Morning in Arizona

Morning in Arizona

The Headline Animator

Monday, August 08, 2016

We Can Be Patient

Financial Review

We Can Be Patient


DOW – 14 = 18,529
SPX – 1 = 2180
NAS – 7 = 5213
10 Y un 1.59%
OIL + 1.22 = 43.02
GOLD – .40 = 1336.00

The S&P 500 hit an intraday record high this morning at 2185, as oil prices rose. On Friday, stocks surged, with the Dow jumping nearly 200 points and the S&P and the Nasdaq closing at record highs after a strong July jobs report showed the economy added 255,000 new jobs in July.

Federal Reserve policymaker Jerome Powell says the US economy is at increasing risk of becoming trapped in a prolonged phase of slow growth that points to the need for lower interest rates than previously expected. Powell told the Financial Times he favored a “very gradual” path for any rate hikes as the US economic outlook was dogged by global risks. Powell said, “With inflation below target, I think we can be patient.” Next week, we get the monthly CPI report on July inflation at the retail level; my guess is that anything under 10% inflation and the Fed will continue to remain patient.

Oil rose 2.5% after a report that some OPEC members had called for a freeze in production. Members of the Organization of Petroleum Exporting Countries are planning to hold talks next month on the sidelines of the International Energy Forum in Algeria. But the same obstacles that prevented an agreement on proposals to freeze output in April or fix a new production target in June are still there. Efforts by some OPEC members over the past two years to limit the group’s output have come to nothing. But the threat of a production freeze can help to turn sentiment, at least short-term.

It may feel like earnings season is coming to a close, but one important sector is just getting started. Many of the country’s largest retailers report quarterly earnings this week including: Macy's, Nordstrom, Kohl’s, J.C. Penney, and Ralph Lauren.

Wal-Mart will buy online retailer Jet.com for $3.3 billion in what appears to be the largest-ever acquisition of an e-commerce company. Walmart hopes the acquisition will help jump-start its struggling online business, which is just a fraction of the size of Amazon’s. Walmart generates about $14 billion in annual e-commerce sales, compared with about $99 billion from Amazon. Under the terms of the deal, Jet co-founder and chief executive Marc Lore will remain at his post and run Wal-Mart’s U.S. e-commerce operations. Wal-Mart has been working to scale its online selection to better compete with Amazon, whose vast assortment dominates e-commerce. Jet.com scaled up to 12 million different products in just one year and reached a run-rate of $1 billion in gross merchandise value. Not bad for a relatively young startup.

The side story is there is a guy named Eric Martin, lives in Pennsylvania and works at bathroom refurbishing shop. Last year, Jet.com held a contest to see who could make the most referrals to the new site. Martin took it very seriously, and spent about $18,000 hustling up online referrals. Martin was awarded 100,000 shares in the startup – now worth somewhere around $20 million. Ten other people were runners-up in the contest and they each were awarded 10,000 shares of Jet.com – still a nice reward.

Creating the world’s “largest mattress distribution network,” Steinhoff International Holdings has agreed to buy Mattress Firm for $3.8 billion, including debt. The $64 per share in cash offer represents a 115% premium to Mattress Firm’s closing price of $29.74 on Friday and has been unanimously approved by the boards of both companies. Mattress Firm, founded in 1986, has about 3,500 stores across 48 states with 80 distribution centers. Steinhoff is a German-listed $22 billion furniture conglomerate led by the South African retail mogul Christoffel Wiese. The Mattress Firm deal would give Steinhoff access to the growing American market.

The mountain resort operator Vail Resorts is buying Canada’s Whistler Blackcomb in a deal worth about $1.1 billion. Whistler, which is about 75 miles from Vancouver, was the location of the Nordic events during the 2010 Winter Olympic Games.

TIAA has reached a deal to buy EverBank Financial for $2.5 billion in cash, an agreement that comes about two weeks after the Florida-based lender said it was in talks to be acquired. The bid, worth $19.50 a share, matches the terms EverBank outlined late last month and marks a 26% premium over where shares traded ahead of media reports about the buyout talks. Buying EverBank would give TIAA $27.4 billion in assets and $18.8 billion in deposits. EverBank focuses on online and mobile banking but also has some offices.

Aeropostale has been negotiating a potential sale to private equity firm Versa Capital Management that might save thousands of jobs at the company and see it take over 500 of the teen retailer chain’s leases. Versa’s offer would be a potential stalking horse bid in a bankruptcy auction for Aeropostale scheduled for later this month, setting the minimum price for other potential buyers. Additional bids are due Aug. 18.

Comcast’s NBCUniversal has acquired the rights to J.K. Rowling’s “Harry Potter” and “Fantastic Beasts” franchises from Warner Brothers, in a deal valued at around $200 million. The seven-year deal, which begins in July 2018, will make all eight “Harry Potter” films and the forthcoming “Fantastic Beasts” movies available on NBC’s portfolio of cable networks, which include USA and Syfy. It also lets NBC’s theme parks host fan events, movie screenings and promotional activities tied to both franchises.

Meanwhile, for all the muggles who don’t fly on a broom, Delta Air Lines has resumed flight operations following a massive computer outage that crippled the airline for more than six hours today. According to Delta, a “major system-wide network outage” on Monday had delayed flights worldwide. The widespread computer problem was caused by a power outage at its headquarters in Atlanta. The outage meant flights worldwide were being delayed and airport screens and Delta’s website were not showing updated flight status information. About 450 flights were scrapped and delays and cancellations continued even as systems came back online.

China’s exports and imports fell more than expected in July, making a rocky start for the third quarter and suggesting global demand remains weak in the aftermath of Britain’s decision to leave the EU. Exports fell 4.4% on-year, while imports fell 12.5% in U.S. dollar terms, resulting in a trade surplus of $52.31B. The trade figures will again steer attention to China’s economy, which slowed to a 25-year low in 2015.

Japan’s antitrust regulator has raided the office of Amazon Japan on suspicion of pressuring retailers to offer products with more favorable conditions than rival sites. Amazon Japan’s website booked net sales of $8.3 billion last year, equivalent to 7.7 percent of Amazon.com’s worldwide net sales. Amazon’s practices toward retailers and e-commerce partners have also come under scrutiny in Europe.

Britain’s Serious Fraud Office has launched a formal investigation into suspected fraud, bribery and corruption in connection with commercial plane sales by Airbus. The move comes after U.K. Export Finance suspended the issue of export credits to the French plane maker, citing discrepancies over the number of agents’ fees disclosed in applications for export support, or missing names of third parties, in some cases dating back years.

Apple is preparing to unveil successors to the iPhone 6S and iPhone 6S Plus as early as next month with more advanced photography capabilities and upgraded hardware in a design similar to that of last year’s models. They will also remove the headphone jack, in favor of Bluetooth connectivity and the chance to sell a boatload of wireless headphones. iPhone demand has waned in recent quarters, partly due to the lull between product launches, so the new models will be critical, coming just before the holiday season.

This October, the US Supreme Court is scheduled to take on a case with major implications for designers of all sorts. It centers on how much Samsung should pay Apple for infringing on iPhone design patents. The legal battle between the two smartphone makers is over how much money Samsung should pay Apple, after a US jury ruled in 2012 that Samsung had infringed on Apple patents and copied the design of the iPhone, specifically the rounded corners of the face, its bezel, and the grid in which icons are arranged.

The judgment ordered Samsung to pay Apple $930 million, but on appeal Samsung successfully got the part of the ruling on trademark liability reversed, reducing the amount to $548 million. Samsung believes the amount is still excessive, and wants a cut in the $399 million of that figure attributed to design patents. But designers are concerned that if the court reduces the damages, it reduces the worth we attribute to design and could encourage copying in fashion and other industries.

Currently the relevant section of US law covering design patents states that the infringer is liable for the total profit made on the infringing product. US courts have typically taken this to mean that the party holding the patent is entitled to all profits attributed to the design, even if the infringement is on just one part of the design. Samsung argues the law goes too far. In theory, designers could become something like involuntary licensees, where the copier could still turn a profit off an infringing product and just pay for the portion that it copied.

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