Financial Review

Auto Pilot

…More tariff idiocy. Factory orders fall. Uber driving trucks with no drivers in Arizona. Blackberry has patents. CVS junky. Off Target. Fresh Royale with Cheese. Washington state challenges net neutrality.


Financial Review by Sinclair Noe for 03-06-2018


DOW + 9 = 24,884
SPX + 7 = 2728
NAS + 41 = 7372
RUT + 16 = 1562
10 Y un = 2.88%
OIL – .11 = 62.46
GOLD + 14.40 = 1335.20


February was bad. TrimTabs reports funds that focus on domestic equities saw investors withdraw $41 billion during the month. Global funds went in the other direction, attracting $17 billion even though stock markets abroad fared even worse than in the U.S.


Republican lawmakers stepped up calls today to pull back from proposed tariffs on steel and aluminum imports as Senate Majority Leader Mitch McConnell added to criticism of the measures, saying they risked igniting a trade war and damaging the U.S. economy. Earlier today, House Speaker Paul Ryan criticized the proposed 25 percent duty on steel and 10 percent on aluminum as too broad. Although the measure is designed to hit China, its main impact will be on U.S. allies like Canada. Washington said on Monday that if Canada and Mexico agreed to its demands in the NAFTA talks, they could be exempted from the proposed steel and aluminum tariffs. The trilateral talks have gone on for six months with few signs of progress. Mexican Economy Minister Ildefonso Guajardo raised the prospect of reprisals if Washington pushed ahead with tariffs and insisted the North American Free Trade Agreement remain “a trilateral accord” in response to a U.S. proposal to hold talks with Canada and Mexico separately. Canada has also said it would take counter-measures, as has the European Union. European officials might define Trump’s tariff action as a “safeguard measure” — in trade jargon that’s a temporary step intended to protect a domestic industry — allowing the EU to issue counter-tariffs more quickly than a traditional WTO lawsuit. Trade experts are split on whether the plan is legal.


The Federal Reserve FOMC will meet in about 2 weeks to set monetary policy. Today, Dallas Fed President Robert Kaplan said he expects the Fed will raise rates 3 times this year, and  “we should get started sooner rather than later”, and then see how it plays out. The Dallas Fed president, who is not a voter this year on the central bank’s interest-rate committee, said he was worried the unemployment rate is going to get a 3-handle this year, well below levels of full employment. Full employment is the estimated level the economy can’t fall below without creating inflationary pressures. The Fed thinks full employment is 4.6% unemployment rate. The January rate stands at 4.1%. This Friday, we get the February Jobs Report from the Labor Department.


Factory goods orders fell 1.4 percent in January, breaking a 5-month string of increasing orders. For the past 12 months orders jumped 8.4%. In January, orders for transportation equipment dropped 10.0 percent. Business spending on equipment is cooling; orders for machinery dropped 0.4 percent. Orders for mining, oil field and gas field machinery tumbled 8.9 percent after increasing 5.0 percent in the prior month. Orders for motor vehicles fell 0.5 percent. There were also declines in orders for primary metals and electrical equipment, appliances and components. But orders for computers and electronic products orders rose 0.5 percent.


Uber has been sending self-driving trucks on delivery runs across Arizona since November, the first step in what promises to be a freight transportation revolution that could radically reshape the jobs of long-haul truckers. After testing its technology earlier in 2017, Uber began contracting with trucking companies to use its own autonomous Volvo big rigs to take over loads as they travel the state. In Uber‘s current program, human truckers meet the self-driving truck at the Arizona border, which then takes their load across the state and hands it off to another human trucker. An Uber employee rides in the driver seat during the autonomous trip.


If one day both the technology and regulations play out in favor of self-driving trucks, two scenarios emerge. The first would find self-driving trucks handling long-haul highway legs with no one at the wheel as they meet up with human truckers who then handle deliveries into city centers. The other possibility is Uber selling its technology to trucking owner-operators who then leverage it to sleep while the truck handles the bulk of long-distance driving.


Uber Freight, which launched last May, is an app that matches shippers with loads using technology drawn from Uber’s ride-hailing app. Typically such trucking logistics have been coordinated through phone calls and emails. Despite the push, the technology behind self-driving trucks remains in its infancy, with hurdles that include government regulations and trucker buy-in. Given that truckers only make money only when their rigs are on the road, the business model gives them incentive to drive as long as possible. A truck that makes the long hauls between exits, allowing a driver to sleep in the cab, could increase their profit. But they’d have to trust the technology, as well as fork over what promises to be a considerable investment to make their cabs autonomous. Uber isn’t alone in its pursuit of self-driving truck technology, with startups such as Embark joining companies such as Tesla and its new Tesla Semi to carve out a slice of a $700 billion industry that moves 70% of all domestic freight, according to the American Trucking Association.


Uber’s current Arizona pilot program does not feature trucks making end-to-end runs from pick-up to delivery because it’s tough to make huge trucks navigate urban traffic on their own. Instead, Uber’s Volvo trucks are given loads at border weigh stations. These trucks are equipped with hardware, software and an array of sensors developed by Uber’s Advanced Technologies Group that help the truck make what amounts to a glorified cruise-control run across the state. Once the Uber trucks exit at the next highway hub near the Arizona border, they are met by a different set of truckers who hitch the trailer to own their cab to finish the delivery. The idea is that truckers get to go home to their families instead of being on the road. In a video Uber created to tout the program, the company showcases a California trucker who, once at the Arizona border, hands his trailer over to an Uber self-driving truck for its trip east, while picking up a different load that needs to head back to California.


Autonomous vehicles are being pursued by dozens of companies ranging from large automakers to technology startups. Slowly, states are adapting their rules to try and be on the front lines of a potential transportation shift. Michigan, California and Arizona, for example, have been constantly updating their autonomous car testing laws in order to court companies working on such tech. California recently joined Arizona in announcing that it would allow self-driving cars to be tested without a driver at the wheel.


BlackBerry has filed a patent infringement lawsuit against Facebook and its WhatsApp and Instagram apps, arguing that they copied technology and features from BlackBerry Messenger. BlackBerry sued Nokia last year, alleging infringement of patents relating to 3G and 4G wireless communications technology. That case is still pending in federal court in Delaware. Last year Qualcomm agreed to pay BlackBerry $940 million to resolve arbitration over royalty payments. In October, BlackBerry announced a confidential settlement with Blu Products, a Florida-based maker of low-cost mobile devices it had also sued for patent infringement. Maybe you’re noticing a trend.


CVS Health’s outstanding bonds fell, as the company geared up for an offering of $40 billion in new debt to be used to finance the company’s proposed acquisition of Aetna. Last December the drugstore chain agreed to buy Aetna for $69 billion. Moody’s Investors Service assigned a Baa1 rating to the deal and said it remains on review for downgrade, given how much debt it will add to CVS’s balance sheet. A downgrade would push the rating closer to “junk” status.


Target shares slipped 4.5% after the big-box retailer reported lower-than-expected profit for the holiday quarter, even as revenue and same store sales topped street expectations. The company says wage hikes offset gains and they plan to continue reinvesting up to $7 billion through 2020.


Close to 3,500 McDonald’s in the US are now serving burgers made with fresh beef instead of frozen patties. By the end of May, all 14,000 McDonald’s franchises across the country will cook both Quarter Pounders, also known as a Royale with Cheese, and their line of Signature Crafted burgers from raw patties. It’s a major supply chain change and a big deal in the kitchen as well; the new burger program requires special handling and grilling and has taken four years to implement.


Forbes published its list of the world’s billionaires in 2018. The 2,208 men and women are from 72 countries and territories, and, together, they’re worth $9.1 trillion. The top 20 alone are worth $1.2 trillion. Jeff Bezos, the CEO of Amazon, tops the list as the first person with over $100 billion in assets, followed by Bill Gates ($90 billion) and Warren Buffett ($84 billion).


Washington has become the first state to pass a law that protects net neutrality, preventing internet service providers (ISPs) from slowing down or blocking online content. The Federal Communications Commission approved a measure to remove net neutrality rules in a 3-2 vote back in December. The FCC prohibited state laws from contradicting the decision, so it’s very likely ISPs will sue Washington state over this new law to find out if the FCC does have the power to preempt the move.

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