“Opportunity of a lifetime.” Dara Khosrowshahi sounding ready to accept Uber’s offer.
- U.S. indexes finished up despite uncertainty after a North Korean missile test.
- Finish Line shares plunged 28% on earnings call—down 60% year-over-year.
- Cantor Fitzgerald stopped trading Venezuela bonds.
- Gold touched an intraday 11-month high.
Welcome to the Consortium
You might not have heard about R3 yet—the distributed ledger technology company that’s raised $107 million, has linked 80 financial institutions (FI) worldwide and is trying revolutionize the global economy, but you need to.
As of yesterday, the central bank of Colombia is the latest FI agreeing to test R3’s technology, dubbed “Corda”, on real-world financial transactions and other applications.
And if R3 continues to grow this massive consortium, some even argue these technologies could have prevented the Great Recession.
Okay, woah. So what exactly is this technology?
R3’s Corda features a “distributed ledger” very much like blockchain—the underlying technology in Bitcoin and other cryptocurrencies.
Blockchain is simply an unbroken link of transactions from the very first time an asset is sold. For example, the first time a bitcoin swaps hands, the blockchain links each successive transaction to the one that came before it and the one that comes after it. It even has cool characteristics like not needing a third party to verify exchanges.
Well, Corda’s distributed ledger employs a very similar type of technology, but designed explicitly for global financial institutions. And in a perfect world, each FI would have a real-time history of every financial transaction within the ledger.
So what’s the big deal?
When it comes to record keeping, financial institutions are stuck in the stone age. Relying on “centralized” payments, most firms create their own ledger of transactions. Issue is, these ledgers have no way of being connected, which creates a slew of inefficiencies when firm A is verifying a transaction with firm B.
That would no longer be the case with R3’s distributed ledger. All data and history of every transaction will be instantly available to those who are granted access.
In a real-world scenario, this would allow banks to verify trade invoices and contracts immediately and without third-party mediation. In addition, FIs can implement stronger financial regulation, better fraud prevention, improved international payments and much, much more.
*Learn more about R3’s consortium and the potentials of **[Corda technology](http://www.r3cev.com/blog/2016/4/4/introducing-r3-corda-a-distributed-ledger-designed-for-financial-services).** *
Best Buy for Your Buck?
Retailers are increasingly measured by their ability to stave off Amazon. It’s not easy, but Best Buy (up ~46% this year) has proven its possible.
So what’s the trick? Demand for wearable tech and smart homes drove quarterly same-store sales 5.4% higher—double what analysts expected. But CEO Hubert Joly warns that with Amazon forever looming, the once industry-heralded, same-store sales metric may not hold the same weight.
Which is why Best Buy
(+0.09%) is turning to online sales (up 31% this quarter) and consumer-facing tactics like in-home installations and the return of the traveling salesman—seriously it’s coming back.
Remember, Best Buy still holds 29% market share of U.S. electronic sales (Amazon is only 11.2%). So the question is not necessarily “How can we sell more?” but “How can we continue selling?”
By ringing the doorbell and delivering you that new Philips Motion Sensor, Mr. Joly believes consumers are actually more willing to buy.
Spring in Their Step
Feeling pretty confident?
You’re not alone. U.S. consumer confidence hit 122.9—its second highest level since December of 2000 (this past March took the crown with 124.9).
Consumer confidence falls in a basket of indexes (like the present-situation index and the expectations index) that economists use as gauge of U.S. consumption.
And no wonder Americans are so happy. The unemployment rate sits at a 16-year low (4.3%), home prices are at an all-time high, and the stock market has soared since the election (the Dow is up over 4,000 points).
So what are you waiting for? Grab that credit card and spend all you’ve got—it’s the fiscally responsible thing to do these days.
United We Stand
(+2.92%) is closing in on a $20 billion deal to acquire Rockwell Collins, tightening its hold over the aircraft equipment market.
At a $94 billion market cap, United’s capabilities span from aircraft equipment to aerospace engineering to HVACs. And with Pratt & Whitney, the $14 billion (in revenue) jet engine supplier, already under its wing, United has gained significant leverage with partners like Boeing and Airbus.
But the acquisition wouldn’t just include Rockwell, a company known for its cockpit displays and communications systems—it would come with B/E Aerospace, the $6.4 billion aircraft seat manufacturer that Rockwell recently purchased.
What Else Is Happening…
- 21st Century Fox cancelled Fox News in the U.K.
- Kevin Durant said young players do not like Under Armour shoes—shares dropped 3%.
- U.S. mining company Freeport-McMoRan lowered its 90% stake in the world’s no. 2 copper mine to 49%.
- Google outlines for the EU its plan to change search results.
- Earnings: No Events Today
- Economic Events: No Events Today
- Earnings: Best Buy (+), H&R Block (+/-)
- Economic Events: Consumer Confidence (+)
- Earnings: Five Below
- Economic Events: MBA Mortgage Applications, ADP Employment, GDP, Corporate Profits, Petroleum Status Report, Farm Prices
- Earnings: Campbell Soup, Lands’ End
- Economic Calendar: Chain Store Sales, Jobless Claims, Chicago PMI, Consumer Comfort Index, Pending Home Sales, Money Supply
- Earnings: No Events Today
- Economic Calendar: Motor Vehicle Sales, PMI Manufacturing Index, Construction Spending, Consumer Sentiment, Baker-Hughes Rig Count
Mortgage-backed securities (MBS):
What is it:
A group of mortgages wrapped together to form a single security. This security pays investors via a combination of interest and principal.
Let’s see how it works:
Say Joe takes out a 30-year mortgage on his house from Brew Bank. Yes, Brew Bank takes in interest and principal through Joe’s monthly payments. But that mortgage also ties up Brew Bank’s capital (it could be lending) for up to 30 years!
Enter the Mortgage-backed security. Brew takes this mortgage and sells it to a private or government entity that pools Joe’s mortgage it with other mortgages (sometimes thousands!) and sells the resulting pool to large financial institutions.
Finally, investors will pay the institution to own a small portion of this larger pile of mortgages and either hold to earn interest or trade freely in the open markets.
Tell me more:
MBS can also be structured based on risk-reward. If a group of mortgages is likely to be paid back, the slice will get stamped with a strong rating and risk-averse investors (think pension funds) will earn lower returns. Conversely, riskier mortgages will be given a bad rating and risk-loving investors (like hedge funds) can generate much higher returns.
*If you’re interested in learning more, see how mortgage securitization played a key role in **[causing the financial crisis of 2008](http://www.investopedia.com/ask/answers/041515/what-role-did-securitization-play-us-subprime-mortgage-crisis.asp).*
Question of the Day
Four people need to cross a rickety bridge at night. Unfortunately, they have only one torch and the bridge is too dangerous to cross without one. The bridge is only strong enough to support two people at a time. Not all people take the same time to cross the bridge. Times for each person: 1 min, 2 mins, 7 mins and 10 mins. What is the shortest time needed for all four of them to cross the bridge?
Who Am I?
- I went to Northwestern University on a scholarship from General Motors and graduated with a degree in electrical engineering and computer science.
- I love Starbucks, but I don’t drink coffee.
- In 2011, I became the first female CEO of the Fortune 500 company I currently run.
- I am a member of Augusta National Golf Club.
Stat of the Day
The number of ice-cold cans of water Anheuser-Busch has donated to areas impacted by Hurricane Harvey. Its Cartersville, Georgia brewery has paused all beer production to support the relief efforts.