[Market Madness] Edition 0047
A Celebration of Sorts
101 Readers
Well folks, a very sweet victory today for me. I have surpassed 100 daily readers. Thank you to everyone supporting Market Madness and sharing with family and friends. In such a complex world, a daily financial newsletter aiming to make the financial world more commonplace is a must have. Of course, this is not the end of the road, but a mile-marker. I have a long way to go and many improvements to make, going off of the suggestions from you, the reader, to make each edition better than the previous one.
I’ve received a lot of positive feedback regarding the new form of delivery. I like it too, but I miss the type-writer, old-school WSJ feel of the hard-copies. I will be continuing to publish the hard-copies onto a google site where the whole archive will be stored.
Let’s get into the news, shall we?
The U.S. indices opened green, seeking to extend yesterday’s rally. This rush did not last too long, as S&P and Nasdaq moved into the negative and the DJIA giving up early session gains. Indices all turned green a little bit after 2:00 PM EST, and by the end of the day, we closed in the green across the board.
Not sold on the new look yet? Follow this link to read today’s edition in PDF hard-copy, as well as the entire MM archive.
Fundamentals
Wednesday Close:
· Dow Jones Industrial Avg: +2.21%
· S&P 500: +1.48%
· NASDAQ: +0.77%
· US 10 YR: 0.684% | 99 5/32
· Crude OIL: $32.90
· COVID 19 Global Cases: 5,748,604
International Edge:
· FTSE 100: +0.98%
· Nikkei: +0.70%
Economist Intelligence Unit’s (EIU) warnings
The EIU, the research and analysis division of The Economist and world leader in business intelligence, is reporting that global Gross Domestic Product (GDP) will not return to pre-COVID 19 levels until 2022. They are also seeing and further predicting a rise in government debt levels, and “concluded that higher public spending, and therefore higher public debt levels, were preferable to the “widespread destruction of productive capacity” caused by the pandemic.” (excerpted from article).
This is in line with what we talked about yesterday in the Eurozone and the U.S. as governments attempt to tackle economic stability in such uncertain times. The typical response to increased spending for one thing is to reduce spending for another. However, the EIU notes that with such a widespread pandemic case as COVID 19, there is virtually no wiggle room from which spending cuts could be made.
Government spending cuts after 2008 (to make up for the deficits from that recovery) had made meaningful shrinkage to public sector balance sheets, giving little room for governments to cut further here in 2020. As a result, the deficits will continue to soar with little control to mitigate their growth.
We don’t have to worry about this now, especially because our plates are pretty full already, but it is very likely we will see different forms of tax increases to combat against the runaway deficit. Since taxes are the main way for the government to generate income, it is likely we will see some increases here to help bring things back into check. That being said, we won’t be taxed to death, but our wallets will notice a difference. That is still a ways away, so let’s tuck that back under the rug until we address the more pressing issues.
Read more here: https://www.cnbc.com/2020/05/27/eiu-no-recovery-until-2022-and-a-possible-euro-zone-debt-crisis.html and here: https://www.eiu.com/n/about/
Amazon looks to acquire
Amazon appears to be entering itself in the race to driverless cars with a new notice to acquire Zoox, a driverless car start-up. Zoox is carving their own path in the driverless car market, aiming to tackle the industry’s triple challenge,
“creating a driverless system, building a ride-hailing network and manufacturing a bespoke autonomous vehicle at scale.” (excerpted from article).
Zoox, like many employers, was blindsided by COVID 19 and sought to reduce its employee roster by 100, 10% of its workforce. At this, buyers flocked with interest. The firm has developed several test models, including a modified Toyota Highlander Sport and an internally developed vehicle without a steering mechanism.
A 2018 valuation priced Zoox at a little over $3 billion, but is subject to some overvalued speculation. Reports earlier this month leaked suggestions that the company was looking to sell. A mobility tech analyst for PitchBook felt that the purchase by Amazon would fit nicely into “build[ing] its logistics capability.” (excerpted from article).
As we discussed in previous editions, the IPO and Merger/Acquisition markets appear to be heating up as the economy tries to get some more steam behind it. For companies that have not faced challenges due to COVID 19 in their main business operations, now is a good time to capitalize on distressed and undervalued firms for acquisitions or mergers in order to hone on in a market niche or competitive advantage.
Read more here: https://www.ft.com/content/ae0994fc-9b7a-4b27-a913-80460c08e7cb
GE cuts ties with the consumer
General Electric Co. is cutting its last direct tie to consumers as it sells its light bulb business to Savant Systems Inc. In its several year-long restructuring plan, the company has slowly cut ties with other consumer-based markets like microwaves and refrigerators.
The feeling to cutting the light bulb brand must be bittersweet. The first MLB game played under lights was played under GE lights in 1935, and it was a GE engineer who invested the LED bulb in 1962. There is a lot of U.S. history there.
The GE lighting team of 700 employees will stay in their Cleveland location, but will convert to Savant. Under the deal, Savant has acquired a long-term license for the GE brand. The move comes as GE looks to reorganize and reemerge after taking major losses in its now larger power and financial-services divisions.
Another division that has been hurting during the COVID 19 shutdowns was GE Aviation, which shed a large amount of its divisional employees in the wake of severely decreased demand. Firm reorganization, at any point in time, is a risk for the firm. The firm risks putting itself in a more difficult position, or the reorganization does not provide the benefits and synergies that were expected by moving into a different industry or product/service line. GE has been working on their reorganization for several years now, and with more years to come. I think we are too close into the period of reorganization to realize firm victory or failure, and given how large the changes taking place are, we won’t know for a little while if these moves will be a success.
Read more here: https://www.wsj.com/articles/ge-sells-lightbulb-business-for-about-250-million-11590585598?mod=lead_feature_below_a_pos1
Quick takes
· The EU is planning $824 billion borrowing as part of $2 trillion plan to fund its virus recovery. (via FT, CNBC, and WSJ)
· Credit card fraud skyrockets during COVID 19 lockdown. (via WSJ)
· Boeing to begin layoffs, starting with some 6,000 workers. (via WSJ)
· Tuesday Morning, the discount retail store, files for bankruptcy and closes 230 stores. (via CNBC)
· JPMorgan chief Jamie Dimon says U.S. banks will hold off on stock buybacks until clear signs of recovery. (via FT)
· Macy’s posts stores as collateral in its new $1.1 billion bond deal. (via FT)
· Video conferencing app, Zoom, once propped up by the work-at-home conditions is facing selloff as workers return to the office. (via CNBC)
· SpaceX Demo-2 launch today is set for 4:33 PM EST. NASA chief says SpaceX rocket is ‘probably the safest vehicle’ to carry astronauts ever. (via NYT and CNBC)
Reader’s Corner
The reader is working hard to provide you with the easiest reading experience possible. As a result, I’ve switched over to in-email publishing through Substack as well as continuing the hard copy newsletter PDF documents you all have come to love. Although I cannot attach them to the new email style, this link (https://sites.google.com/view/marketmadness/home) will be provided in each new edition publication email so that you can read that day’s hard copy PDF version as well as the whole Market Madness archive right in one place!
Behind the Madness
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