In anticipation of the Fed’s meeting this week, I am providing a chart that shows per month what the Federal Funds Rate has been since January 1971. I find that it helps put things into perspective.
Two stories in the realm of tech have caught my eye this spring and summer. The first came when Intel announced it was planning on cutting its workforce in the coming years by 11% or roughly 12,000 jobs. This past week CISCO released that it would be cutting its workforce by 7% or 5,500 jobs. A number of reasons have been given as to why these cuts are coming. Some point to signs of weakness in tech and others point to signs of tech’s further evolution. I tend to believe what we are seeing is more of a evolution of the tech sector rather than a sign of a fundamental weakness.
The nature of technology is ever shifting. Increasing bandwidth speeds and inexpensive memory have given birth to what we now know as ‘the cloud’. The could isn’t revolutionary in the sense that it is something new that has recently been developed. The idea encompassed by the term ‘the cloud’ has been around since the dawn of networking. During the tech boom of the late 90’s and early 00’s a number of cloud based services were being offered (most for free). While their scope was much more limited than current offerings, the same concept was employed and pushed. Limited scope and the tech bubble bursting delayed their development.
What cloud computing is doing is allowing for more centralized and more economies of scale in computing. It has and will continue to change the way tech companies think about staffing. This is particularly true on the back-end of system support and maintenance. Whether it be CISCO, Intel or some other company, the standard of necessary and unnecessary tech jobs is as fluid as technology itself. This raises many questions and concerns, not just for the future of technology, but for society in general.
For investors, it must be noted that both CISCO and Intel are both trading at prices that are near their historical tops. This is to say that in the market’s eyes both stocks are doing well. The section of the S&P 500 that is composed of tech stocks is also doing well. While the segment has not reached its 2000 era highs, it has far surpassed where it peaked in 2007. Tech has shown strength in the recent rally.
The rapid growth and development of the tech sector produces a climate in which large layoffs, bubbles and dramatic shifts in company focus will continue to happen. In the instance of CISCO and Intel’s layoffs, what might be seen on its face as an ominous sign, might actually be simply part of a growing process. A snake sheds it skin to grow larger. Some companies shed workers to ensure they remain viable into the future.
Kohl’s (KSS) earning surprise sent the stock higher last week. We take a look at the news coupled with a reading of the current stock chart and industry trend to get a sense of whether KSS is a stock worth putting on your investment radar.
Last week the GAP (GPS) reported an increase in June’s same-store monthly sales of 2%. This reversed a year long trend of reductions in monthly sales. As a result, the stock jumped nearly 5% from where it opened on Thursday to where it closed on Friday. Since early May, the GAP has being trending up, which is a much different picture from what the stock has shown for a long while.
Based on a brief technical analysis (illustrated in the chart below), if the overall market does not does not break to the negative, it would not be surprising to see the GAP continue to ‘melt up’ in the coming months.
RV retailer Camping World is reported to be in the process of having an initial public offering (IPO). I see this is bullish for associated RV makers, such as Winnebago (WGO). I see the entry of Camping World to the market a helpful setup in order to provide options as a greater share of the population becomes warm to RV travel. Again, as I have said before, I see the Baby Boomers retiring as a trend that will benefit all RV manufacturers and sellers.
Keep Camping World’s IPO on your radar.
The Friday trading session for U.S. markets was rather interesting. The news coverage of the market’s reaction to the Brexit was overdone. The market, as measured by the S&P 500 was down roughly 3% at the close. It was a decent drop for one day, but not all that wild compared to how the media was reacting.
Looking at the market from a technical viewpoint, the movement down hit against a level of support that has been in place for a while. In April the price range was tested and held, then in May the market retraced to the level and support held again. Today we find the market back at that level.
Monday is just as big of a day for the market as today’s post-Brexit was. Why? If the market holds within the support level, this will signal a short-term bullish case for investors. If the support level is broken, then we could see a much heavier sell off. How much of a sell off? It would not be surprising to see the market retrace back to where it bottomed out during in January and February earlier this year.
The direction the market takes off of this sell-off depends on how institutional investors view the additional risk the Brexit throws into the market. How much is tangible calamity and how much is exaggerated political posturing that makes good television? It’s not that the Brexit is a minor event, but, as an investor, you must answering the question of does it some how fundamentally change the path and current assumptions built into current economic projections? What are the near-term implications versus what are the longer-term implications?
Today’s election in Britain should give you an idea of how volatile a market can become in a very short period of time. Since the start of the week the market has been punch drunk on assurances that the leave vote would fail in Britain. Throughout today and into after-hours trading certainty remained. A significant amount of money bet long on the assumption that a vote to remain would reinforce the status quo and bring a higher level of certainty to the market. That was shortly shattered as votes started being counted. Whether it’s the general market or currency trading, the market got a rude awakening when what was assumed to be an open and shut case turned into the exact opposite.
As an investor, dealing with this situation would have been near impossible to get right. A little over a week ago all we heard from polling and the media was that the leave vote has gained strength and then for about the last week the opposite was the case. The market sided with the most recent trend believed; a stay vote victory. Major financial publications, such as the Wall Street Journal’s Barron’s weekend publication led the charge. Confidence continued to build.
The confidence that was built has now crashed. Investors on the wrong side of the trade are going to move to get out and other investors will pile on to sip from the downstream of market momentum. The situation is ripe for an overreaction in the opposite direction versus the positive reaction seen throughout this week. Uncertainty is a dangerous animal in the investing world.
Again, as I have said before, the fact that we have a greater share of risk-adverse investors in investments with greater risk profiles creates a situation where average volatility can lead to exacerbated levels of volatility in a short period of time.
Here’s to an interesting Friday.
The California Legislature recently passed the “Fair Wage Act of 2016”. The act, which has been signed into law by the Governor, Jerry Brown, puts the state on track to hit a $15 per hour minimum wage by 2021. Currently, the minimum wage in the state is set at $10 per hour. The law has brought a lot of attention to the state, since it is a very aggressive growth model. Besides the obvious, is their more to this legislative move than what meets the eye?
An underlying current that has been noted is the possibility that law makers have come to a conclusion that upward mobility in the economy is declining and therefore legislative action is being taken to intervene where the market is not being active. Whether or not we agree/disagree with the fact that upward mobility in the economy is increasing or decreasing, it is apparent that this legislative move is going to push a lot of ‘low-wage’ workers higher in terms of gross pay. The flip side of this equation is the hard fact that a business is not going to continue to employ people that do not bring in the value they are paid. By aggressively boosting the minimum wage over the next 5 years, California is going to force many employers to turn to other means.
Other means equates to greater automation. Whether we are talking fast food automation, greater use of agricultural harvesting machines or virtual assistants provided via software, employers are going to be pushed to find ways that might have a higher up-front cost, but lower lifetime cost. It’s a troubling thought to consider. The question that you arrive at is, “Where do all of these workers go?” Whether they are laid off or the new jobs never materialize because the minimum wage prices them out, we will never really know the full story.
In the age where government dependence is increasing on the part of more elderly Americans, the economy needs more workers contributing to ‘the system’. If the situation as described above happens as a response to rapid growth in the minimum wage, then we will find ourselves faced with a smaller workforce shouldering a larger burden from both elderly benefit recipients and those that have been priced out of work via the $15 an hour minimum wage.
Legislation that directly impacts business does not happen in a vacuum. Public and private organizations will react to the change accordingly. If the worker’s value exists, then the worker will benefit from the wage increase. If the value is lacking, then something will have to give. Whether is it a layoff, fewer hours or the closure of a business, some variable will need to be changed in reaction to the increase in the wage variable.
In my best estimation, I believe the extreme diversity that California presents will cause itself harm in this instance. A $15 an hour minimum wage in the San Fransisco Bay Area might be reasonable. Once you move into the Central Valley or into areas of Northern California a $15 hour minimum will be absurd and we’ll all pay from a grossly misaligned market limit on wages.
As we enter the latter part of May this week, we continue to see a market stuck in a trading range that sees much ambiguity in terms of real market direction.
A number of events are on the horizon, which news stories will spook the market or vault it higher is a big guess. OPEC’s June meeting, the Fed’s June meeting, Britain’s possible exit from the EU (June), Democrat and Republican conventions (July)…and the list goes on. These are all major events this summer that could cause the market whip up or down.
Rumor has it that the UFC (Ultimate Fighting Championship) is ‘advanced talks’ to sell the company. This story broke via ESPN on May 10th. For those not aware, the UFC is the premier mixed martial arts (MMA)/cage fighting company in the world and is owned by its parent company Zuffa LLC. In the fighting world it’s equivalent to what the NFL is in football.
The potential purchase of the UFC is a big deal on a number of fronts. For investors, it could be welcomed news because the sport of MMA has been largely a private realm. Outside of a very few penny stocks that exist or once existed, getting some skin in on the game of MMA was close to nonexistent.
For potential investors, what would a purchase by the named parties mean in terms of public investor access to a rapidly growing sport? Let’s take a look.
Blackstone Group – Publicly traded (BX). The company has around $344 billion under management. This is a very large and very diverse company. Though acquiring the UFC might make sense for BX, I wouldn’t expect the UFC’s performance to have an overwhelmingly strong impact on the stock’s future growth. The acquisition would be comparable to throwing a rock into a lake, not like throwing a rock into a small puddle. It would make a splash, but BX’s pool is very large.
China Media Capital – Private company. From what I have read the concept of the company is akin to what Blackstone is, except being based out of China.
WME/IMG – Private company. This company is an agency y focused on the development of sports and media talent. As with China Media Capital, it’s not listed on a public exchange. No luck here if you’re on the outside as an investor.
Dalian Wanda Group – Publicly traded (3699:HK)…Kind of. The company is in the process of delisting itself from the Hong Kong exchange. Trading has been suspended and some news articles point to the company’s management potentially not delisting based on a valuation cap between its public listing and private reception. I don’t follow the stock, so I have no clue. Not much of a chance getting in on this company, even though it’s technically listed on an exchange. What does the company do? They manage a lot of international properties.
In short, if you’re hot to invest in the world of MMA, I would not get too excited about the UFC’s potential sale given the names listed above. All but one is currently accessible via a public market and none provide any form of direct exposure to the sport’s growth.
If you saw the WWE listed among the companies above, then it would be a very different story. That’s not the information we were given to work with. What we have been told are mega companies that have business exposure in a wide array of areas.
Where’s an investor to go, if they want exposure in the world of MMA? It’s a hard call. Some indirectly associated companies like Muscle Pharm (OTC: MSLP) are public, but carry horrible performance records.
Have an idea? Share it below! The MMA investment world would love to hear your thoughts!