…Another crash day. Oil down 11 straight. Goldman’s 1MDB problem. Apple sales slowdown. GE under $8. Singles Day. Merger Monday. VW will go electric and it will be cheaper than Tesla. Bad Paris vacation. Reservists on the border. Still counting votes.
Financial Review by Sinclair Noe for 11-12-2018
DOW – 602= 25,387
SPX – 54 = 2726
NAS – 206 = 7200
RUT – 30 = 1518
10 Y 3.19%
OIL – 1.17 = 59.02
GOLD – 9.50 = 1200.90
The Dow Industrials closed near the lows of the session. It was just ugly, all around. Apple sank 5% after the facial-recognition supplier Lumentum cut its outlook, prompting worries of slowing demand for the iPhone. Facebook, Amazon, Alphabet, and Netflix are all in correction territory, defined as a drop of at least 10% from a recent peak, and Netflix and Facebook shares have shed around a third of their values since hitting 52-week peaks.
Goldman and Apple’s shares were down by at least 5%. A $1 move in any one of the Dow’s 30 components equates to an almost 7-point swing in the Dow. Goldman Sachs hit a 2-year low, down over 6%. U.S. prosecutors allege that Goldman bankers were involved in a bribery and kickback scheme led by a Malaysian financier to land Goldman $6 billion in deals to underwrite bonds for the fund, known as 1Malaysia Development Berhad, or 1MDB. 1 MDB was a sovereign wealth fund that devolved into corruption, money laundering, bribes, and kickbacks. The former prime minister of Malaysia, Najib Razak, was arrested for corruption. CNBC reported that in 2009, then-Goldman CEO Lloyd Blankfein attended an introductory meeting with Razak. Goldman reaped $600 million in fees from the bond-underwriting work for 1MDB. The government of Malaysia now says it is looking for a “full refund” of the fees it paid to Goldman for the bond deals
An analyst with JPMorgan lowered his price target for GE from $10 to $6, which caused shares to drop by over 6%. GE shares closed at $7.99, the lowest level since March 2009. General Electric’s Chairman and CEO Larry Culp said he feels the “urgency” to reduce the company’s leverage and will do so through asset sales. Culp emphasized he will not rush the process of deleveraging even as he feels the pressure to move quickly and decisively.
Oil prices moved lower for an 11th consecutive session – topping a 10-day string of losses in 1984. During that time, oil prices have dropped more than 20%.
November 11 is known as Veterans’ Day but in China the date is better known as Singles Day – an invented holiday, created by online retailer Alibaba to try to sell more goods. The 24-hour online shopping spree includes entertainment, including: multiple bands, acrobats, actors, and this years headliner – Mariah Carey. And it works. The event is akin to Black Friday and Cyber Monday in the U.S., but it is 2.5 times bigger than both of those dates put together. Alibaba discounts a range of products across its online sales platforms. The sale covers obvious goods like smartphones, TVs and other big-ticket consumer items, but also fashion, clothing, furniture, health products and more. The less expected items that sell well include cleaning products, toilet paper and daily perishables. There’s also a strong demand for cars, among other things. This weekend, Alibaba rang up almost $31 billion in sales over 24 hours. Alibaba recorded $4.6 billion in sales in the first 10 minutes. All the while, a dominant 90 percent of sales came from mobile devices.
Enterprise software giant SAP announced today that it has agreed to acquire Qualtrics for $8 billion in cash, just before the survey and research software company was set to go public. The deal is expected to be completed in the first half of 2019.
Vista Equity Partners got into the act too, announcing a deal to buy Apptio for $1.94 billion, representing a 53 percent premium for stockholders. Vista paid $38 per share for Apptio, a Seattle company that helps companies manage and understand their cloud spending inside a hybrid IT environment.
Meanwhile, the private-equity firm Veritas Capital and the hedge fund Elliott Management reached an all-cash deal to purchase the US healthcare software maker Athenahealth for about $5.7 billion, a 12% premium to where shares closed Friday.
Kellogg says it is looking to sell off its cookies and fruit snacks businesses to focus more on its core products. The cookie brands include Keebler, Famous Amos, Mother’s and Murray brands, while the fruit snacks brands include the Stretch Island brand. Still no word on potential suitors.
Following the embarrassing Dieselgate scandal in which Volkswagen cheated emissions tests, the European Union and the U.S. and German governments have put a lot of pressure on the automaker to right its wrong. Already cities are banning diesel engines, putting manufacturing jobs at risk. Volkswagen has put significant effort in the EV space. VW hopes to launch its line of electric vehicles in 2020, and it will include a sedan with an estimated price around $23,000 – that’s $12,000 less than Tesla’s Model 3.
More than 5,600 active duty troops are now in place along the border in Texas, Arizona, and California, and that number is expected to grow to more than 7,000, according to US Northern Command, which is responsible for US military activity in the continental US. The reservists were called up in response to a migrant caravan walking through Mexico and still a couple of weeks away from the US border. The first sighting of active duty troops in Nogales came on Nov. 6, Election Day. The reservists installed concertina razor wire along a fence in downtown Nogales, even though the community has fought previous attempts to install it. Many on the Arizona side worry razor wire sends the wrong message to Mexican shoppers, who help fuel the local economy by buying shoes, clothes, and electronics to bring home. The role for both active duty troops and National Guard on the border is pretty limited. They can’t detain or arrest migrants. The military says the troops will support Customs and Border Protection and other parts of the Department of Homeland Security with planning, transportation, engineering, medical support, and logistics.
Trump traveled to Paris on Friday to commemorate the 100th anniversary of the armistice that ended World War I. By Sunday, he had departed, just in time to miss the inaugural Paris Peace Forum, a three-day event promoting international cooperation and multilateralism. Trump attacked French President Emmanuel Macron on Twitter ahead of their meeting. And Macron used his WWI Armistice Day commemoration speech to denounce nationalism, with Trump looking on. Trump skipped a visit to a World War I battlefield because of bad weather (there was some rain), sending other officials in his place. During Macron’s address on Sunday, the official anniversary of the armistice that ended WWI, he sharply and forcibly denounced nationalism, calling it a “betrayal of patriotism.” He also warned that “giving in to the fascination for withdrawal, isolationism, violence, and domination would be a grave error.” Macron didn’t mention Trump by name, but it was a clear reprimand of the Trump’s preferred foreign policy approach.
Almost a week after Election Day, four major statewide races in three states are still too close to call — and some are undergoing a recount. In Arizona, votes are still being counted in a Senate race that’s looking increasingly favorable to Democrats. The latest numbers show Sinema leading McSally by more than 33,000 votes, a margin that might be to large to overcome. In Georgia’s governor race, Democrat Stacey Abrams is holding out hope for a recount or even a runoff; In Georgia, Kemp was in charge of administering the election while also running in it. In Florida, two recounts are underway for the governor and Senate races, both of which Republicans narrowly lead. By Saturday, November 10, when counties were required to report their preliminary tallies, the races between Gillum and DeSantis for governor and Nelson and Scott for Senate were too close to call — margins that had shrunk over the week as ballots in the most populous southeastern regions of the state were counted. Governor Scott, who is a candidate for the senate, filed a lawsuit.
Meanwhile, in Florida, Scott is claiming — baselessly — that Democratic voter fraud is to blame for the razor-thin margins. Trump has been tweeting on the still-unfinished races. He wants to call a winner in the Florida races, even though they haven’t finished counting the votes. And he tweeted that in Arizona, the signatures don’t match – although nobody seems to know exactly what proof might back that claim. Trump is yelling “FRAUD” despite a decided lack of evidence to that end. What appears to be happening — in both Florida and Arizona — is that the election law is being followed.
In Arizona, more than 250,000 ballots remained outstanding. The state’s recount threshold is a 0.1 percentage point difference between the candidates (with some exceptions), meaning that any potential recount will only be automatically triggered if the race ends up being very, very close. Right now, Sinema leads by 1.5%.