Financial Review

Laser Focus

….Dow record close. Milking USMCA. NY Times says Trump committed tax fraud when inheriting his father’s wealth. Pepsi grows snacks, won’t go for weed. Amazon goes for $15 per hour. A Nobel for Donna Strickland for lasers – look it up.

Financial Review by Sinclair Noe for 10-02-2018


DOW + 122 = 26,773
SPX – 1 = 2923
NAS – 37 = 7999
RUT – 16 = 1656
10 Y – .02 = 3.06%
OIL – .24 = 75.06
GOLD + 14.20 = 1203.80


A record high close for the Dow. This was the 14th record high close for the Dow in 2018. Facebook, Netflix and Amazon, part of the FANG group of stocks, left the Nasdaq in negative territory and served as a drag on the S&P 500. Dividend-paying sectors were the best performers of the major S&P sectors, with utilities up 1.3 percent and consumer staples up 0.6 percent. So far this year, the S&P 500 is up 10.6% on a total return basis this year versus a 2.7% decline for the rest of the world.


Intel shares led Dow components higher with a 3.6% gain to close at $48.10. For the year, Intel shares are up 4.2%, compared with an 8.3% gain in the Dow, a 9.4% advance in the SOX indexand a 15.9% gain in the Nasdaq. The Dow was also boosted by names such as Boeing and Caterpillar as investors remained upbeat on trade-sensitive companies following the deal negotiated between the United States, Canada and Mexico. It may be premature to pop the champagne on USMCA. Sen. John Cornyn, the second-highest-ranking Senate Republican, suggested to reporters today that the revised version of the North American Free Trade Agreement, agreed to Sunday night, might not have the votes to make it through Congress. A congressional vote on the new deal would definitely not happen until after the November midterm elections and would most likely slip into 2019.


White House officials are betting that concluding a trade deal with Mexico and Canada will give them more ammunition in their high-stakes battle with China. Trade is still seen as a factor that can weigh on the global economy. International Monetary Fund chief Christine Lagarde delivered a warning on global growth that placed much of the blame on trade worries. In her comments, Lagarde said there were signs major economies such as the U.S. had ”plateaued.”


Trump declared victory for U.S. dairy farmers as part of the USMCA deal, but it might be a small victory. Bank of America Merrill Lynch told its clients some of the concessions in the new deal were “mainly symbolic,” including the one Canada made for U.S. dairy farmers.


Bank of America Merrill Lynch global economist Ethan Harris said in a note to clients Tuesday. “The deal includes a small reduction in protectionism for Canada’s dairy farmers. Under the new USMCA, American dairy producers will have access to 3.59% of Canada’s dairy market — slightly higher than the 3.25% they would have gotten had the US signed the Trans Pacific Partnership [TPP].” Harris estimates the change will increase U.S. dairy exports to Canada by $70 million, or barely a blip on GDP, compared to what they would have been under the TPP, from which the U.S. withdrew last year.


New York state tax officials are investigating allegations detailed in an exhaustive New York Times investigation into Donald Trump and his family’s business dealings. The Times reported that Trump and his family committed “instances of outright fraud” in order to transfer millions of dollars from the real estate empire of the president’s father, Fred Trump, to his children without paying the appropriate taxes. Trump lawyer Charles Harder denied any allegations of fraud and tax evasion. Trump said numerous times as a presidential candidate that he had received the “very small” $1 million loan from his father. But the newspaper’s investigation found that Trump received at least $413 million from his father’s real estate empire.


Tempur Sealy International shares jumped more than 8 percent in after-hours trading following reports that competitor Mattress Firm is preparing to file for bankruptcy.


PepsiCo reported earnings this morning that topped analyst expectations and signaled a return to growth in its North American beverage division, which had previously lagged behind its packaged snack business. PepsiCo’s North American beverage segment reported organic growth of 2.5%, after falling 1.5% the quarter prior. Revenue and earnings topped forecasts but the stock was down 1.8%, Indra Nooyi’s last day as CEO of the company.


Cannabis stocks fell across the board today after PepsiCo told investors it has no plans to invest in marijuana. Tilray, one of the most volatile of the weed equities, lost about one-fifth of its value at one point. The shares closed lower by 16 percent. Peers Canopy Growth dropped 7.4 percent while HEXO shed 9.4 percent in Toronto. Tilray is a medical cannabis producer. Shares of Aurora Cannabis, which had reportedly at one time been in talks with Coca-Cola for weed-infused beverages, fell 5 percent on the Toronto stock exchange.


Amazon is increasing its minimum wage to $15 for all of its full-time, part-time, temporary and seasonal employees in the US, effective Nov. 1. The new policy will impact more than 250,000 Amazon employees and another 100,000 seasonal employees hired to work during the holiday season. Amazon will also lobby the federal government to raise the federal minimum wage, which has been stuck at $7.25 for more than a decade. Amazon will also deploy its public policy team to advocate for an increase in the federal minimum wage, which is currently set at $7.25 an hour. Amazon is dealing with serious complaints from employees, who describe lousy work conditions and low pay at Amazon’s warehouses in the United States and across the world. In July, Amazon workers in Europe went on strike to protest.  Many Amazon warehouse employees are paid so little that US taxpayers end up bearing the cost of their welfare benefits, such as food stamps and Medicaid.


So, the pay raise is great news for blue-collar workers at Amazon, but it’s also a necessary business decision. Retailers are competing fiercely to hire seasonal employees for the holiday season during a period of record-low unemployment. And Amazon warehouses and hubs across the country are fighting for the same workers that Target and Walmart are. The change may also be an attempt to discourage interest in unionizing. Employees at Whole Foods, which Amazon bought last year, are trying to unionize, fearing that the company will scale back their benefits under Amazon’s ownership. The new wage hike also covers Whole Foods employees, and Amazon CEO Jeff Bezos is likely worried that the unrest will inspire other Amazon workers to follow suit and is trying to prevent that from happening. Just for comparison, last year Jeff Bezos averaged $4,474,885 per hour, which works out to the same hourly wage as 298,325 Amazon workers.


SurveyMonkey surged 42 percent in its stock market debut Wednesday, ending trading at $17. Shares rose as much as 67 percent to a session high of $20 before settling to more modest gains. The software company that offers digital survey and data analytics services for enterprise and personal use priced its shares at $12 a piece Tuesday night, above the expected range of $9 to $11. It also increased the number of shares up for sale to 15 million from 13.5 million, raising $180 million.


Eighty-three percent of U.S. IPOs this year have involved unprofitable issuers, which represents an all-time high, according to data from University of Florida finance professor Jay Ritter. The previous record was in 2000 (81%), just before the dot-com crash. There are some differences between 2000 and now. One is that the actual percentage of unprofitable tech issuers is a bit lower in 2018 than in 2000, with the difference largely made up by a surge in biotech listings. Another is that the average VC-backed company is much older at IPO in 2018 than it was in 2000, suggesting more maturity and a greater likelihood of working its way out of troubles.


Earlier today, there were 2 Category 5 hurricanes spinning at the same time in the Northwest Pacific and the Northeast Pacific; both storms have since been downgraded to Category 4. Super Typhoon Kong-rey is headed for Okinawa and could become yet another in a parade of typhoons to hit Japan this season. Meanwhile, Hurricane Walaka appears set to score a direct hit on tiny Johnston Island, a former weapons testing site turned National Wildlife Refuge located about 940 miles west of Hawaii. So far this year, there have been eight Category 5 storms around the globe, which is above the annual average of about five.


You probably don’t think about lasers all that much. But they’ve revolutionized our lives. They are used in everything from reading barcodes to directing intercontinental missiles. So great is their impact that there have already been four Nobel Prizes in physics. This year’s Nobel Prize in physics recognizes two more significant pieces of work on lasers. Arthur Ashkin, a former employee of Bell Labs in the US, got the prize for developing “optical tweezers and their application to biological systems.” Gérard Mourou of École Polytechnique in France and Donna Strickland of the University of Waterloo in Canada have been awarded “for their method of generating high-intensity, ultra-short optical pulses.” Their work created a way to hold an atom with lasers, and also to use lasers look inside atoms. When Donna Strickland’s name was announced, a search for Strickland’s name on Wikipedia would have turned up nothing. As recently as May, Wikipedia editors weren’t convinced that Strickland’s work was significantly covered enough to merit an article on the site.  Strickland is now currently the only living female Nobel laureate in physics, joining Marie Curie and the theoretical physicist Maria Goeppert-Mayer as the only women of the award’s 209 recipients.

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