foxex: One Billionaire to Rule Them All

Insight after the bell

By Caleb Silver, Editor in Chief

Wednesday:

One Billionaire to Rule Them All
Treasury yields hit multi-year highs
Toys 'R' Us Considers a Reset
A Disturbing Divergence in the Markets

#1 One billionaire to rule them all
It's that time of year, again. The good folks at Forbes are out with their 400 List and there are a few obvious winners, and a few surprises.

The Obvious: Jeff Bezos has sprinted to the #1 slot as Amazon flirted with the $1 trillion market cap milestone. His net worth, per Forbes: $160 billion, and $78.5 billion of that was added in just one year. Thank you Prime members and Amazon Web Services, the fastest growing and most profitable division inside Amazon.

Bill Gates, Warren Buffett, Mark Zuckerberg and Larry Ellison round out the top 5. No surprises there. They are collectively worth about $460 billion dollars.

The Unexpected: Jack Dorsey, the CEO of both Twitter and Square, saw the biggest percentage increase in his net worth of 184% to $6.3 billion. He's #85 on Forbes list, but that's not bad for a former ambulance driver.

President Trump saw his rank decline 11 spots since last year, but 138 spots since he announced his successful presidential run in 2015. Forbes estimates his net worth at $3.1 billion.

The Surprising: Vince McMahon of the WWE. His net worth was $1.7 billion in March of 2018, but the surge in shares of WWE since then makes that $3.4 billion today. Who says wrestling is fake?

Why it Matters: It doesn't really matter in our daily lives, but scorekeeping is fun and the Forbes list is great cocktail party small-talk if you have nothing better to discuss. But, in terms of income inequality and the growing chasm between those that have way more than anyone would ever need and those who may not be able to afford groceries this weekend, this is the poster-child for that movement.

What's Next: There are a lot of newcomers like Chris Larsen, the CEO of Ripple and the first 'crypto-billionaire' to appear in Forbes' list. Dropbox CEO Drew Houston also made the list due to the success of his company since its IPO. While the top of the list looks the same except for the Bezos factor, hot tech founders are cracking it given their outsized ownership of their company shares as they take them public. Expect a lot more of that in the years to come.
Read More:
This Is How Donald Trump Actually Got Rich
How Jeff Bezos Became the World's Richest Man

#2 Mind the curve:
The yield on the 10-year Treasury note hit its highest level since July of 2011, and the yield on the 30-year hit its highest level in four years. Interest rates are rising -- we know that -- but the multi-year spikes for the 10 and the 30- year yields are reinforcing the fact that the U.S. economy is really strong right now and the Fed has promised to keep inflation in check.

Why it Matters: If you own a mortgage or finance a car, the yield on the 10-year Treasury note is a critical metric that directly impacts your own bottom line. The fact that the 30-year yield is also rising implies that the economic growth we are experiencing feels sustainable to both U.S. and global investors. Strength in both the 10- and 30-year Treasuries is good news for savers and fixed income investors, who have been suffering for nearly a decade of low yields as the U.S. 'eased' its way of out the 2008-09 crisis with ultra-low interest rates.

What's Next: The U.S. Treasury is transitioning into a seller of Treasury bonds after being a net buyer for years. That's kind of the way it should be - especially when growth is strong, unemployment is low and consumers are feeling confident. As we know, when yields rise, prices on Treasury bonds fall, which drives investors into stocks. In case you missed it, stocks are at or near record levels in the U.S.
Read more:
Why the 10-Year U.S. Treasury Yield Matters
Which economic factors impact Treasury yields?

#3 Comeback kid: Toys 'R' Us may return
Reset on Aisle 5!!! Toys 'R' Us is reportedly scrapping plans to sell off its intellectual property and brand names in a bankruptcy auction as it pursues a new rebranding campaign that could pave the way for the retailer to return. In court papers filed Monday, as reported by the WSJ, the venture capital and private equity backers behind the company said bids for its intellectual property including its trademarks were not substantial enough compared with an alternative plan of trying to relaunch them as operating businesses.

Why it Matters: Toys 'R' Us was dying, killed by Amazon and Walmart - mostly Amazon. But in 2018, brands matter and Geoffrey the Giraffe still has one, apparently. KKR and Bain Capital, Toys' private equity backers, know this. They also know they have a better shot relaunching the retailer at smaller scale and leveraging the brand affinity to make money in other ways, rather than just letting everything go in a fire sale.

What's Next: Don't expect Toys 'R' Us to return to the public markets anytime soon or at all. Big box retailers are an endangered species, even if they have a strong online presence. Toys 'R' Us is not a revival story for retail investors to get excited about. But, if you are a traditionalist who likes to see the companies of your childhood survive and thrive in today's cutthroat online environment, raise your sippy-cup and let's toast Geoffrey the Giraffe.
Read More:
Toys 'R' Us Lenders Cancel Auction, Plan to Revive Brand
Toys 'R' Us Stock Doesn't Exist: Here Is Why

Chart of the day: Market diverges … worried?
As the Dow continues to defy gravity by making progressively higher all-time highs, market watchers have pointed out with some alarm that small-cap stocks have not recently been a part of the record high club. In fact, as the large-cap Dow climbed sharply for much of September and then started October with a bang, making new all-time highs, the small-cap Russell 2000 index spent September mostly in a freefall from its August highs. The beginning of October thus far has been even less impressive for smaller companies, as the Russell 2000 has continued to lag way behind its big brothers – the Dow and S&P 500.

Typically referred to as a 'divergence,' the opposing trajectories of large- and small-cap stocks are seen by some as a screaming red flag indicating that a major market move may be imminent, as divergences must ultimately be resolved one way or the other. So which one will it be – will the Russell 2000 play catch-up with its large-cap counterparts, or will the Dow and S&P 500 come tumbling down to follow small-cap weakness?

Unfortunately, popular sentiment would more likely lean towards the latter scenario, as small-cap stocks have traditionally been seen as a leading indicator for both the economy and the markets. We believe, though, that this type of thinking may be somewhat outdated, and that recent economic growth and strength could be a catalyst for an impending small-cap rebound. Wednesday's price action for the Russell 2000 showed a solid rally that could signal the beginnings of such a rebound.

Relative Price Moves of the Dow and Russell 2000