foxex: Buyer's Market

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Monday's Headlines

1. U.S. markets rally on Merger Monday
2. Schwab and TDA make it official with $26 billion tie-up
3. LVMH scoops up Tiffany with raised bid

4. Latin America is burning

5. Bitcoin is breaking down

Markets Closed

Dow
28,066.47 +0.68%

S&P
3,133.64 +0.75%

Nasdaq
8,632.49 +1.32%

VIX
11.87 -3.81%

Bitcoin
$7,173.61 +0.76%

US 10-Yr Yield
1.764 -0.56%

Markets Today

U.S. markets rallied out of the gate today as the S&P 500 and the Nasdaq hit new record highs. Tech stocks led the way as chipmakers Nvidia and Intel posted gains on analyst upgrades. Merger mania was in the air as a slew of deals were announced, including Schwab's $26 billion purchase of TDA and LVMH's $16.2 billion raised bid for Tiffany. On the U.S.-China trade front, U.S. national security advisor Robert O'Brien said on Saturday that a Phase One trade deal with China could happen before the end of the year. The Chinese government posted guidelines on Sunday that indicated it would raise penalties for violating intellectual property rights. That's a sign that it is taking intellectual property theft seriously, which is a critical component of a trade agreement with the U.S.

Headlines

Charles Schwab will acquire TD Ameritrade in an all-stock deal worth approximately $26 billion. TD Ameritrade shareholders will receive 1.0837 Schwab shares for each AMTD share they own. The deal is expected to close in the second half of 2020, pending shareholder and regulatory approval. Schwab says the acquisition will bring it 12 million client accounts, $1.3 trillion in client assets, and approximately $5 billion in annual revenue.
LVMH will buy iconic American jeweler Tiffany & Co. in an all-cash deal worth about $16.2 billion or $135 per share. The European luxury group raised its offer from $14.5 billion or $120 per share. The biggest deal in the luxury sector ever, it is expected to close in the middle of 2020. Tiffany will join the LVMH Watches and Jewelry division which includes Bvlgari, TAG Heuer, Chaumet, Dior Watches, Zenith, Fred, and Hublot.
eBay is selling StubHub to Viagogo, a European competitor for $4 billion in cash. eBay bought the ticket reseller in 2007 for $310 million in 2007. Nice ROI!
Uber's license to operate in London will not be renewed due to safety issues, according to the London transportation regulator. The ride-sharing company has 21 days to appeal this decision, during which time it can continue to operate in the city. Uber says it has 45,000 drivers and 3.5 million riders in the British capital.
Bitcoin fell below $7000 on Sunday for the first time since May on news that the Chinese government will continue its crackdown on cryptocurrency trading operations and ICOs. Reportedly 25,000 Chinese blockchain firms may have tried to create and issue their own tokens in the past few years. Bitcoin's price recovered a bit on Monday to around $7200 as of 5 p.m., but has fallen by $3,000 since May.
Disney's Frozen 2 made $350 million worldwide in its opening weekend. An estimated $127 million was in domestic ticket sales at 4,440 theaters. This makes it the biggest animated film debut in history.

Latin America's Growing Problems

U.S. investors have fixated on the U.S.-China trade war and the yet to be signed USMCA, but in doing so they've often overlooked the political upheaval happening throughout Latin America, which is underscored by deep-rooted economic issues.

As Daniel Cancel, a columnist for Bloomberg put it in a recent column, "Latin America, which a decade ago harnessed a commodities boom to pull millions out of poverty and offer what many saw as a model of modernization, is in revolt. It's not another pink tide, nor is it a lurch to the right; the movement is more a nonspecific, down-with-the-system rage. Furious commuters are looting cities, governments are on the run, and investors are unloading assets as fast as they can."

In Chile, mass protests have engulfed the capital city of Santiago, prompted by a 30 cent raise in the subway fare.
In Bolivia, former President Evo Morales, who ruled the country for 14 years, was forced out of office, leaving a leadership vacuum with great unknowns.
In Brazil, President Jair Bolsanaro, who likes to compare himself to the U.S. President, recently reformed the country's pension system and is now on a mission to reduce tax breaks by 10%, free up government funds to pay down public debt, ease budget rules to lower obligatory spending, and end job stability for new civil servants. A little over one year into his six-year term, Bolsanaro risks losing the support that brought him into office.
In Argentina, current president, and political centrist, Mauricio Macri lost in the first round of voting after his failure to control inflation, protect purchasing power, lower poverty, and maintain jobs.
In Uruguay, the leading leftist Frente Amplio party, which has controlled the country for 14 years, is in a tight presidential race with the Conservative Party as voters have become fed up with rising crime and the ever-rising cost of living.
Venezuela is in the grips of hyper-inflation and extreme poverty as President Maduro tries to maintain his control over the country amid economic sanctions from the U.S. and other countries.

These are just some of the issues facing Latin America's economies, but they all speak to a rising sense of income inequality and government distrust that is bringing protesters out onto the streets and into the voting booths. Not to oversimplify matters, but underpinning a lot of this anxiety is the fact that most residents of these countries have not benefited from the economic growth of their countries, and that economic growth has been slowing for the past several years (see chart above). If and when that growth picks up, as the IMF projects, expect the rage to continue if Latin Americans do not feel their living standards are rising with it.

chart courtesy YCHARTS

Bitcoin v. Stocks

Two Thanksgivings ago, everyone at my table wanted to talk about Bitcoin and its fellow crypto coins. Crypto was hot and new millionaires were being minted every day. We know what happened after that, the price of Bitcoin was cut in half, then cut in half again as the CME began offering Bitcoin futures and retail investors backed away from the digital currency. But prices recovered somewhat in 2018, and at one point in time in 2019, the price of Bitcoin had appreciated more than any major asset class in the world. But, as we alluded to in our news highlights, the price has been in free-fall for the past several months and it's hard to see why that might stop.

While I got a few questions about buying Bitcoin last Thanksgiving, I'm glad I didn't recommend it. I never make recommendations anyway, but the chart above reminds me of why I shouldn't. While the S&P 500 is up more than 20% since last Turkey Day, Bitcoin has fallen as much, if not more, in the same period.

It may bounce back and stocks could crater, but no one is smart enough to know that and time it right.

More News:

Biotech Stocks Awaken From Long Slumber

Stocks Are Getting Bought, but Not Overbought Yet

Walmart Beats Earnings, Stock Fails at a Risky Level

chart courtesy YCHARTS

Fashion firm L Brands recouped some of its losses, rising 6.5% today. Jeweler Tiffany & Co. jumped 6.2% today after French luxury conglomerate LVHM announced that it would acquire it. Chip maker Nvidia jumped 4.9% today after Morgan Stanley upgraded its stock to a "buy" rating.

Technical consulting firm Jacobs Engineering Group fell 2.8% after posting earnings today. Food company JM Smucker fell 2.3% after it lowered revenue guidance today.

Word of the Day

Oligopoly
Oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence. The concentration ratio measures the market share of the largest firms.

Today in History

November 25, 1835

Today in 1835, Andrew Carnegie, future steel king, was born in Dunfermline, County Fife, Scotland. Carnegie came to the U.S. when he was 13 and went on to forge the steel industry that made America's railroads, bridges and automobiles possible. He also helped establish the public library system. In 1901 Carnegie became the world's richest man, selling out to J.P. Morgan for $400 million; but by his death in 1919 he had given away $350 million.

source: cmu.edu