It’s a me, Mario

Quote of the Day

I want to put H&M and Zara out of business.”

Rent the Runway CEO Jennifer Hyman is taking on fashion royalty. And she’s not kidding around. “I don’t want to...I plan to,” she added.

Market Snapshot

  • U.S. indexes are still dropping in the face of tax plan uncertainty.
  • BWW shares surged 24% after a $2.3 billion takeover offer from Roark Capital
  • Energy shares slipped following a drop in oil prices.
  • GE shares continued to fall, sliding 5.9% to an eight-year low.


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The U.S. is Having a Shale of a Time

We may not have qualified for the men’s World Cup, but if there’s one thing the U.S. can expect to dominate, it’s oil and gas production.

That’s according to the International Energy Agency’s (IEA) World Energy Outlook, which predicts the U.S. will dramatically transition from an oil importer to a net exporter by the late 2020s. Which is surprising when you consider the current balance: we receive 10.1 million barrels of petroleum per day but send out only 5.2 million (mainly to Canada and Mexico).

So what’s the IEA seeing that we’re not? We read through all 782 pages of the report (okay...skimmed) to find out it’s not such a mystery.

Shale

Shale is just your average sedimentary rock that just so happens to store vast reserves of oil and natural gas. But it hasn’t played a large role in energy markets until recently because shale oil is so darn expensive to extract compared to conventional crude oil...not to mention environmentally sketchy (heard of fracking?).

Think about it like this:

  • Extracting “conventional” oil and natural gas is like squeezing water out of a saturated sponge...it couldn’t be easier.
  • “Unconventional” oil and gas (found in shale) is like trying to squeeze water out of clay. Can’t say we’ve tried, but doesn’t sound fun.
Enough geology for one morning...back to the U.S.

With conventional fossil fuel sources pretty much depleted, whoever can wring water out of clay the most efficiently will own the market. And the U.S. has become a lean, mean, shale-extracting machine (having large deposits located all over the country helps, too).

Because when the price of oil dropped from $100 a barrel in 2014 to $26 in 2016, U.S. shale producers took their licks. But those challenges spurred innovation. And that innovation will lead to market dominance.

There’s a ton more in the report we didn’t get to (#newsletterproblems), including renewable energy. Here’s a 13-page executive summary to give you the full picture.

Venezuela: “We Swear We Were Gonna Pay You Back”

It’s always fun and games until one country decides to miss a $200 million loan payment. Heavily-indebted, inflation-riddled Venezuela has officially defaulted on the first of (what should be) many loan payments.

What went wrong? Well, it’s hard to pay off $60 billion in IOUs to bondholders with only $9 billion left in the bank. That, and the fact Venezuela's already late on $420 million worth of payments.

If you’re looking to point the finger at someone, aim it at President Maduro (labeled a “dictator” by the Trump administration) and his drug-slinging partner-in-crime, Vice President Tareck El Aissami. Together, they’ve shown little promise of reviving the nation. Look no further than Monday’s debt restructuring meeting, where international investors didn’t get the plan they had hoped for (or any at all)...but they did get some chocolate.

Altogether, Venezuela holds $150 billion in sovereign debt. And with this latest default, you better believe investors are flashing back to 2012...when Greece shocked the world, defaulting on over $200 billion.

It’s a Me, Mario!

If you missed out on Nintendo’s 82% stock rally this year, the FOMO’s about to get worse. Illumination Entertainment, the creative minds behind Universal’s Despicable Me and The Secret Life of Pets, is close to a movie licensing deal for Super Mario Bros.

The Mario bros have a storied past: two Italian brothers put a life of plumbing behind to save Princess Peach from evil turtles and magic mushrooms. The rest is history. Mario and Luigi went on to inspire the highest grossing video-game franchise of all-time, which has sold 330 million units to date.

It was only a matter of time until Hollywood wanted a piece of the action (again). Fortunately for Illumination, it was in the perfect position to negotiate a deal. That's because its parent, Universal, is already working with Nintendo to build a life-sized Super Mario World in Osaka, Japan.

So if a Super Mario movie is a hit...we can only hope for the Yoshi documentary: Life Beyond the Egg.

FDA FTW

Nana’s Sunday-Saturday pill container just got a 21st century upgrade. The FDA officially approved the first digestible e-pill for the schizophrenia drug, Abilify. It’s a revolutionary way of monitoring pill intake through real-time app alerts. Basically, if you forget to take your medicine one day, or start popping Abilify like Tic-Tacs, your doctor will be watching.

Invasive? Sure. But important? You bet. By 2020, health care will account for 20% of the U.S.’ ~$23 trillion GDP. Of that, nearly 30% of health care costs are considered “wasteful.”

That’s because millions of patients either forget to follow or totally disregard their treatment regimens. And our friends at the FDA say that can tack on up to $100 billion in added costs per year.

Of course, no breakthrough is without its critics.

What Else Is Happening…

  • Online TV service Philo is launching a $16/month entertainment package sans sports.
  • Home Depot (+1.64%) got a boost from hurricane damage, with same-store sales rising 7.9% this quarter.
  • Take a dive into Lyft’s financials.
  • In a nod to French regulators, Airbnb instituted a rental cap in some neighborhoods of central Paris.

Economic Calendar

  • Monday     Earnings: Tyson Foods (+)
  •                     Economic Events: Treasury Budget (-)

  • Tuesday    Earnings: Dick’s Sporting Goods (+), Home Depot (+)
  •                   Economic Events: PPI (+)

  • Wednesday    Earnings: Cisco, Target
  •                         Economic Events: CPI, Retail Sales

  • Thursday   Earnings: Best Buy, Gap, Walmart
  •                    Economic Events: Jobless Claims, Industrial Production, Housing Market

  • Friday       Earnings: Abercrombie & Fitch, Foot Locker
  •                  Economic Events: No Events

Brewified Debates: Corporate Tax Cuts

One of the major flashpoints in the GOP’s tax bill is a corporate tax cut from 35% to 20%. Of course, not everyone is on board. Let’s look at both sides.

Tax cuts are much-needed relief

U.S. businesses are at a disadvantage. Look no further than the 35% corporate tax rate...among the highest in the world. American companies are busy shuttling their profits between tax havens (remember the Paradise Papers?) because they’re not about to pay more than a third of their income to the government.

And this isn’t just a Republican idea. Back in 2012, Obama proposed lowering the rate to 28% (while eliminating loopholes).

Celeb endorsement: Gary Cohn, chief economic advisor to the president:
“We have to create a corporate tax rate...that makes us competitive with the rest of the world so we can attract businesses back to the United States.”

A solution in search of a problem

There is no empirical evidence that more cash in corporations’ pockets will incentivize job creation or generate economic growth for anyone but the top 1%. Corporate profits are already near record highs, the labor market is bordering on full employment, and the economy is humming along, with GDP growing at a 3% annual rate. Let’s tackle the real issue here, which is tax avoidance by multinationals.

Celeb endorsement: Howard Schultz, CEO of Starbucks:
"Is that profit going to go back to the people who need it the most? Is that going to help small businesses? Is that going to help half the country that doesn't have $400 in their bank account for a crisis? No."

The Breakroom

Question of the Day

The year 2001 started at midnight which falls between December 31, 2000 and January 1, 2001.

What was the date and time exactly one million seconds later?

(Answer located at the bottom of newsletter)

Business Trivia

GE shares have fallen 43% YTD. It’s the worst performing company in the Dow. Can you name any others from this year’s bottom five?

(Answer located at the bottom of newsletter)

Stat of the Day

$80 million—The amount Cascade Investment, a real estate firm tied to Bill Gates, just invested in an Arizona-based “Smart City.”

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Breakroom Answers

Question of the Day: January 12th at 1:46:40 pm

Business Trivia: Procter & Gamble, Nike, Walt Disney, United Technologies

 

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