foxex: Fast Money

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Wednesday's Headlines

1. U.S. Markets Tread Water on Fed Minutes

Markets Close

Dow
26,157.16 +0.03%

S&P
2,888.21 +0.35%

Nasdaq
7,964.24 +0.69%

VIX
13.3 -6.86%

INV Anxiety Index
100.13 Neutral

US 10-Yr Yield
2.477 -0.88%

Markets Tread Water on Fed Minutes

U.S. markets barely budged today as investors brace for earnings season to really begin. It's already underway, but many of the widely held companies won't report results until the end of the week and throughout April. We'll hear from JPMorgan and Wells Fargo on Friday, which will set the stage for the rest of the financial sector over the coming weeks. The big questions for the big banks are:

How does the global economy actually feel from a lending perspective?
With volatility relatively quiet, how is trading activity?
What is the impact of low interest rates on their balance sheets?
How healthy does the U.S. consumer seem?

Speaking of banks, CEOs of the largest banks in the U.S. convened on Capitol Hill today to testify in front of the U.S. House Financial Services Committee about the health of the economy and the banking system ten years removed from the financial crisis. Rep. Maxine Waters, the Chair of the Committee, reminded the committee and the press about the damage the banks did with irresponsible lending, and the price they paid for it:

Bank of America has paid $76.1 billion in fines.
JPMorgan Chase has paid $43.7 billion in fines.
Citigroup has paid $19 billion in fines.
Wells Fargo has paid $11.8 billion in fines.
Goldman Sachs has paid $7.7 billion in fines.
Morgan Stanley has paid $5.4 billion in fines.

Waters, a Democrat, pulled no punches in her opening remarks to the Committee:

"...It appears that they have treated those fines as simply the cost of doing business. All of the megabanks represented on the panel continue to rake in massive profits. Since the crisis, the megabanks have collectively made over $780 billion in profits, or nearly 5 times the amount they paid in fines. And despite all of the compliance failures under their watch, no one has made out better than the CEOs – one made as much as $30 million a year, and another made 486 times the amount a median employee at their bank is paid." - Congresswoman Maxine Waters (D-CA)

The tweet of the day goes to Lloyd Blankfein, the former Chairman and CEO of Goldman Sachs who is enjoying his retirement, especially the ability to tweet freely.

What the Fed Thinks

We got a taste of the Federal Reserve's thinking today when the minutes from the last meeting on interest rates were released. We know now that the Fed doesn't plan any more interest rate hikes this year - at least at this point - but what do the members of the Federal Open Market Committee worry about? Per the minutes of the meeting, Brexit, China and Europe.

"...A few participants noted that there remained a high level of uncertainty associated with international developments, including ongoing trade talks and Brexit deliberations, although a couple of participants remarked that the risks of adverse outcomes were somewhat lower than in January. Other downside risks included the possibility of sizable spillovers from a greater-than-expected economic slowdown in Europe and China, persistence of the softness in spending, or a sharp falloff in fiscal stimulus."

Source: FOMC

Brexit Latest

Speaking of Brexit, British Prime Minister Theresa May has asked the EU for a formal extension until June 30th for the UK to exercise Article 50. If the EU agrees to it, and they are voting on it as we write, May and members of the UK Parliament still need to formalize and agree on the actual Brexit plan. That is still up in the air with only two days to go before the original April 12th extended deadline comes and goes. Per the Associated Press, France has been reticent to grant the longer extension so far.

U.S. Consumer Prices Rise

Back in the U.S., consumer prices rose 0.4% in March, according to the Labor Dept. It was the biggest jump in 14 months, but still relatively tame as most of the increases were tied to higher gasoline and food prices. Inflation - one of the key concerns of the Federal Reserve, is still in check, as the Fed usually excludes those volatile components when it considers consumer prices. When it looks at inflation, the Fed tracks a different measure, the core personal consumption expenditures (PCE) price index, for monetary policy.

The Velocity of Money is Rising

Speaking of inflation, there is one sign that it could become a factor, although we don't know when. The Velocity of Money, which measures how quickly money is spent in a given time period, is a metric used to determine the spending and savings rates among consumers. After falling for the better part of a decade, it is starting to creep up again, which is a sign that the fears of the financial crisis may be fading.

Per the Federal Reserve Bank of St. Louis, "If the velocity of money is increasing, then more transactions are occurring between individuals in an economy." If the Velocity jumps too high, too fast, inflation could soon follow, so it's worth keeping an eye on.

Here's the Velocity of Money as chartered by the Fed since 1960. As you can see, we are nowhere near the levels reached in the late 1990s when inflation in the U.S. was a real problem. But given the Fed's focus on inflation, it is worth keeping an eye on.

Uber Tempers its Valuation

Per the WSJ, Uber is aiming for a valuation in its impending initial public offering of as much as $100 billion, below previous estimates of $120 billion. This may be in response to how the public markets have reacted to Lyft, since it went public a few weeks ago. Lyft's shares are well below their IPO price, as James explains in our daily chart, below. Uber is expected to file for its IPO tomorrow and set a date to go public in May. It will also likely disclose more financial information if and when it files tomorrow. We do know that the ride-sharing company lost $3.3 billion on $11 billion in sales in 2018. What else is under the hood?

Read More: Why Uber Faces a Tough Road Ahead

Today in Financial History

In 1951, John C. Bogle, aka "Jack" Bogle, who was an economics student at Princeton University, submitted his 123-page senior thesis, entitled The Economic Role of the Investment Company. In the thesis, Bogle concluded that for mutual funds, "... future growth can be maximized by concentration on a reduction of sales loads and management fees." Bogle went on to form Vanguard Group of Investment Cos. in 1974 - one of the largest money management firms in the universe.

Jack died on January 16, 2019, but made an enormous mark on the world of investing. He is known as the grandfather of the index fund and helped bring investing and mutual funds to millions of people. We were fortunate to spend some time with him in the last few years of his life. Here are a couple videos we did with him in his office inside the Vanguard campus in Valley Forge, PA.

Jack Bogle on Starting the Worlds Index Fund

Jack Bogle's Advice for New Investors

Take a Tour of Jack Bogles Legendary Office

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Chart of the Day: Lyft Extends Plunge Ahead of Uber IPO

From its initial public offering (IPO) price of $72.00 per share less than two weeks ago on March 29, ride-sharing company, Lyft Inc. (LYFT), immediately shot up to its current record high of $88.60. That was on the day of its IPO. Unfortunately, the good news ended abruptly there. In the subsequent week and a half, the stock price has sunk rapidly, with only a brief respite late last week. The situation got even worse on Wednesday, prompting nearly an 11% drop on the day. All told, from the noted IPO high of 88.60 down to Wednesday's record closing low of 60.12, Lyft has plummeted by a whopping 32% in nine trading days.

Helping to drive the stock's continued freefall on Wednesday were market expectations ahead of Uber's own initial public offering, scheduled for Thursday. This is expected to be the largest IPO of the year. According to Reuters, Uber is forecasting a public valuation of $90-100 billion, which is below previous expectations. But it would still dwarf Lyft's current market capitalization of around $17 billion. And many analysts don't believe that Lyft deserves even that valuation.

There are two likely scenarios for Lyft as Uber goes public. If Uber's stock experiences a sustained rise out of the gates, Lyft is highly likely to get a significant lift from its lows on the coattails of its much larger competitor. In an opposite scenario, if Uber's stock quickly drops or shows lackluster performance in the first few days and weeks after its IPO, Lyft is highly likely to extend its downward spiral.