2018's last best hope

MARKETS

  • Trade: President Trump said he'll likely go ahead with plans to boost tariffs on $200 billion of Chinese goods to 25% (up from 10% currently). Countdown to Trump's meeting with Chinese President Xi Jinping in Buenos Aires: three
  • U.S. markets: Stocks were back to their old tricks yesterday, with the Dow posting its biggest one-day gain since Nov. 7.

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AUTO

GM Slims Down in a Big Way

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There's spinning bad news you don't want to share...and then there's what General Motors (+4.76%) did in a major announcement yesterday. Let's compare the creative jargon from GM's PR team vs. what's actually happening.

"Staffing transformation": The automaker plans to cut its salaried workforce by as much as 15% (and its executive ranks by 25%). The cuts could total about 14,000 jobs. But remember, this "transformation" was set into motion last month, when GM offered buyout packages to about 18,000 salaried workers in North America.

"Increasing capacity utilization": GM said it will stop production at five plants across the U.S. and Canada, and two more internationally, in 2019. (It's possible some could resume operations, pending the outcome of union negotiations.)

Politicians from President Trump to Canadian Prime Minister Justin Trudeau were extremely disappointed/angry with GM. Here's Rep. Tim Ryan (D-Ohio): "Today our generation is facing a new Black Monday in the Mahoning Valley."

"Optimizing product portfolio" and "Transforming product development": There are two auto industry trends GM wants to stay on top of...1) growing consumer preference for SUVs and crossovers and 2) disruption from technological innovation.

So...it's 1) cutting a few slumping car models, including the Buick LaCrosse and the Chevy Impala, while 2) doubling resources allocated to electric and autonomous vehicle programs.

How much is this all going to cost/save?

These moves are expected to increase automotive free cash flow by $6 billion by year-end 2020...and hit GM with a one-time charge of between $3 billion and $3.8 billion in Q4 2018 and Q1 2019.

Here's what GM CEO Mary Barra had to say:

  • "We are taking this action now while the company and the economy are strong to keep ahead of changing market conditions."
  • "This is about making sure GM is lean and agile to get in front and lead in autonomous and electric vehicles."

Zoom out: Viewed in the context of GM's bankruptcy last decade and President Trump's promise to keep manufacturing jobs in the U.S., the political fallout for Barra's decision will be especially intense...even if the move was given the thumbs up by analysts.

HEALTH

Coming Soon to a Medical Device Near You? A New Approval Process

We don't say this often: It's been a wild month at the FDA. Fresh off its e-cig regulations, the agency announced yesterday it's going to overhaul the procedure for approving most medical devices.

Critics have waited a long time for this. The FDA currently operates under a framework from 1976, which allows certain devices to get a speedy, TSA PreCheck-type approval if manufacturers show their products are similar to others that already exist on the market.

  • The problem? Those comparable products (you can call them "predicates") are sometimes decades-old.
  • The data: Nearly 20% of devices cleared through this process are based on predicates that have been around more than 10 years, per the FDA.

Zoom out: Just a few days ago, a team of over 50 media organizations published an investigation into medical device safety. What did they find? "More than 1.7 million injuries and nearly 83,000 deaths suspected of being linked to medical devices had been reported to the U.S. Food and Drug Administration over a 10-year period."

IPO

Giving New Meaning to the Term Polar Bear Plunge...

Tencent Music--the streamer comprised of firms Chinese tech titan Tencent's acquired over the years--is expected to launch a $2 billion New York IPO on Dec. 12. Besides making it a Sagittarius, that listing date makes Tencent Music quite brave (not to mention, a natural adventurer who's passionate about solo travel and exploration).

There are two reasons: 1) Tech stocks are still recovering from a sell-off that thrust big names into bear market territory last week and 2) major December IPOs are exceedingly rare.

Since you've probably already heard about tech's troubles, let's focus on the December listing.

  • Per the NYT, just three companies have held December New York offerings worth more than $1 billion in the last decade.
  • And FWIW, Tencent Music could be one of 2018's last best hopes. As Axios points out, companies that want to IPO in 2018 but haven't done the paperwork need to file S-1 registration docs with the SEC by tonight.

Why there's a lot riding on Tencent Music: "Anything less than a strong and compelling deal before New Year's will signal a gloomy year ahead for others waiting to IPO," said the NYT.

ENERGY

Dueling Headlines: Oil Edition

Feels like up until today, there's been a red arrow tattooed next to "OIL" in the Brew's markets section for weeks--crude prices did slump to their lowest in more than a year on Friday. But is that good? Or bad?

In one corner, the WSJ:
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Their thinking? It's not 2014-2016 anymore.

Follow us, here...A couple years back, supply ballooned (h/t shale production), prices fell, and investment dried up. Places like Texas and North Dakota suffered job losses, which in turn soured consumer spending. That was tough on the economy.

But that's not the case with this price drop...because 1) the oil industry now has a better handle on shale production 2) it reps a smaller share of capital spending in the economy and 3) it employs far fewer people. So feel free to enjoy the low prices at the pump without worrying about the economy caving in.

In the other corner, NPR:
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Their thinking? A drop in oil prices is one thing (it's been a boom-and-bust industry since the first well was drilled in 1859)...but a drop in oil prices plus a stock market decline? That could signal global economic softening.

It could also ratchet up tensions ahead of December's OPEC meeting, when production cuts will be in the spotlight.

MARKETS

Stock Market Conversation Starters

Tonight at your HR-mandated bowling tournament, the boss starts talking about the stock market...but you were too busy watching NASA's Mars landing to know what happened yesterday. Here's how to join the conversation.

Talk big tech

Because everyone loves talking big tech. For a brief moment yesterday, Microsoft (+3.30%) passed Apple (+1.35%) as the world's most valuable publicly traded company, per Bloomberg. The last time Microsoft's market cap topped Apple's? Mid-2010.

Make a smart analogy

Use this insightful comparison for the stock market and the economy, c/o financial advisor Josh Brown.

Imagine the economy is a woman walking her dog, and the stock market is her hyperactive schnauzer. Look at just her, and she's walking ahead steadily...nothing too exciting. But look at her dog, and it's everywhere at once--sniffing the grass, lunging in 1,000 directions, etc.

Boil it down: "The economy and the stock market are somewhat connected, but they do not look the same. They do not act the same even if they're walking in the same direction."

WHAT ELSE IS BREWING

  • United Technologies (+2.06% after hours), an industrial conglomerate, announced plans to break up into three separate companies.
  • Airbnb poached former Amazon exec Dave Stephenson to be its new CFO ahead of an anticipated 2019 IPO.
  • Campbell Soup (-3.70%) reached a truce with activist hedge fund Third Point three days before a scheduled proxy vote.
  • The U.S. Supreme Court seemed open to the idea of allowing iPhone users to proceed with an antitrust suit against Apple. At question here is whether the company's App Store holds an illegal monopoly.
  • CVS (+3.54%) said its $69 billion takeover of Aetna (+2.25%) is expected to close by tomorrow.
  • A Chinese researcher claimed to have helped make the world's first genetically edited babies, and the scientific community responded with shock and alarm.

BREAKROOM

Brain Teaser
Find three words in the English language that satisfy the following:

Four letters long, start with t, c, or b, and share the same final three letters. The catch? They do not rhyme.

(Answer located at bottom of newsletter)

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Breakroom Answers


Brain Teaser
Tomb, comb, bomb

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Nov 27, 2018
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