turn, delays the tax refund for folks who receive it. Men’s footwear sales were also hard hit, down in the low teens.
Disney’s live-action “Beauty and the Beast” had a record-breaking opening last weekend taking in $170 million in North American sales. It is the biggest box office opener so far this year and the seventh-best of all time.
Starbucks will begin rolling out more gluten-free and vegetarian options starting next Tuesday. A breakfast sandwich consisting of an egg patty, cheddar cheese and Canadian bacon on a gluten-free roll, will be prepared in a “certified gluten-free environment” and sealed in its own bag to avoid any gluten contamination. According to research group Technavio, the gluten-free market is expected to grow at an annual rate of about 12% through 2021.
Alexa, the digital assistant behind Amazon’s Echo, will now offer two-hour delivery for Amazon Prime Now customers. Voice shopping has been available for a while, but only with limited delivery options.
In 2012, Amazon bought robot maker Kiva. In 2013 there were 1,000 robots in Amazon warehouses, in 2014 – 15,000, in 2015 – 30,000 and 2016 – 45,000 robots were working at Amazon.
Amazon will buy Dubai-based Souq.com, a popular online shopping market in the Middle East and the largest e-commerce site in the Arab world. The company sells household items, consumer electronics, fashion and other goods.
Costco has partnered up with Shipt, an online delivery service, to launch perishable grocery delivery to Costco customers in the Tampa metro area.
Apple has introduced a new iPad starting at $329 and featuring a brighter 9.7-inch Retina display. The new device will have 32 gigabits of memory and Wi-Fi. Apple also introduced the RED special edition iPhone 7 and iPhone 7 Plus. The phones will start at $749 and feature 128GB and 256GB models. Apple also unveiled its free Clips app that will allow users to create and share videos through a handful of social networks, including Apples’s Messages app.
Intel raises the quarterly dividend by 5% to $0.2725 per share for holders of record May 7.
Wells Fargo reports that there were 43% fewer checking accounts opened and 55% fewer consumer credit card applications in February compared to a year earlier as last fall’s fake account scandal continues to reverberate across the bank.
Wells Fargo announced as of last Monday, depositors can withdraw money from WF branded ATMs by using the mobile banking app on their smart phones.
Uber Technologies reports that Jeff Jones, president of ride-sharing, marketing and global customer support has resigned. His departure follows a string of executives who have left the company as controversies continue to plague the ride-sharing giant.
General Electric plans to invest $500 million over the next three years digitizing operations in its health technology unit.
Boeing has received orders for 13 new Boeing 737 Max 8s aircraft from Singapore’s BOC aviation, worth $1.4 billion.
Starbucks announced on Wednesday that they plan to hire 240,000 new workers globally by 2021. The company is planning to add 68,000 jobs in the U.S alone and open 3,400 stores within the next four years.
Dunkin’ Donuts is discontinuing its popular Coffee Coolatta and will be replaced with their revamped Frozen Coffee. Customers aren’t happy about the change and have taken to social media to vent their frustration.
According to Bloomberg, Albertson’s which is owned by Cerberus Capital Management, is in “preliminary talks” to possibly take the organic grocery chain, Sprouts, private and add it to their portfolio, which also includes Safeway.
Campbell Soup approves a new $1.5 billion share repurchase program as the old 2011 program comes to an end.
Sears Holdings said Tuesday that it has substantial doubt that it would be able to “continue as a going concern” if its turnaround plan failed. In February, the company announced a $1 billion restructuring effort which included staff cuts, store closings and asset sales (Kenmore, DieHard and Home Services).
More companies are pulling their ads from YouTube (owned by Google), including Johnson & Johnson, JP Morgan and Lyft due to concerns that their commercials have been placed on channels that feature offensive content.
FedEx reports fiscal 3rd quarter earnings of $2.35 per share on revenue of $15 billion, an increase of 18.6% year over year.
Nike reports fiscal 3rd quarter earnings of $0.68 per share on revenue of $8.43 billion, an increase of 5.0% year over year.
Next week: Earnings from: Hain Celestial, Sonic, Darden Restaurants, McCormick & Co., Lululemon and Carnival Cruise Line. Economic reports: Consumer Sentiment for March and Case-Shiller Home Price Index/Composite 20.
WTI Crude oil: $47. 87 per barrel. 10-year Treasury note: 2.42%. 30-year mortgage: 4.17%.
Sources: Real Money Pro, CNBC, MarketWatch, Seeking Alpha, 361 Capital and Reuters.
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.