Banks Vs. Drug Companies: Who Hits Rock Bottom First?

morning-brew-new
“That makes me smart” — Republican nominee Donald Trump, discussing not paying income taxes during last night’s presidential debate. These next 42 days sure are going to be interesting.

Market Snapshot

  • U.S. markets fell and volatility spiked ahead of Monday night’s presidential debate, along with worries over Deutsche Bank’s situation (more on that later)
  • Smith & Wesson shares dropped 7% after the gun company failed to land what would’ve been a hefty contract with the U.S. army to replace the M9 semi-automatic pistol with a more modern weapon
  • Shares of Twitter jumped 3% midday after reports stated that Disney was interested in acquiring the company

Pfizer’s Not Breaking Up the Band

…It’s sticking as one company. The pharmaceutical giant was considering splitting into two separate, publicly-traded companies: one focused on its lower-growth generics business and another on its higher-growth patent-protected medicines. The idea with the split was to reduce the complexity of the company and reward shareholders—management believed there was a so-called “valuation gap” between the true value of the company (based on its individual units) and what the stock was trading at. But that gap has now closed, taking the potential split with it. In the end, it was much ado about thing—Pfizer will remain one of the industry’s largest drug companies.

Back in the Doghouse

…Mylan’s done it again. From one pharma company in Pfizer to another in Mylan. But first, a quick refresher: about a month ago, Mylan came under heavy fire for hiking the price of the EpiPen, its life-saving allergy device, by 500% over the last seven years. Think that’s bad? The saga continued yesterday when we learned that Mylan’s profit on the EpiPen two-pack is actually 60% higher than the number it gave to Congress last week, as the company understated its gains by applying a 37.5% tax rate on its profits. Lying to Congress…that usually turns out well. Whatever happens next, it’ll be tough to say Mylan doesn’t deserve it.

Deutsche Goes Down

…And takes the whole world with it. Germany’s largest bank saw its shares fall over 7% yesterday—to its lowest point in decades—as speculation mounts over its troubled financial status. The big question: whether Deutsche will have to ask Germany for capital to meet its financial obligations—which could now include at least a portion of the $14 billion fine levied by the U.S. government earlier this month. In other words, things aren’t going so hot. And as Deutsche’s stock tumbled, it triggered extra anxiety about the fragile global economy, taking U.S. stocks down with it. Why can’t Deutsche just leave us alone?

When Your Competitor Gets Up in Your Grill

…Buy ‘em out. The Chicago Board of Exchange, or CBOE, has long been a profitable options exchange—best known for its volatility index, the VIX. Meanwhile, BATS, a major tech-focused index, launched its own volatility product called “spikes” that started eating up market share. Think you know where this is going? In a serious power move, CBOE dropped $3.2 billion to acquire BATS to become one of the largest exchanges overnight. That’s the ultimate finger-wag. Industry leaders like Nasdaq and the Chicago Mercantile Exchange better sleep with one eye open moving forward.

Other Stories

Economic Calendar

  • Monday: Carnival (+) Earnings; New Home Sales (+/-)
  • Tuesday: Nike Earnings; Consumer Confidence; S&P Case-Shiller Home Price Index
  • Wednesday: BlackBerry Earnings; Durable Goods Orders
  • Thursday: PepsiCo, Costco, Accenture Earnings; U.S. Q2 GDP (3rd Estimate); Pending Home Sales; Weekly Jobless Claims
  • Friday: Personal Income and Outlays; Consumer Sentiment

Remembering the King

On Sunday, golf legend Arnold Palmer passed away at the age of 87. He was golf’s first big star after the sport began being televised, and he’s widely credited for popularizing golf outside of what was once only played behind country club gates. Nicknamed “The King,” Palmer was a superstar on and off the course. Here’s to the King:

  • In his golf career, Palmer won a total of 62 PGA Tour events and seven major championships. Both stats are enough to put him in the top ten all time.
  • Palmer turned professional in 1954 and was part of the “Big Three” along with Jack Nicklaus and Gary Player. Most golf historians agree that this trio is responsible for making the sport of golf popular around the world.
  • Arnold Palmer wasn’t just successful on the course. Surprisingly, he made less than $2 million during his entire career from winnings on the course. The rest of his success came from ventures like co-founding the Golf Channel, creating his own company, Arnold Palmer Enterprises (with its signature umbrella logo), and of course, selling the name rights of his signature iced-tea-and-lemonade to Arizona Beverage Company.

Interview Question of the Day

Why do index funds tend to have low expense ratios? (Answer)

Business Person of the Day

Federica Marchionni is no longer the CEO of apparel retailer Land’s End. The former Ferrari and Dolce & Gabbana executive’s push to make Land’s End more stylish didn’t meet the Board’s expectations, which was more focused on quarterly earnings goals. Heading into the holiday season, Land’s End may need to find a replacement sooner rather than later.

Food for Thought

Hedge fund fees are taking the heat as performance continues to disappoint investors. One big name, Brevan Howard, is taking the first hit from increased pressure to reform the industry’s controversial fee structure. The hedge fund is waiving its management fee, meaning it will only make money on any profits it generates.

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