Life

Mark Zuckerberg Is Basically God, Plus There’s A $1.7 Trillion Issue With American Retirement Accounts

#Morning Brew
by Last Updated

“One of the most catastrophic periods of hedge fund performance that we can remember” — Dan Loeb, CEO of hedge fund Third Point Capital. Third Point had a disastrous start to the year, declining 2.3% in the first quarter. Although hedge funds have since rallied in March, 2016 has been nothing short of a disaster thus far.

MARKET SNAPSHOT
Big Picture

  • U.S. stocks finished mixed once again, with the S&P and Dow remaining just 2% away from all-time highs reached last May. On the other hand, disappointing earnings from major tech companies dragged the Nasdaq lower

Alternatives to Watch

  • Oil continued its recent flurry by finishing above $45, a price not seen since November, as U.S. crude numbers continued to fall for the seventh week in a row

Market Movers

  • DreamWorks Animation skyrocketed 19% after rumors circulated that the company may be in talks to be acquired by Comcast
  • H&R Block fell 14% after the tax preparation company announced it would lay off 250 workers following a 6% decline in tax return volume

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U.S. MACRO
Fed Would Rather Just Stay at Home

Not trying to make any big moves, Chairwoman of the Federal Reserve Janet Yellen announced yesterday that the Fed won’t be raising interest rates just yet. Haven’t heard that one before. Again, economic activity appears to be slowing, both domestically and internationally, and the Fed simply isn’t trying to rock the boat. Back in December, Yellen and Co. indicated that four rate hikes in 2016 were likely, but the Fed has now downgraded that number to a mere two. The next date for a possible rate hike is June, but many analysts think even that date is already off the table.

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CORPORATE PRIMER
Starboard Gets Real

Yesterday, two frenemies made peace, and the resolution is a big win-win. Starboard Value, the hedge fund trying to conquer Yahoo’s board, made a compromise with the internet giant. The deal? Starboard gets four board seats to fill however it pleases. The deal should take a bit of pressure off Yahoo as it turns its harshest critic into perhaps its greatest ally as it continues to pursue a sale of its core business.

Let the Good Times Roll

What’s the quickest way to get 41 Wall Street research analysts to furiously tear up their models? Beat the highest earnings estimate among them…by a whopping 10%. Yes, social media giant Facebook (henceforth to be called “dominators of the world”) posted earnings so strong it’s considering switching up its capital structure. With shares up 9% after hours, Mark Zuckerberg proposed a plan to create a “class C share” that would split an A or B share into two. Why? So our favorite CEO can cash in on the good times, while maintaining enough shares to keep creative control on the company.

All About Transactions

Online payment business models aren’t the sexiest things around, but they sure do get the job done. PayPal posted better-than-expected earnings yesterday, growing its customer base and increasing the volume of its transactions by 26%. We’re no math whizzes, but it’s fair to say that’s a winning formula for any business—rightfully propping shares up 4% in after hours trading. And there’s more: despite competition coming in from all angles, including credit card companies and smartphone makers, PayPal has found a new avenue of explosive growth: mobile payments. We’re talking about not only PayPal’s one-touch mobile payments feature, but other rapidly-growing services that PayPal owns like Venmo—which saw transaction volume increase an incredible 124%.

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OTHER STORIES

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ECONOMIC CALENDAR

PEOPLE DON’T GET RETIREMENT THESE DAYS

How’s your retirement plan looking? It’s never too early to start putting money away for your golden years, but if you’re like most Americans, you tend to spend for the present. By how much are Americans cutting retirements short? By a whopping $1.7 trillion, with a T:

  • That figure represents 12% of the $14 trillion in U.S. retirement accounts. So why does this happen? Two main biases: present bias—where you live for today, and exponential bias—where you don’t quite get just how great compound interest can be (believe us, it’s great).
  • How many people fall prey to these biases? Quite a lot: researchers found that around 70% of subjects underestimated the growth of an asset, and 55% preferred less money today than plenty more money in a year.
  • And it just so turns out that those who were more biased tended to have less money in their retirement accounts. Moral of the story: biases may be costing retirees $1.7 trillion.

INTERVIEW QUESTION OF THE DAY

Explain the concept of synergies and provide some examples. (Answer)

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BUSINESS TERM OF THE DAY

Paper Millionaire — An individual who has achieved a high net worth as a result of the large total market value of the assets he or she owns. While this creates large amounts of “paper profit,” the paper millionaire’s riches usually aren’t safe until these holdings are liquidated and turn into real cash money.

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FOOD FOR THOUGHT

Love numbers? Love baseball? Well, here’s a doozy for you: a recent study indicated that there are approximately 156 quantitative analysts employed by the MLB, up from 44 in 2009.

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QUIZ PRIZE WINNER

Congrats to Matthew Bloom, a junior at Michigan State University studying Applied Engineering Sciences, for winning last week’s Brew quiz prize! Make sure to check out tomorrow’s issue for a new quiz!
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