“This is an industry that does more good for people than any other industry” — Joseph Papa, the new CEO of Valeant Pharmaceuticals. Valeant, you might recall, has come under fire for aggressively raising drug prices. Papa might be hopelessly romantic, or maybe he just forgot about Shkreli.
MARKET SNAPSHOT
Big Picture
- U.S. stocks finished mixed, with the S&P and Nasdaq both closing positive despite the Dow being dragged down by the energy sector
- Chinese markets picked up where they left off from Friday, falling another 2.8% after April’s trade data showed troubling decreases in both exports and imports
Alternatives to Watch
- Brazil’s currency, along with its stock market, plummeted after the government abruptly cancelled an impeachment vote of President Dilma Rousseff that many investors were hoping for
Market Movers
- Shares of struggling apparel retailer Gap fell 10% after hours, which warned of weak sales in another blow to the apparel retail industry
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WORLD MACRO
Greece Is Back at It
With everything going on in the world these days, it’s easy to forget about good old Greece and its infamous debt, which amounts to a hefty 176.9% of GDP. Quick reminder: last summer, the small European Union member was oh-so-close to exiting the EU entirely to relieve its massive debt burden…until it reached a last-second agreement to receive badly-needed bailout funds in exchange for promises of harsh austerity measures. Fast-forward to today, and Greece is back in the spotlight: yesterday, its Parliament passed new austerity measures to unlock an additional portion of that bailout money…so the saga continues. The results of an emergency meeting by the Eurogroup will determine whether or not Greece earns this new round of relief. With a debt payment looming in July, the pressure is back on.
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CORPORATE PRIMER
Krispy Keurig
Every child’s wish: a lifetime’s supply of Krispy Kreme donuts. JAB Holding Co. (a European investment fund) made that wish come true yesterday by buying the whole kit and kaboodle for $1.35 billion, a 25% premium to Krispy Kreme’s stock price. The mega-fund is pretty much the king of coffee, as it owns many well-known brands like Keurig Green Mountain, Caribou Coffee and Einstein Bros Bagels. At this rate, JAB is well on its way to owning breakfast entirely. How does Krispy Kreme feel about all this? Pretty darn good, since the company has fallen on hard times recently after rushing beyond its glazed means to expand across the country. So JAB has come to the rescue, hoping to quell volatility and stabilize the brand with the help of its portfolio companies.
Spotify Adds Video
Spotify just took it to the next level. The online music streaming service announced the addition of 12 new short-form TV shows for all of its nearly 100 million users. The new shows will be produced by Spotify and have a music-centric theme (no surprise there). So why jump into TV? Developers hope video options will grab new customers and encourage existing ones to spend more time on the application. With competitors like Apple Music hot on its tail, Spotify has to evolve to survive.
Lending Ain’t Easy
The online lending industry: it’s part of the so-called “fintech” revolution, and it’s all about connecting individual investors with small businesses looking for loans (that’s the “fin” i.e. financial)…and it’s all online (that’s the “tech”). Unfortunately, the industry took a major blow yesterday after major player LendingClub’s CEO and founder Renaud Laplanche was ousted by its board of directors for violating the company’s business practices. What do we mean by that? Laplanche, who pioneered the online lending business model, was found to have tampered with loans to make them comply with investor requirements—basically, he made loans look safer than they were. Despite only affecting a minuscule portion of LendingClub’s quarterly loan volume, it spooked investors nonetheless, sending shares down 35%.
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OTHER STORIES
- Former Facebook staffers say conservative news is deliberately suppressed
- Summer Redstone competency case abruptly dismissed by Judge
- Snapchat Android app installs overtake Twitter in U.S.
- Uber drivers owed $730 million more if employees, according to court documents
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ECONOMIC CALENDAR
- Monday: Teva Pharmaceuticals (+), Tyson Foods (+), Hertz (-) Earnings
- Tuesday: Disney, Allergan, Credit Suisse, Nokia, Electronic Arts, Sun Life Earnings; Job Openings and Labor Turnover Survey
- Wednesday: Macy’s, Wendy’s, Jack in the Box Earnings
- Thursday: Nordstrom, Ralph Lauren, Kohl’s, Shake Shack, NVIDIA Earnings; Weekly Jobless Claims
- Friday: Honda, J.C. Penney Earnings; Retail Sales; Producer Price Index; Consumer Sentiment
MIAMI? EH
Miami: beaches, bright colors, beautiful people and Cuban sandwiches. All a man/woman could ask for? Eh, not so much. The price of a Miami hotel room is dropping thanks to both increasing supply and falling demand. Here’s the breakdown:
- First, an important term to know: revpar—short for revenue per available room. You can probably guess where we’re going with this: revpar in Miami has dropped each month this year. In April, it was the worst of the top 25 U.S. destinations.
- So how bad is it? Compared to the first three months of 2015, revpar is down 3.6%. Doesn’t sound too bad? Consider this: nationally, revpar is actually up 2.7%.
- Okay, revpar may be down, but how much does a room cost you in Miami? In March, the average cost of a room fell to $250, down 1.7% from last year.
- Why is this happening? Many new rooms were built with expectations for more clientele, but developers made a bad bet: occupancy has fallen 1.9%. This is partly due to mild winter in the northeast (so people weren’t as desperate to escape) and a sluggish market in Brazil. Why does Brazil matter? Brazil is one of the city’s main sources of visitors—go figure.
INTERVIEW QUESTION OF THE DAY
You’re driving on a one-mile track. You do one lap at 30 miles an hour. How fast do you have to go on the second lap to average 60 miles an hour? (Answer)
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BUSINESS TERM OF THE DAY
Poison Pill — Tactic used by companies to block and/or discourage hostile takeovers (basically, when a company acquires another target company without the target management’s approval). The target company uses a poison pill to make shares of its stock look less attractive or even undesirable. Tribune Publishing revealed yesterday that that it adopted a “shareholder rights plan” (aka a poison pill) to prevent Gannett Co.’s bid to buy Tribune.
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FOOD FOR THOUGHT
Carl Icahn, the iconic billionaire activist investor, is usually in the news for getting up in companies’ business. However, last week Icahn disclosed that Icahn Enterprises has a net short position of 149%, compared to just 25% at the end of 2015. You never like to hear that Icahn is betting on a market crash.
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