The Fed and Hostile Takeovers
- It was quite the crazy hump day for U.S. stocks: after the Fed’s mid-day announcement (more on that later), all three major indices took an instant vertical drop. But what went down must come up, as investors regained confidence and pushed stocks well into the green by the close.
- Oil also won big to end a three day losing streak. The rally came after an unexpectedly optimistic U.S. crude oil inventory report, which reversed expectations of an oil bear market. The Fed’s rate decision had an impact here as well, putting weight on the U.S. dollar to fuel price gains across the commodities board.
- Activist investor Carl Icahn caused a ruckus of his own yesterday, urging insurance company AIG to split into three pieces. Icahn disclosed a stake in the firm and published a letter informing CEO Peter Hancock that he should spin off AIG’s life and mortgage units into public companies. The stock jumped 5 percent on the news, but AIG is putting up a fight, hiring outside advisors to deal with Icahn’s battle. Looks like we may have another hostile takeover attempt on our hands.
Remember DecemberThe Federal Reserve concluded its October policy meeting yesterday, and results were as expected—interest rates will once again remain unchanged at close to 0 percent. Chairwoman Janet Yellen stated that they’ll remain there until the economy gets closer to the Fed’s two main goals: maximum employment and 2 percent inflation. There was a noteworthy development, however: Yellen frequently referred to the Fed’s next meeting in December, implying that it’s seriously (for real this time) thinking about increasing rates at that point. But we’ll forgive you if you’re not totally convinced—after all, the Fed has played this game before.
VW Drops A $2 Billion Deuce
If you want to make it to the top, chances are you’re going to get your hands dirty along the way. And so it was for Volkswagen, which broke the rules in a big way to get there. Not-so-coincidentally, they also turned a $2.9 billion net income into a $1.9 billion loss yesterday—you can connect the dots. VW’s new chief executive has put growth on the back burner to focus on regaining profitability, not to mention consumers’ (and investors’) trust.
If you’re an investment banker specializing in mergers and acquisitions, yesterday was quite a day. Let’s recap:
- Snyder-Lance, the company that makes those iconic Hanover pretzels, bought out packaged foods company Diamond Foods for $1.27 billion in an effort to shift its focus towards healthier foods.
- IBM acquired the Weather Company for over $2 billion. Seem like an odd combo? It may appear so at first, but the goal is for IBM to bring its advanced data analytics to good old-fashioned weather forecasting.
- News also broke that Hyatt Hotels is considering buying out Starwood Hotels & Resorts, sending both hotels’ securities skyrocketing.
TODAY IN TECH
GoPro Goes Down
To call GoPro’s earnings a disappointment would be an understatement: the stock fell a massive 17 percent in after hours trading. How come? GoPro saw its revenue grow 43 percent year-over-year to $400 million, but fell quite short of an expected $433 million. Those are some high expectations, especially since the company has been hit hard with new competition from companies like Sony and concerns that the wearable camera market is shrinking. It’s not all bad news, though: GoPro’s board also announced a $300 million share buyback program.
- PayPal’s China, Europe transaction volumes hit by strong dollar
- Deutsche Bank nears $200 million settlement
- Microsoft officially unveils its Arrow launcher for Android
- Goldman Sachs to pay $50 million penalty over leak from Fed
- Monday: Broadcom, MGM Resorts, Xerox Earnings; New Home Sales
- Tuesday: Aflac, Alibaba, Apple, BP, Coach, Comcast, Ford, Gilead, JetBlue, Panera, Pfizer, T-Mobile, Twitter, UPS Earnings; Durable Goods Orders
- Wednesday: GoPro, Volkswagen, Yelp Earnings; Fed FOMC Meeting Announcement
- Thursday: Baidu, Deckers, Deutsche Bank, LinkedIn, MasterCard, Samsung, Starbucks, Time Warner Cable Earnings; U.S. Q3 GDP
- Friday: Chevron, CVS, Exxon Mobil, Phillips 66 Earnings; Personal Income/Spending
INTERVIEW WITH BRYAN EZRALOW
Bryan Ezralow has been Partner and CEO of The Ezralow Company since 1990. As a privately held diversified real estate development and investment firm based in Southern California, The Ezralow Company has built or acquired over 12 million square feet of retail, office, storage and industrial space, as well as over 30,000 apartment units. Mr. Ezralow has served on a number of boards, including The Cedar Sinai Board of Governors and The Menorah Housing Foundation. Mr. Ezralow holds a B.A. from the University of California at Berkeley and an M.B.A. from the University of Southern California.
What is your assessment of the present condition of the commercial real estate market in the U.S.?
Commercial real estate continues to be strong as there are very few alternative investments that offer tax efficient returns in the U.S. As long as the economy continues to grow and jobs are being created, the multi-family market will continue to stay strong. Rent growth is continuing in many markets in the U.S.
Where do you see the future of oil?
There is a lot of pressure on the oil market and prices have been affected substantially. However, with the decrease in price, oil has become very competitive with all forms of energy and the demand side has not abated. As a matter of fact, the price decrease has created more demand for oil products. It’s difficult for other forms of energy to gain traction and for people to switch to electric cars when oil is cheap. In the long term, other forms of energy (wind, solar, etc.) will take market share, but oil will remain an important energy source for the foreseeable future and will continue to be a dominant commodity.
What do you think of the importance of a college education?
A college education is an important stepping stone as a transition to adulthood and preparing for the workforce. If our children went straight to work at 18 without it, they would be at a disadvantage of not being engaged in more specific knowledge that college provides. Plus, after a college experience, they will be more mature and ready to make better decisions on their career choices and be better employees or entrepreneurs.
What qualities do you look for in a prospective employee?
Work ethic, drive and integrity are the most important qualities that we look for. Willing to work hard, grow and learn are keys to success. Drive is what will motivate them to come to work every day. Integrity is important because an employee cannot be monitored all the time, and the employer has to trust that their employee will do the right thing when no one is watching.
Your favorite development project?
My favorite development project was the Bella Terra in Huntington Beach. It’s an 800,000 foot outdoor entertainment retail experience. It was a game changer for that city.
What was the biggest mistake you have made in business, and what did you take away from the experience?
My biggest mistake was trying to build a large shopping center on a very environmentally-challenged site. We took it to the 99 yard line but the governmental authorities could not get the things done to make it happen. We spent a lot of money and wasted a lot of energy for several years trying to get it accomplished.
INTERVIEW QUESTION OF THE DAY
There is a ten digit mystery number (no leading 0), represented by ABCDEFGHIJ, where each numeral, 0 through 9, is used once. Given the following clues, what is the number?
1) A + B + C + D + E is a multiple of 6.
2) F + G + H + I + J is a multiple of 5.
3) A + C + E + G + I is a multiple of 9.
4) B + D + F + H + J is a multiple of 2.
5) AB is a multiple of 3.
6) CD is a multiple of 4.
7) EF is a multiple of 7.
8) GH is a multiple of 8.
9) IJ is a multiple of 10.
10) FE, HC and JA are all prime numbers. (Answer)
BUSINESS TERM OF THE DAY
Valuation Clause — A provision in certain insurance policies that specifies the amount of money that the policy holder will receive from the insurer if an insured event occurs. The valuation clause stipulates a fixed amount of money that will be paid for insured property in the event of a loss. Several types of valuation clauses can be written, including replacement cost, actual cash value, stated amount and agreed value.
FOOD FOR THOUGHT
8 percent: portion of the Strategic Petroleum Reserve starting in 2018 that will be sold be the U.S. government due to a new budget deal.