“I firmly believe we couldn’t have forecasted that at the time” — Caterpillar CEO Doug Oberhelman, on his company’s big bet on mining machinery and equipment, right before commodities prices nosedived over the last five years. You win some, you lose some.
Market Snapshot
- U.S. markets finished higher after investors digested reassuring comments from the Fed stating that the economy was in good shape, which could warrant a rate hike soon. We’ll believe it when we see it
Close, But No Cigar
…Twitter thought it had found its savior, until Salesforce slammed that door shut. Twitter should pick up a self-help book to get its business back in line, because it’s very unlikely that anyone’s stepping up with an offer going forward. Cloud computing king Salesforce had been interested in Twitter’s trove of data and was the social media’s last chance at being acquired—no longer. So how did investors take it? About as well as you’d expect, with Salesforce popping up 5% and Twitter falling 5%. While the exact reason Salesforce walked away isn’t clear, we do know that Fidelity, the second largest Salesforce shareholder, was not in favor of acquiring Twitter. We guess a yes from dad but a no from mom is still a no.
About That Cigar Though
…President Obama is letting you have more Cuban rum and cigars. This is just what we needed. In a policy directive released Friday, Obama lifted the decades-old trade embargo on Cuba. Why is this a big deal? Well, in case you had forgotten, the U.S. and Cuba have had a tumultuous relationship since the Cold War—until 2014, that is, when President Obama began easing tensions with the country. Under the new directive, not only can you have rum and cigars galore (score), but Cubans can now shop for U.S. products online and Cuban pharmaceutical companies can compete in the U.S. Cheers to this (hopefully) being a win-win for both economies.
Wells Fargo Earnings, Anyone?
…Nah, we still aren’t through with this scandal. Need a refresher? Wells Fargo had to fork over $185 million last month after it was determined that unreasonable sales goals pushed retail bank employees to open as many as two million fraudulent bank accounts without customer consent. No bueno. Unfortunately, it seems like this scandal has poured over into Wells’ financials too. Its community banking division, which includes the group responsible for the fraudulent accounts, reported net income of $3.2 billion, down 9.4% year over year. This partly fueled the bank’s overall profitability drop to $5.6 billion, down 2.6%. This all came two days after CEO John Stumpf resigned, and while it’s not looking great, current management seems optimistic about the future. In the meantime, the Brew suggests checking your bank accounts.
It’s Not All Bad News for Banks
…Just ask JPMorgan and Citigroup. The biggest and fourth-biggest U.S. banks by assets, respectively, toppled third quarter revenue and earnings estimates on Friday. And it came on the heels of strong trading revenues—which didn’t help Wells Fargo’s case, since it has only a minor trading arm of its own. Brexit and the Federal Reserve’s constant bank-and-forth wreaked all sorts of havoc on markets over the summer. But the volatility was music to JP and Citi’s ears, as trading activity spiked in the quarter. Put it all together, and JPMorgan had its best trading quarter since 2013, while Citi’s fixed-income revenue jumped 35%. Dang. Tack on strong performance in the two banks’ investment banking divisions, and you’ve got a recipe for a much-needed comeback quarter. Now the pressure shifts to Bank of America, Morgan Stanley and Goldman Sachs, which are up this week. Get your game face on.
Other Stories
- Fact checking is coming to Google News
- Germany says Tesla should not use ‘Autopilot’ in advertising
- Deutsche Bank said to explore shrinking its U.S. operations
- Sony developing PlayStation games for smartphones in 2018
Economic Calendar
- Monday: Netflix, Bank of America, IBM, United, Hasbro Earnings; Industrial Production
- Tuesday: Johnson & Johnson, Intel, Goldman Sachs, Philip Morris, BlackRock, UnitedHealth, Domino’s, Harley-Davidson Earnings; Consumer Price Index; Housing Market Index
- Wednesday: Morgan Stanley, American Express, Halliburton, eBay Earnings; Housing Starts
- Thursday: Microsoft, Verizon, Walgreens, Schlumberger, PayPal, American Airlines, Dunkin’ Brands, Skechers Earnings; Weekly Jobless Claims; Existing Home Sales
- Friday: General Electric, McDonald’s, Honeywell Earnings
Is the Rent Too Damn High?
Thank your college football team. That’s right, it looks like landlords have joined the long list of individuals making money off college sports. According to new research from CBRE, property managers and investors are putting big bucks into off-campus student housing—especially in colleges with big football programs. Here’s the scoop:
- 74% (50 of 68) of student housing complexes that changed hands in 2016 were at schools with Division I football programs. What’s this? Jostling for real estate position, that’s what.
- Not only that, but 50% of those transactions were of apartments that serve students at schools in the big-money Power Five conferences (ACC, Big Ten, Big 12, Pac-12 and SEC).
- In terms of cap rate (rental income divided by purchase price), Power Five conference housing was 5.5% compared to 6.4% for non-Division I housing. Translation: higher prices. Investors are paying a premium to own housing at schools like Michigan, Alabama and Texas.
- Why are the cap rates so low (in other words, why are investors willing to pay so much for this real estate)? It’s because student housing is low-risk, and these schools have such brand recognition that they’re getting a consistent flow of students every year from all over the world. It’s all about supply and demand.
Interview Question of the Day
What’s the importance of having effective management over one’s accounts receivables? (Answer)
Business Person of the Day
Meet Adrian Lievano, a recent college graduate who’s making waves in the movement to solve drinking water issues with his company, Everwaters.
Food for Thought
Researchers from Microsoft and Stanford University have found that Pokemon Go users walked a total of 144 billion steps in their first 30 days of play. What does that mean? Each Pokemon master-in-training walked an additional 1,000 steps, which roughly translates to about 41.4 days of additional life expectancy. Collectively? That’s 2.825 million additional years of life for U.S. players.
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