“NO ONE WAS FOCUSED ON THE PEOPLE IN THE BUILDING WHO WERE ON FIRE. THEIR CLOTHES BURNING, AND MANY OF THEM DYING. WE HAVE LET CUSTOMERS DIE” — Restoration Hardware CEO Gary Friedman, in a violent and metaphorical internal memo to employees on poor customer service. Restoration Hardware is in the business of selling furniture, and spoiler alert: they haven’t been selling much furniture—shares fell 26% on Thursday following disappointing earnings.
MARKET SNAPSHOT
Big Picture
- Although U.S. stocks finished mixed on Friday, it was still a positive week: after all, when oil is up—as it was this week—stocks have tended to follow suit
Alternatives to Watch
- Oil dropped on Friday, but managed to mark up its second straight week in the green as investors anticipate this week’s big petroleum status report
- As volatile markets leave investors fearing for the well-being of their hard-earned cash, gold has logged its best start to a year since 1980, gaining 15% so far in 2016
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U.S. MACRO
U.S. Economy Tricks Us Again
U.S. economic growth slowed down in the fourth quarter, but it actually wasn’t that bad. Here are the deets: GDP increased at a 1% annualized rate, instead of the earlier reported figure of 0.7% growth. An inventory accumulation of $81.7 billion, rather than the previously-reported $68.6 billion, was a contributing factor. Unfortunately, not all inventory is good inventory. The stockpile could cause production to lag in the first quarter of 2016. Meanwhile, promising inflation data released on Friday has traders thinking a Fed rate hike might happen this year after all.
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CORPORATE PRIMER
Samsung Wins the War
“Today’s decision…puts competition back where it belongs—in the marketplace, not in the courtroom.” Curious? Over the weekend, Samsung won a monumental case against Apple, clearing its name of patent infringement. Even more, the creator of the Galaxy successfully turned the tables, proving Apple is actually liable for patent infringement. So what’s the takeaway on this two-year long appeal? Patent wars are just not worth it, and Apple isn’t invincible.
Dow Pays the Price
Over the weekend, Dow Chemical shelled out $385 million—making the tough call to settle its $1.1 billion class action lawsuit regarding its price-fixing scandal. With the recent death of Supreme Court Justice Antonin Scalia, who was known for his pro-business agenda, Dow no longer believes in the risk-reward of appealing this case. And this could be just the first of many cases that are now expected to tip against big business due to the 4-4 gridlock in the Supreme Court.
Count on Penneys
It’s a rough time to be an apparel retailer (just ask Nordstrom or Gap), but JC Penney don’t care: the company reported earnings on Friday that far exceeded expectations, and shares rose over 14%. The key stat was same store sales, which actually rose 4.1%, while competitors’ have been falling. CEO Mike Ullman credits his company’s success to a renewed focus on private brands and omnichannel strategy (that’s a fancy term for building out its online business). And it’s got one other trick up its sleeve: one-cent deals—which even the documentary short film Oscar winners can afford.
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OTHER STORIES
- Disney World and Disneyland introduce surge pricing
- Sharp, Foxconn extend deal talks deadline up to two weeks
- WhatsApp to kill off support for BlackBerry and Nokia platforms by 2017
- Starbucks to open first shop in Italy
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ECONOMIC CALENDAR
- Monday: AMC Entertainment, Crocs Earnings; Pending Home Sales
- Tuesday: AutoZone, Dick’s Sporting Goods, Dollar Tree, Glencore, Kate Spade, Progressive, Ross Stores, TiVo Earnings; Existing Home Sales; Consumer Confidence; ISM Manufacturing Index; Construction Spending; Motor Vehicle Sales
- Wednesday: Abercrombie & Fitch, American Eagle, Costco Earnings; EIA Petroleum Status Report; Private Employment Report
- Thursday: Barnes & Noble, H&R Block Earnings; Weekly Jobless Claims; ISM Non-Manufacturing Index
- Friday: Staples, Big Lots Earnings; February Jobs Report; U.S. Trade Deficit
AND THAT’S HOW BUFFETT SEES IT
Over the weekend, the one and only Oracle of Omaha, Warren Buffett, released his heavily-hyped annual letter to shareholders. Being Warren Buffett means that lots of people listen to you—here are some of the juicier morsels:
- Buffett countered all the naysayers by pointing out that even though Berkshire Hathaway’s stock fell by 12% last year—its worst decline since 2008—the company actually grew its book value by 6.8%.
- He even addressed the 2016 election, opposing the negative rhetoric about America’s economy by pointing out that real GDP per capita is about six times higher what it was in 1930. But, he did contend that climate change is a risk we must take action on immediately.
- Buffett also took a moral stance on basic economics—though he sees improved productivity as a net benefit to society, he cautioned that social safety nets are essential to aid those left out of work by this same increased productivity.
- Most importantly, we found out that although Buffett loves playing bridge online, he’s not quite ready for Tinder just yet.
INTERVIEW QUESTION OF THE DAY
A man who lives on the tenth floor takes the elevator down to the first floor every morning and goes to work. In the evening, when he comes back; on a rainy day, or if there are other people in the elevator, he goes to his floor directly. Otherwise, he goes to the seventh floor and walks up three flights of stairs to his apartment. Can you explain why? (Answer)
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BUSINESS TERM OF THE DAY
Natural Monopoly — A natural monopoly is a type of monopoly that exists as a result of the high fixed or start-up costs of operating a business in a particular industry. Because it is economically sensible to have certain natural monopolies, governments often regulate those in operation, ensuring that consumers get a fair deal.
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FOOD FOR THOUGHT
Weight isn’t the only thing Oprah’s losing: she also lost a hefty $27 million after the stock of Weight Watchers (of which she owns 10%) lost almost a third of its value on Friday following poor earnings. Don’t eat the pain away, Oprah.
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