Could this be the end of the road for the long upward trend in rising profit margins? Rising wages are cutting into profits at major corporations, and it could be the end of an era in which it has seemed as though profit margins would rise forever. Danielle Chemtob reports at The Wall Street Journal: Rising wages are beginning to eat into the profits of some U.S. companies. Firms from dollar stores to hotel operators to fast-food chains have warned in recent months that higher labor costs have been a drag on their profits—a potential headwind for the nine-year stock-market rally as it … [Read more...]
Will Switzerland be “Crypto-Nation?”
Long known for its commitment to banking privacy, Switzerland makes sense as a place where anonymous crypto-currencies would thrive. Ralph Atkins and Philip Stafford report in the FT on plans in Switzerland for a new market infrastructure which will enhance traders' ability to swap crypto-currencies. They write: Switzerland’s stock exchange is seeking a global lead in the trading of digital assets, announcing plans for new market infrastructure which will boost the country’s credentials as a “crypto nation”. The platform being built by the Six exchange is designed to be used for … [Read more...]
Here’s How Tax Reform is Lowering Rates, and When it Could Stop
Despite a rising Fed funds rate and increasing inflation fears, rates on long term Treasuries have been coming down. Ben Eisen and Daniel Kruger report in The Wall Street Journal that some of the reason rates are falling is regulation-induced buying. Big companies are buying now to achieve a tax benefit coming as a result of the 2017 tax reform. They are funding pension plans now to receive the tax benefit they would have achieved under the 35% corporate tax regime, but will still only pay the 21% reformed rate. Eisen and Kruger write: S&P 500 companies are contributing … [Read more...]
Is Booming IPO Market a Sign of Market Froth?
The WSJ reports that the IPO market is booming. There have been 120 companies that have raised $35.2 billion in the first six months of 2018. That’s the fourth-busiest six-month period on record. And that’s not even counting initial coin offerings (ICOs) which are booming as well even as bitcoin prices plummet. Rising IPO volume isn’t necessarily a predictor of a market top, but it should be viewed as a signal of caution. “Our global IPO pipeline is stronger now than it’s been since the financial crisis,” said Evan Damast, global head of equity and fixed income syndicate at Morgan … [Read more...]
Winning: Trade Edition
There is increasing concern about the Trump administration's trade policies. The Google trends chart for the search term trade war has more than doubled in recent weeks (though Kim Kardashian is still about 7X more popular). President Trump says trade wars are easy to win. Maybe he has a point. U.S. stocks have held up much better than Chinese shares in recent months. In all seriousness, investors should keep a close eye on future trade developments. Don’t forget though, view Trump's actions through the lens of somebody who believes what he is doing is part of an ongoing … [Read more...]
Amazon Makes Move in Pharmacy
Amazon announced yesterday that it is buying Pillpack. Pillpack is an innovative little company that pre-packages medicines for consumers who take multiple drugs regularly. The big pharmacy stocks predictably sold-off on the news that big-bad Amazon is entering their business, but there is much less to be concerned about than meets the eye. Selling prescription drugs is much different than selling Amazon Kindles. A quick review of the Pillpack website shows that. It takes 10-15 minutes to even signup. There is insurance that needs to be dealt with, regulation, pharmacy benefits managers, … [Read more...]
Amazon Outsources Last-Mile Delivery
Amazon is encouraging individuals to launch delivery businesses that will lease van fleets from Amazon to give the company additional options for last-mile delivery. Last-mile delivery has been a tough nut to crack for Amazon. Outsourcing delivery to startups seems like an odd way to save money. That is, until you recognize the real game that Amazon is playing. The U.S. postal service is used for much of Amazon’s last-mile delivery. With President Trump calling for higher shipping prices for Amazon, the e-commerce giant is in a weak negotiating position. Creating a network of delivery … [Read more...]
The Dismantling of GE
Sad! Once America’s most venerable industrial company, GE has announced plans to shrink itself to a fraction of its former self. GE is going to spin off its health-care business and exit the oil services business that former CEO Jeff Immelt entered near the top of the market. The new GE will be focused on power, aviation, and renewable energy. A leaner and more focused company will result. The breakup of GE could have been done years ago from a position of strength, but former leadership dithered, and doubled down on a conglomerate strategy that is now unraveling. GE is now splitting up … [Read more...]
SEC to Discuss Long-Awaited ETF Rule Fix
For years companies have been asking for the SEC to fix broken ETF rules, and now the commission may finally be approaching a solution. Rachel Evans reports at Bloomberg: On June 28, the SEC will discuss whether to propose regulations that would allow asset managers to sell certain types of exchange-traded funds without first gaining its approval, according to the commission’s agenda. Under current rules, wannabe ETF issuers must get SEC permission -- a process known as exemptive relief -- before selling funds under the Investment Company Act of 1940. It’s wonky stuff, but the … [Read more...]
Are the Pieces Finally in Place for a Bear Market?
The FT reports here that bearish investors may have finally capitulated. Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. John Templeton said that. A lack of bears is a necessary precondition for a bull market, but it should not be viewed as a catalyst for a bear. Media commentary, which invariably reflects the opinions of influential market participants, appears to be becoming steadily less bearish the further we move away from the last crisis. My colleagues on FT Alphaville have pointed out that the number of articles mentioning the term … [Read more...]
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