MARKET SNAPSHOT
Banks Frighten Investors Two Days Early
- U.S. markets dipped yesterday, but still held most of Wednesday’s gains following more earnings reports and the release of third quarter GDP data.
- The real bad news came from across the Atlantic, with Europe going negative thanks to poor earnings reports from banking and mining stocks. Huge losses from Germany’s Deutsche Bank coupled with the its decision to cut 30,000 jobs put the nail in the coffin, and fellow European bank Barclays didn’t fare much better.
- All this Fed rate talk has taken quite a toll on gold, which dropped for the second straight day, hitting its lowest level in three weeks. Though only 46 percent of economists expect a rate hike this year, the continued uncertainty has investors pretty riled up, and we’re feeling it all across the markets.
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U.S. MACRO
Hold Up…Third quarter U.S. GDP came out yesterday, clocking in at 1.5 percent—slower than hoped, especially after last quarter’s 3.9 percent rebound. Reasons? For one, businesses only accumulated $56.8 billion in inventory in Q3, a sharp drop after $113.5 billion in Q2. This alone shaved 1.44 percent off GDP, and while it may not sound great, it’s all part of the growing process, right? Perhaps. After all, strength in the housing and labor markets continues to paint an optimistic picture, and consumer spending grew a solid 3.2 percent.
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CORPORATE PRIMER
Pfizer Eyes Allergan
Can’t stop, won’t stop: the flurry of M&A activity in the healthcare sector continues. This time, it’s pharmaceutical giant Pfizer, which is expressing serious interest in acquiring competitor Allergan. It would likely be the granddaddy of all healthcare deals, as Pfizer would fork over more than $156 billion. The giant is looking to lower its current 25 percent tax rate (ouch) by utilizing Allergan’s tax haven in Ireland, which has a current tax rate of 15 percent. In addition to the lower tax expense, Pfizer is also seeking access to Allergan’s lucrative Botox product line.
Valeant’s Bad Karma
Two of the largest pharmacy-benefit managers, CVS and Express Scripts, have cut ties with Valeant’s main prescription drug distributor, Philidor. The termination began when CVS learned about the pharmacy’s sneaky (but not sneaky enough) audit strategy that blatantly violated the agreement between the parties. Without a pharmacy-benefit manager, Philidor can only sell prescriptions to customers paying out of pocket, a very small demographic. Valeant has failed to comment on the issue, exhibiting clear signs of guilt, and investors continue to pummel the stock (it fell 13 percent after hours following the news). Grab a seat and relax, the courtroom drama is about to begin.
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TODAY IN TECH
LinkedIn Goes Nuts
LinkedIn smashed earnings expectations yesterday, reporting revenues of $780 million, an impressive 37 percent year-over-year growth and well past Wall Street expectations. The report sent shares wild in after hours trading, climbing as much as 12 percent. Aside from strong financial growth, the professional networking site also saw a 20 percent increase in total users since Q3 last year (don’t get too jealous, Twitter), showing that the site’s value for professionals is still on the rise. The bottom line? LinkedIn’s investments in new products and educational services (like Lynda) are starting to pay off.
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OTHER STORIES
- EU votes Edward Snowden should have asylum
- Teforia: a tea serving robot
- Wal-Mart tweaks discount strategy for holiday season
- KeyCorp is said to be near deal for First Niagara
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ECONOMIC CALENDAR
- 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
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ONE, TWO…
…But not quite three. Yesterday, China ended its somewhat infamous, 35-year-old one-child policy in favor of a new two-child policy. It’s no secret that the past policy was controversial, so why the new Brady Bunch outlook? Never fear, the Brew is here:
- In a nutshell: China’s aging workforce population is peaking, while the median working age is rising. China’s population growth is at a mere 0.5 percent, in comparison with the U.S. at 0.7 percent and India at 1.2 percent. This low growth is resulting in a slowing GDP for the world’s second largest economy.
- Additionally, gender skewing has been a serious social problem during the policy’s rein. Parents have followed a cultural preference for boys—to the tune of 336 million abortions over the last three decades.
- Not surprisingly, this male preference has created a shortage of marriage-aged women, contributing to a looming demographic crisis as more people are retiring and less are of working age. Looks like it’s high time for a change, but China’s not getting carried away—kids still require permits.
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INTERVIEW QUESTION OF THE DAY
You are on your way to visit your grandma, who lives at the end of the valley. It’s her birthday, and you want to give her the cakes you’ve made.
Between your house and her house, you have to cross seven bridges, but there is a troll under every bridge. Each troll insists that you pay a troll toll. Before you can cross their bridge, you have to give them half of the cakes you are carrying, but as they are kind trolls, they each give you back a single cake. How many cakes do you have to leave home with to make sure that you arrive at grandma’s with exactly two cakes? (Answer)
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BUSINESS TERM OF THE DAY
Nano Cap — Small public companies with a market capitalization below $50 million. Investors looking to invest in nano-cap companies should be aware that these small firms are often associated with a very high risk of failure. Conversely, nano cap stocks are often referred to as “penny stocks,” which are quite popular with novice investors who have a large appetite for risk.
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FOOD FOR THOUGHT
57.3: the percentage of Kansas City homes that tuned in to the first game of the World Series on Tuesday night, compared with 27 percent of New York City homes. The numbers held strong in game two on Wednesday, and K.C. looks for a 3-0 series lead tonight.
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