“Summer of shocks” — Bank of America Merrill Lynch, preparing investors for what could be an action-packed summer, due to the Fed’s recent “we’re-gonna-raise-rates-soon” tone and many central banks signaling no more economic stimulus. Sorry to ruin your day at the beach.
MARKET SNAPSHOT
Big Picture
- U.S. stocks closed higher on Friday, led by the tech and healthcare sectors, as investors moved past fears of a rate hike and focused instead on a decent run of earnings and the economy
Market Movers
- Shares of Tesla Motors shot up 2.4% on Friday despite the company issuing $1.5 billion of stock (which dilutes current shareholders, lowering the stock price)
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CORPORATE PRIMER
Yahoo, Now 50% Off
Meet Yahoo. The tech company feels it’s worth between $4 billion and $8 billion, but front-runner Verizon reportedly only wants to bid around $2 to $3 billion. Yes, it’s a known negotiation strategy to anchor low with a first bid, but boy, that sure is low—and a bit of a slap in the face, if you ask Yahoo. Yes, Yahoo’s asking price is a little on the generous side, but as the saying goes: beggars can’t be choosers. The internet trailblazer has been a target since its revenue went into steep decline, growth lagged and hedge fund Starboard Value pushed Yahoo to sell its core business. The next round of bids are set for the first week of June, and Yahoo is screaming everything except for its name.
Intrigue at Viacom
Remember Sumner Redstone? This might call for a recap: He’s the ex-executive chairman of Viacom and CBS who was given the boot because he’s a little too “old” to run the company (he’s 92). Update: over the weekend, Redstone removed two of his 50-year-long friends from his trust, including current Viacom CEO Philippe Dauman. Juicy twist: rumors are circulating that his daughter Shari Redstone is behind the decision, making a shrewd attempt to take over her father’s media empire. Don’t worry, we’ll keep ya posted.
A Hearty Bowl of Mixed Earnings
Before you trade, beware: earnings can get a bit technical. Exhibit A: Campbell Soup. Despite beating earnings expectations, the family favorite’s stock plunged 6% on Friday. Huh? Well, Campbell may have beaten earnings, but once you remove one-time revenues (money made that’s unlikely to occur again), it actually missed earnings. Even worse, Campbell missed revenue expectations in the heart of “soup season” (yes, it’s a thing). That being said, things are aren’t all too bad if you’re a Campbell Soup investor, with shares outperforming the S&P by 14% this year. Plus, it’s Gazpacho season.
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WORLD MACRO
G7 for Japan
Finance leaders of the world’s largest economies met in Japan this weekend to talk shop. Unfortunately, the tone of the convo was mostly somber. Simply put, Japan isn’t doing so hot, facing a 9% appreciation of its currency (the yen) since the start of the year. The Japanese Finance Minister insists it’s due to speculation—whatever the cause, this only further destabilizes the country’s already-fragile economy. Any solutions out there? An idea was thrown around for other participating countries to artificially weaken their currencies to promote growth. Needless to say, other countries, particularly the U.S., weren’t about it. Other topics on the agenda included prevention of tax evasion via offshore accounts and how to combat terrorist financing. Fun stuff.
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OTHER STORIES
- Scandal-plagued Volkswagen gives 120,000 workers a 5% pay hike
- GM will pay SUV owners up to $1,500 over faulty stickers
- Americans’ credit card debt nears $1 trillion
- Americans say this is their top financial regret
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ECONOMIC CALENDAR
- Monday: PMI Manufacturing Index
- Tuesday: Best Buy, HP Enterprise, AutoZone Earnings; New Home Sales
- Wednesday: Costco, HP Inc., Tiffany Earnings; International Trade
- Thursday: GameStop, Abercrombie & Fitch, Royal Bank of Canada, Dollar General, Dollar Tree, Deckers Earnings; Weekly Jobless Claims; Durable Goods Orders; Pending Home Sales Index
- Friday: U.S. Q1 GDP (2nd Revision); Consumer Sentiment; Janet Yellen Speech
CASH IS KING
Cash may as well be a Stone Age relic for consumers like us, but having plenty of cash on hand is a serious asset to businesses. Why? Because it’s fast, concrete and doesn’t go away unless you spend it. So…which company is cash king in the U.S.? We’ve got an oligarchy on our hands—just five tech firms hold 30% of all the cash held by non-financial companies in America. 30 freaking percent. Just how much is that? A whopping $504 billion, out of a total $1.7 trillion. Let’s dig in:
- First, let’s bring ’em out. A round of applause to Apple, Microsoft, Alphabet (aka Google), Cisco and Oracle.
- Investors have taken a keen interest in all the cash stockpiled by corporate America, with the hope that even if stock prices don’t go up, companies will be willing to pay more to their shareholders through increasing dividends.
- So where’s all this cash stashed? Well, it ain’t here: around 75% is held overseas, or $1.2 trillion.
- Why is so much cash outside of America? One major reason is U.S. tax laws—big business isn’t a fan of how much that cash would be taxed if it were brought back to the U.S. And according to a Moody’s report, unless corporate tax laws are reformed, the stockpiles overseas are just going to keep on growing.
INTERVIEW QUESTION OF THE DAY
Mr. Black, Mr. Gray and Mr. White are fighting in a truel. They each get a gun and take turns shooting at each other until only one person is left. Mr. Black, who hits his shot 1/3 of the time, gets to shoot first. Mr. Gray, who hits his shot 2/3 of the time, gets to shoot next, assuming he is still alive. Mr. White, who hits his shot all the time, shoots next, assuming he is also alive. The cycle repeats. If you’re Mr. Black, where should you shoot first for the highest chance of survival? (Answer)
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BUSINESS TERM OF THE DAY
Keynesian Economics — Named after the British economist John Maynard Keynes, whose central insight was that changes in government spending and income are the most efficient instrument of government economic policy. Keynesians argue for active government intervention to manage the level of aggregate demand and to achieve full employment.
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FOOD FOR THOUGHT
You might be surprised to learn that the “games” category (mostly board games) on the crowd-funding platform Kickstarter has attracted $495 million since launching in 2009. That makes it the most-invested segment of the site. It seems there are still some things technology can’t displace yet.
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