foxex: Throwback Thursday

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Thursday's Headlines

1. U.S. markets post third consecutive day of losses on conflicting trade news
2. A new proposed cannabis bill lights up pot stocks
3. Schwab rumored to offer takeover bid for rival TDA

4. OECD warns of slowing growth and climate change challenges

Markets Closed

Dow
27,766.29 -0.20%

S&P
3,103.54 -0.16%

Nasdaq
8,506.21 -0.24%

VIX
13.13 +2.74%

Bitcoin
$7,633.65 -4.99%

US 10-Yr Yield
1.772 +1.96%

Markets Today

Another day of losses for U.S. markets, making it three in a row as sentiment continues to sour on the status of U.S. - China trade talks. Volatility spiked today, although the markets' losses were muted. The day was punctuated by news that Schwab may try to buy rival TD Ameritrade for $26 Billion, and Xerox's threat to make a hostile offer for HP. It kind of felt like the 1980's all over again.

Headlines

Last night both houses of the U.S. Congress nearly unanimously passed a bill in support of pro-democracy protesters in Hong Kong. If signed by President Trump, it would require the State Department to review the special separate status Hong Kong has from the rest of China in trade, as well as impose sanctions on officials responsible for human rights abuses in Hong Kong. This bill comes just as U.S.-China trade talks have hit a rough patch.
In other U.S.-China Relations news, China's chief trade negotiator, Liu He, invited U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin to hold an in-person meeting in Beijing.
WeWork will lay off 2,400 employees or nearly 20% of its workforce, in its efforts to stop hemorrhaging cash. This comes after the New York Times reported last Sunday that WeWork might cut as many as 4,000 jobs, so more layoffs could be coming.
Gary Jones, the president of the United Auto Workers (UAW) union, resigned yesterday just as the Union's board was voting to expel him after he'd been implicated in a scheme to use union funds for personal expenses. The resignation also came on the heels of General Motors' allegations that Fiat Chrysler had bribed UAW officials to get favorable contracts and disadvantage GM.
Alphabet (GOOGL) announced that it will no longer target political ads at people by their political affiliation or public voting records. President Trump's campaign manager, Brad Parscale, attacked Google on Twitter over the change.
Xerox Holdings (XRX) sent a letter to HP Inc.'s (HPQ) board of directors that, unless they reconsidered Xerox's acquisition offer by Monday, it would turn to a hostile takeover, taking the offer directly to shareholders.

Schwab Said to Buy TDA for $26 Billion

It was only a matter of time, and the time appears to have come in the online brokerage industry as Charles Schwab, the original discount broker, is said to be in talks to buy rival TD Ameritrade in a deal valued at $26 billion. Schwab laid down the gauntlet in early October by eliminating trading fees for stocks and ETFs. TDA, E*TRADE, Interactive Brokers, and Fidelity all followed.

Judging by investor reaction, TDA, which lost nearly 25% of its market value the day Schwab announced it would eliminate commissions, appeared to be vulnerable. TDA's stock jumped 18% today on the rumor, allowing Schwab to make a generous offer for TDA that values it roughly where it traded before that fateful day in October. If you are on TDA's board of directors, it is your responsibility to heavily consider the offer lest you be accused of neglecting your duty to shareholders. Here's how the publicly traded online brokers have traded over the past two months, including today's reaction.

chart courtesy YCharts

I spoke about this potential deal on Yahoo Finance today if you prefer the video version.

The combined company would have around 29 million customers and $5 trillion in assets under management, bringing into the ring with industry giants BlackRock, Vanguard, and Fidelity. Size matters in financial services. Still, the deal is not a slam dunk, by any means.

A buyout of one behemoth in the online brokerage industry by another will inevitably bring on an anti-trust investigation. Schwab has approximately 50% of registered investment adviser (RIA) custody assets and TD Ameritrade has between 15% - 20%. Creating an entity that could comprise nearly three quarters of a market could be problematic. Make no mistake, this deal is about scale, but it is also about firms like Schwab trying to lock up as many financial advisors as possible because advisors are the golden ticket to customers like you and me.

Marijuana Legalization Bill Hits the Hill

The House Judiciary committee approved a bill that would legalize marijuana on a federal level if passed. The legislation includes a 5% federal tax on cannabis products that would go to provide job training, legal aid, and literacy programs to those who've been most impacted by the war on drugs. This could affect a huge number of people as the ACLU estimates that marijuana arrests make up more than half of all drug arrests in the U.S. The legislation also provides states incentives to clear the criminal records of people with low-level marijuana offenses.

The bill stands a reasonable chance of being passed in the Democratically-controlled house. Chances are much slimmer in the Republican-controlled Senate, where Senate Majority Leader Mitch McConnell opposes legalization. Despite the steep challenge of passing the bill in the Senate, pot stocks are up substantially today. The largest pot stock, Canopy Growth is up 15.1% today, reversing a steep slide, though it is still down 45.2% over the past year.

Image source: YCharts

OECD Warns of Slowing Global Growth and Climate Change

The world economy is projected to grow by a decade-low 2.9% this year and next, according to the Organisation for Economic Cooperation and Development, which trimmed its 2020 forecast from an estimate of 3.0% in September.

The OECD, which is an intergovernmental economic organization involving 36 countries, says that governments are failing to deal effectively with global challenges such as climate change, the digitalization of their economies, and the crumbling of the multilateral order that emerged after the fall of Communism. The decline in global growth is particularly concerning, according to the OECD and other institutions, given the trillion of dollars in government stimulus central banks have pumped into their economies to stimulate growth. Yesterday we shared the chart on developed economies that have seen multiple interest rate cuts just in the past year. While those cuts have propped up global stock markets, they have done little to nothing to boosting economic growth.

The OECD recommends that global governments act immediately to arrest the slowdown by "...reducing policy uncertainty, rethinking fiscal policy, and acting vigorously to address challenges raised by digitalization and climate change, all have the potential to reverse the current slippery trend and lift future growth and living standards."

Read the report and check out the infographics. It's fascinating and important.

More News:

Canopy Growth Stock Moves to Test 50-Day Moving Average

Bullish Traders Are Shifting Their Focus to Retail

Charles Schwab rumored to buy rival TDA

chart courtesy YCHARTS

Clothing maker L Brands bounced back from yesterday's drop, rising 7.6% after it announced earnings. Discount broker Charles Schwab announced plans to buy its rival TD Ameritrade, investors seem to approve, sending Schwab's stock up 7.4%, for more on that, see above.

E-Trade Financial fell 9.3% today after being left as the unfortunate third-wheel of the brokerage space after the proposed Schwab-TDA merger. UBS analyst Timothy Arcuri downgraded the shares of semiconductor firms KLA, Applied Materials, and Lam Research from "neutral" to "sell." The stocks fell 6.9%, 5.4%, and 3.8% respectively.

Word of the Day

Hostile Takeover
A hostile takeover is the acquisition of one company (called the target company) by another (called the acquirer) that is accomplished by going directly to the company's shareholders or fighting to replace management to get the acquisition approved. A hostile takeover can be accomplished through either a tender offer or a proxy fight.

Today in History

November 21, 1990

Today in 1990, former high flying executive at investment bank Drexel Burnham Lambert, Michael Milken, also known as the 'Junk bond King' of the 1980's is sentenced to ten years in prison and fined $600 million for insider trading and stock manipulation. While he is credited with founding the high-yield debt market, after his indictment Milken was banned from the securities markets for life and also finds himself among wall street's famous crooks.