Enjoy your February 13th hand-crafted Brew!
QUOTE OF THE DAY
“To have a law like that in the hands of people not responsible is disgraceful…it destroyed a great company that was a national asset” — Former AIG CEO Maurice Greenberg reaffirming his beef with former Attorney General Eliot Spitzer over court cases in 2005 that ruined the reputation of AIG.
- It’s a familiar tune: U.S. stocks hit record highs yet again on Friday as investors reacted positively to the Trump administration pledging to move quickly on tax reform
- Financial stocks led the way following news that Federal Reserve Governor Daniel Tarullo, one of Wall Street’s biggest advocates for post-crisis regulation, resigned from his post
Snapchat Goes Beyond Snaps
…Into television shows. Over the weekend, the tech giant announced a deal to collaborate with A&E Networks on a television show called “Second Chance”—an unscripted show about putting former couples in the same room and seeing what happens. Sounds dangerous. Not to put all its eggs in one channel, Snapchat also just released its first episode of a new Saturday Night Live collaboration. With these partnerships coming on the heels of Snap’s exclusive “Planet Earth” content deal with BBC, Snap is seemingly looking to expand its media presence and target younger audiences as Wall Street analysts await the big IPO.
The Race to Autonomy
…Over the weekend, Ford
(+1.05%) threw its hat into the autonomous vehicle ring. Thus far, Ford has been a bit behind the pack with the whole self-driving thing. Not anymore: the automaker announced a $1 billion investment in Argo AI, a startup founded by executives who worked on autonomous tech at Google and Uber. Sounds impressive. Ford’s ultimate goal is to develop a “virtual driver system” by 2021 for use in ridesharing. Now, the company will just have to fight to the death against GM, Honda, Tesla and everyone else making moves to bring us self-driving cars.
Greatest Hedge Ever?
(-2.67%) may have just outdone them all. On Friday, the British consumer goods giant and maker of Durex condoms finalized its deal to purchase U.S. baby formula maker Mead Johnson (we can’t make this stuff up)
(+5.62%) for $16.6 billion. With the acquisition, Reckitt, which also makes products like Lysol and Mucinex, will double the size of its consumer health business and increase its presence in developing markets by two-thirds. Baby formula is a brand new market for Reckitt and, if that’s not enough of a challenge, Mead Johnson has been struggling lately due to increased competition and changing consumer habits (who knows what parents are feeding their kids these days). Nonetheless, Reckitt is hoping that its expertise in building brands will put it over the top.
There’s a New Sears in Town
…A more profitable one? Perhaps. The struggling former retail giant
(+25.63%) celebrated one of its largest single-day gains in the stock’s history. Yes, history. First the background: Sears and other retailers have struggled to control the bleeding for some time, and e-commerce sites like Amazon and Alibaba are continuing to open up fresh wounds. The kicker: Sears has reportedly lost $10 billion in the last six years. Why the sudden change in fate? Well, the company has decided to cut costs by $1 billion. On top of that, CEO Eddie Lampert wants to bring Kmart and Sears operations closer together to boost merchandising and supply chain management. Although investors were clearly thrilled with the plan, the company still plans to close 150 Sears and Kmart stores this year. You win some, you lose most.
- French man wants $48 million from Uber for allegedly breaking up his marriage
- SEC charges Chinese executive with insider trading in Comcast deal
- Sears, Kmart join other retailers in dropping Trump-branded items
- Verizon announces new unlimited data plan
- Monday: Teva Earnings
- Tuesday: AIG, T-Mobile, Credit Suisse, Dr. Pepper Snapple Earnings; Producer Price Index
- Wednesday: Cisco, Pepsi, Kraft Heinz, CBS, Marriott, Hilton, GoDaddy, Groupon Earnings; Consumer Price Index; Retail Sales; Industrial Production
- Thursday: Charter Communications, MGM Resorts, Hyatt Hotels, Wendy’s Earnings; Weekly Jobless Claims; Housing Starts
- Friday: Deere, J.M. Smucker Earnings
David vs. Goliath: Houghton Beats Harvard and Yale
2016 was a rough year for college endowments. Despite having an endowment bigger than the GDP of Bolivia, Harvard’s returns for the year were vastly outperformed by smaller schools. Case in point: Houghton College, a liberal arts school in upstate New York with only one thousand students, was able to beat Harvard by nearly 14% because it focused more on passive investing. Here are the numbers:
- For the 2016 fiscal year, Harvard’s endowment of $35.7 billion dropped after its investments declined 2%. In comparison, Houghton’s endowment of $46.4 million had a return of 11.85%. Upset alert.
- Not everyone in the Ivy League did so poorly. The endowment of Yale, Harvard’s rival, returned 3.4% over the same period.
- So what was Houghton’s secret? Stay away from hedge funds, essentially. Instead, Houghton invested in low-cost index funds and mutual funds. This was a trend for the smallest endowments, which had only 6% invested in hedge funds compared to 20% for the largest endowments.
- It paid off for the little guys: the smallest endowments only lost 1% in 2016 compared to endowments over $1 billion, which declined 1.9%.
Interview Question of the Day
Do long-term bonds have greater interest rate risk than short-term bonds? (Answer)
Business Person of the Day
Mike Ilitch, the beloved “Pizza! Pizza!” Detroit personality and owner of the Red Wings and Tigers, has died at the ripe age of 87. Ilitch placed at No. 88 on the Forbes Richest list, and was nothing short of an icon in sports and business. Ilitch didn’t have a college degree, but that didn’t stop him from starting his first Little Caesars in Garden City, and growing it into America’s third-largest pizza chain. Detroiters know him as the “godfather of downtown Detroit,” restoring the Fox Theatre among many other Detroit businesses.
Food for Thought
Okay, we know that only one full month has passed in 2017, but hedge funds are hot. More than 70% of hedge funds made money in January and are already performing better than last year. Not that last year’s performance set a high bar to clear, but hey, they’ll take what they can get.