Throw us a bone

Quote of the Day

Robot-cars, meanwhile, are far easier to negotiate with at review time and ask only for some electricity.”

Market Snapshot

• A broad sell-off led to U.S. indexes finishing down.
• European and Asian markets ended lower.
• As prices fell, bond yields continue their rise.
• Bitcoin fell 12%—other cryptos suffered a sell-off as well.

JPMorgan, Amazon, and Berkshire Team Up on Health Care

Jamie Dimon, Jeff Bezos, and Warren Buffett. None are certified doctors, but together they’ll give Gregory House a run for his money: JPMorgan (-0.94%), Amazon (+1.42%), and Berkshire Hathaway (-0.15%) are in the beginning stages of creating a new company to offer lower-cost health care to their hundreds of thousands of U.S. employees. An entity, they say, that will be “free from profit-making incentives and constraints.”

The trio will leverage data and bargaining power to negotiate better costs across the health care ecosystem, offering a different, tech-focused model for health care in the U.S.

Because as Warren Buffett elegantly puts it, “The ballooning costs of health care act as a hungry tapeworm on the American economy.”

And why does Buffett believe health care reform is good for the economy, while bashing large tax cuts—a measure backed by most corporate titans? As he sees it, health care costs, not taxes, are the No. 1 ailment hurting U.S. businesses.

While corporate taxes only represent 2% of GDP—down from 4% in 1960—health care costs have risen from 5% to 18% over the same period.

And the U.S. spends far more on health care compared to other powerful countries:

* China—5.5% of GDP
* Japan—10.2%
* UK—9.9%

So what does this announcement mean for other health care providers?

More or less what you’d expect. CVS, Cigna, and Anthem all watched shares drop in early trading. It might not be a long dip, but it’s a telling one. Aka, traditional health care isn’t safe.

CVS already made a blockbuster $69 billion acquisition of insurer Aetna to better prepare itself for Amazon’s entry into pharma, while other health care providers across the board are flirting with fusion.

Because they (and investors) know health care is changing fast...just consider the tech and resources a group like JPMorgan, Amazon, and Berkshire bring to the table.

That, and we hear Buffett has a warm bedside manner.

President Trump: The State of the (Economic) Union Is Strong

“Speeeeech”

—America, to President Trump.

In his State of the Union address, the president ran a victory lap promoting record-low unemployment, a surging stock market (just forget yesterday), and historic tax cuts.

Trade—President Trump made a pledge to replace “unfair trade deals” with ones that are “fair” and “reciprocal.” And while he has pulled out of TPP and introduced minor tariffs, Trump has yet to strike a major blow to his main target, China.

Tax Cuts—When you successfully pass the first tax overhaul in decades, you’re going to call attention to it. Especially if the law doubles the standard deduction for individuals and dramatically lowers the tax rate for corporations, among other changes (like adding $1.5 trillion to the federal deficit).

Job Creation and Investment—President Trump credited businesses large and small that are investing in the U.S. economy. He specifically winked at Apple, which said it’ll create 20,000 jobs and contribute $350 billion at home.

iPhone X Marks the Weak Spot for Apple

Want to meet demand? Cut supply.

Unfortunately, that could be Apple’s (-0.59%) strategy due to lukewarm reception to its high-end iPhone X. The WSJ reports that the tech behemoth reduced its Q1 production target to 20 million units, or half the previous target.

Or, more likely, the production cut is the consequence of the iPhone X’s astronomical $999 price tag, lackluster holiday sales, and numerous manufacturing delays from incorporating new technology—like facial recognition and an organic light-emitting diode display (OLED).

The X’s sticker shock is driving consumers to older iPhone 6, 7, and 8 series models in impressive numbers. Ahead of tomorrow’s earnings report, analysts expect Apple’s total iPhone shipments to have increased 1.5% over those three months. Added bonus: they’re cheaper to make so Apple’s margins are higher.

Bottom line: maybe don’t sell a pocket-computer that costs almost as much as the computer-computers you’re planning to release.

SoftBank Throws Dog-Walking App, Wag, a $300 Million Bone

It’s a dog-eat-dog world and SoftBank has a voracious appetite.

The seemingly bottomless $93 billion Vision Fund from Japanese billionaire Masayoshi Son is unfurling a $300 million leash for on-demand dog-walking startup, Wag. Why the generous bankroll when Wag had previously raised only $68 million since its 2015 founding?

Data

Following the trail of investment crumbs, the Vision Fund has focused on companies that collect wide swaths of data. SoftBank already has financial interests in commuting (Uber), real estate sales (Compass), medical treatments (Vir Biotechnology), and, most on the nose, digital-mapping (Mapbox).

And Wag is a goldmine

The app tracks all walkers’ routes across the 100+ U.S. cities where it’s available, so every sniffed hydrant is logged. Maybe it’s time to listen to your dog’s privacy concerns.

But Wag hasn’t exactly buried its users’ information well in the past, like when sensitive customer data was unearthed on the company’s own website. Hopefully Wag’s new CEO, Hilary Schneider, can bring her LifeLock experience to Wag’s store of personal information.

What Else Is Happening…

• Waymo ordered thousands of Chryslers for its driverless car fleet.
• Morning Brew’s guide to buying altcoins (must-read for those interested).
• Another quarter of weak sales is prompting Harley Davidson to close a factory in Kansas City. On the bright side, it is releasing an electric motorcycle.
• Conservative personality Mike Cernovich slapped a $500,000 bid on the table for Gawker.com—a website that’s also receiving interest from Peter Thiel.
• CNN is ending some of its digital initiatives as it continues its push towards sustainable profitability.
• Facebook (+0.61%) is banning promotions related to cryptocurrencies on its site.

Economic Calendar

• Monday     Earnings: Lockheed Martin (+)

                    Economic Events: Personal Income and Outlays (+)

• Tuesday    Earnings: AMD (+), Aetna (+), McDonald’s (+), Pfizer (+)

                  Economic Events: Consumer Confidence (+)

• Wednesday    Earnings: AT&T, Boeing, eBay, Facebook, Microsoft, Nasdaq, PayPal, Qualcomm, Textron, Xerox

                        Economic Events: Chicago PMI

• Thursday   Earnings: Alibaba, Alphabet, Amazon, Apple, DowDuPont, GoPro, Mattel, Royal Dutch Shell, Time Warner, Visa

                   Economic Events: Motor Vehicle Sales, PMI Mfg Index, ISM Mfg Index

• Friday       Earnings: Charter, Exxon, Merck, Sony, Sprint

                 Economic Events: Consumer Sentiment, Factory Orders

From the Crew: The Name's Bond. Treasury Bond.

There’s been plenty to discuss this week: the Super Bowl, Kendrick Lamar at the Grammys, and pea milk. But one talking point has superseded them all:

U.S. government bonds.

Don’t laugh, we’re serious. If you’ve looked at the top of the newsletter these past few days, you’ve probably seen the yield on a 10-year Treasury note going up...and up...and up…

And this week, yields—the interest rate bondholders can expect as a return—reached their highest level since April 2014.

What in Yellen’s name is going on? Well, admittedly that green color is a little misleading. As yields rise, bond prices actually fall. This means investors are selling off U.S. government bonds (seen as a conservative investment) in favor of riskier equities as the stock market continues to surge.

You could also point to the likelihood of rising inflation as a factor in the sell-off. As we begin to feel the effects of the tax cuts, wages and prices should get a bump. That’s not an ideal world for bondholders, since inflation will reduce future purchasing power (i.e. your money won't go as far).

The Breakroom

Question of the Day

Find the four digit number in which the first digit is one fourth of the last digit, the second digit is 6 times the first digit, and the third digit is the second digit plus 3.

(Answer located at the bottom of newsletter)

Business Trivia

Can you name nine companies Elon Musk has either co-founded or played a hand in founding?

(Answer located at the bottom of newsletter)

Stat of the Day

3—The number of black CEOs leading Fortune 500 companies after AmEx CEO Ken Chenault steps down. The remaining lead Merck (Ken Frazier), TIAA (Roger Ferguson Jr.), and JCPenney (Marvin Ellison).

Breakroom Answers

Question of the Day: 1694

Business Trivia: Zip2, PayPal, SolarCity, SpaceX, Tesla, Neuralink, The Boring Company, OpenAI, Hyperloop