Enjoy your January 19th hand-crafted Brew!
QUOTE OF THE DAY
“I wish it was a $400 million loss” — JPMorgan CEO Jamie Dimon, dropping praise on the success of the viral hit Chase Sapphire Reserve credit card. Remember, this is a card that’s already cost the bank around $200 million, but Jamie thinks it will deliver solid returns in the future. We want one.
- U.S. stocks logged modest gains on Wednesday, primarily driven by financials, but the Dow still closed in the red
- Oil dropped 2.7% amid concerns that rising U.S. shale output could offset the attempt by major producers to reduce global supply
Netflix Says “Keep Binging”
…After the scorching-hot streaming giant beats earnings estimates and posts massive subscriber growth. For Netflix (+7.91% after hours), yesterday was one for the record books. Not only was your favorite streaming giant able to beat sky-high earnings estimates, but it also soared past subscriber growth expectations by two million. The seven million new subscribers is good for the biggest quarterly gain in the company’s history. Wowza. What’s Netflix’s secret? For one, the company has seen huge growth internationally and is now in 190 countries (psst: check out this great Bloomberg Businessweek feature for Netflix’s secret to international stardom). Netflix can also thank its popular original content for drawing in new subscribers (and helping us procrastinate). The impressive numbers only further demonstrate the increasing popularity of non-traditional sources of TV programming. You can bet Hulu, Amazon (-0.28%) and Facebook (+0.04%) are all watching.
Another Strong Day for the Big Banks
…As both Goldman Sachs (-0.62%) and Citigroup (-1.70%) closed bank earnings season on a high note, riding the same euphoric wave as their fellow bank comrades. Global stock markets and grand ol’ Wall Street have been celebrating all the way to the bank since Trump’s surprise election victory—and his promises to peel back financial regulations that have crippled banks’ profitability. Also not hurting banks: the influx of trading activity post-election. Put it all together, and Goldman saw a 25% increase in revenue this quarter, while Citigroup saw revenues increase 36%. We can only wonder how long the wave will last—and if the stocks’ muted reactions to their blowout earnings are any indication, perhaps the party’s already over.
Pursuit of Knowledge Shreds Pearson’s Textbook
…So much for quiet study. Education publisher Pearson (-28.63%) saw its worst crash in history on Wednesday after unexpectedly withdrawing its 2018 profit guidance amidst worse-than-expected North American sales. Yikes. Even with a cautious view on North American higher education, Pearson over-predicted American college enrollment…and therefore the physical textbook market. Pearson, which in 2015 received over $1 billion in cash for its stakes in the Financial Times and The Economist, is now pressed for cash. How pressed? Well, enough to slash its dividend and place its key stake in the Penguin Random House book business up for sale. So now what? Pearson plans to transform its portfolio into one that emphasizes the digital transition in higher education. CEO John Fallon, who said the 2015 sale would help position Pearson’s future among the great global growth stories of the next decade, has fallen under fire. Could this be the turnaround?
Prices on the Rise
…Yes, inflation is here to stay. The consumer price index, economists’ MVP indicator of inflation, rose 0.3% in December. The more important 2016 tally: a healthy 2.1%, which marks the highest annual increase in five years. If this keeps up, we could see the Fed raise rates faster than expected—and so you know, three rate hikes are expected in 2017. So what drove the gain? Rental housing and gas prices primarily, which rose 3.7% and 9.1%, respectively. An earlier report this month showed higher hourly earnings which, combined with rising consumer prices, may indicate more inflation to come (if you’re making more, you’re probably spending more, which means prices will rise further). But enough with all these ups, what brought the metric down? Not surprisingly, one culprit was apparel prices. The other: a continued grocery price decline not seen since the end of the recession.
- JP Morgan Chase to pay $55 million to settle racial discrimination charges
- American latest airline to add ‘Basic Economy,’ carry-on restrictions
- Slack adds threaded messages to take the clutter out of public channels
- Google acquires Fabric developer platform and team from Twitter
- Monday: U.S. Markets Closed (MLK Day)
- Tuesday: Morgan Stanley (+), UnitedHealth (+/-), United Continental (+/-) Earnings
- Wednesday: Netflix (+), Goldman Sachs (+), Citigroup (+), TD Ameritrade (+) Earnings; Consumer Price Index (+); Industrial Production (+); Beige Book
- Thursday: IBM, American Express Earnings; Housing Starts; Weekly Jobless Claims; Janet Yellen Speech
- Friday: General Electric, Schlumberger Earnings
Millennials Still Chasing the Baby Boomers
People love to point out the differences between millennials and baby boomers, but one thing is for certain: millennials are worse off economically than boomers were at their age. According to data from the Federal Reserve, the generational gap is historically high despite millennials being more educated:
- The median household income of millennials is $40,581. Accounting for inflation, this is 20% less than baby boomers earned at the same age. This is on top of the fact that millennials have significantly higher student debt.
- The gap is even more drastic in terms of net worth. Millennials’ median net worth of $10,090 is 56% lower than boomers at the same stage in their lives.
- Given those facts, you might find it surprising that the percentage of 25-29-year-olds with a college degree rose in the last 25 years from 23.2% to 35.6%. Maybe college isn’t the answer after all?
- Perhaps the saddest part? If you were born in 1950, you had a 79% chance of out-earning your parents. If you were born in 1980, you only have a 50% chance. Good luck, millennials.
Interview Question of the Day
What’s the next number in the sequence: 1, 11, 21, 1211, 111221, 312211, ? (Answer)
Business Person of the Day
Margaret “Margo” Georgiadis, who was previously Google America’s President, will become CEO of Mattel on February 8. This is the second CEO change for Mattel, the beloved toy maker of Barbie and Fisher-Price brands, since early 2015. Best of luck, Margo.
Food for Thought
Ever wonder what the combined value of every house in the U.S. is? Well, Zillow.com has spent basically its entire existence finding the magic number: $29.6 trillion. It would take Bill Gates and the next 399 richest U.S. citizens to buy up all the housing stock in America. It took us here at the Brew a while, but we finally found something Gates can’t afford.
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