Apple gets Shazam'd

MARKETS

• U.S. markets: The Dow skidded to a four-day losing streak, its worst stretch since March. Treasury yields came oh-so-close to 3% (more on that later).
• Metals: Aluminum stocks dropped after the Treasury Department said it would ease sanctions on Russian aluminum producer Rusal.
• Earnings today: Verizon, Coca-Cola, 3M, Lockheed Martin, Caterpillar.

ANTITRUST

The EU Throws Apple’s Deal for Shazam in Limbo

There's only one person who haunts Tim Cook more than the ghost of Steve Jobs: EU antitrust boss Margrethe Vestager. She flexed her regulatory muscles again, announcing an investigation into Apple's (-0.29%) $400 million acquisition of British music discovery app Shazam.

The reasoning behind the probe, per Vestager:

• "Our investigation aims to ensure that music fans will continue to enjoy attractive music streaming offers and won't face less choice as a result of this proposed merger."

Why would music streamers face less choice?

To answer that question, let's recap how Shazam works.

Imagine you're grooving to a song on the radio, but you can't quite place it. Shazam will recognize the song in seconds, as you suddenly discover you're a sucker for Sam Smith ballads.

But there's more. Once Shazam identifies the song, it "refers" you to listen on various music streaming services (like Apple Music and Spotify). And it's a major source of traffic. Shazam drives 1 million clicks a day to music streamers.

So here's what the EU will be looking at

• Referrals: Will Apple use Shazam to choke off referrals to Spotify and direct users to Apple Music exclusively?
• Data: Shazam sits on a mountain of user data. The EU is worried that "access to such data could allow Apple to directly target its competitors' customers and encourage them to switch to Apple Music."

The Crew's take: We'll be watching the different ways European and American regulators respond to Big Tech stockpiling data. While the EU rolls out GDPR regulation and hits giants like Google with massive fines, the U.S. hasn't lifted a finger. Maybe it's because some lawmakers barely understand the business model of a company like Facebook?

RETAIL

Sears CEO Says Don’t Buy Kenless, Buy Kenmore

Sears CEO Eddie Lampert will bid for the company's staple Kenmore appliance brand as well as other Sears assets through his hedge fund, ESL. And shares shot up 7% on the news—a potential sale should inject Sears with enough cash to fend off bankruptcy for a little longer.

But we're not here to focus on Sears, we're here to focus on Eddie Lampert: the former Goldman Sachs savant who left the bank at 26 to start ESL. He then generated 20% returns for two decades, drawing comparisons to Warren Buffett.

But that's where the comparisons stop

Through his fund, Lampert married Sears and Kmart under Sears Holdings in 2005. And rather than adapting to retail's changing landscape...

...here's what critics say Lampert did: He repurchased company shares to inflate stock value and sold off assets to improve liquidity—similar to what he's doing now.

And from a business standpoint, we call that kicking the can (Sears) down the road (bankruptcy).

FINANCE

What Economists and Investors Are Watching: Treasury Yields

Yesterday, 10-year U.S. Treasury yields crept towards 3%—a level investors haven't seen in four years.

So what? A rising treasury yield could fundamentally shift investors' perspectives on the market. Analysts at BofA said if the 10-year hits 3.5%, Wall Street will hightail its way back to bonds, hanging equities out to dry.

What's driving yields

• Interest rates: As the Fed raises rates, yields rise with them.
• Inflation: As inflation rises, it decreases future purchasing power and investors demand higher yields.

It's a bit more complicated than that, but the point is...yields are rising and it could affect you.

Step into our office: The 10-year is a benchmark for corporate borrowing costs (i.e. the higher the yield is, the more it costs to borrow). And the less big companies borrow, the slower the economy might grow.

So basically what we're saying is: it's time to change your homepage from Google to this live-feed of the 10-year.

FINANCE

Highlights from the Investing Event of the Year

If you were looking to kibitz with a hedge fund manager yesterday, you should have attended the Sohn Investment Conference, the most prestigious event on the investor calendar (also, the proceeds benefit causes like pediatric cancer).

What happens at the conference: The brightest stars in finance dish on their favorite (and least favorite) stocks. And if you think their public statements don't matter, let us introduce you to the "Einhorn Effect"—named after hedge fund manager David Einhorn. When he speaks, in the words of one writer, "it's like jolting the company with a cattle prod."

And for one lucky stock, the Einhorn Effect was in full effect

Here's what happened to Box when venture capitalist Chamath Palihapitiya said the cloud storage company is in a prime position to leverage innovations in AI.

Other highlights:

• Jeff Gundlach of DoubleLine Capital says go long on energy, short on Facebook.
• Investors are bullish on stocks catering to millennials, like GrubHub.
• John Pfeffer of Pfeffer Capital declared, "Bitcoin is the first viable candidate to replace gold the world has seen."

WHAT ELSE IS BREWING

• Alphabet (+1.47% after hours) beat top and bottom line expectations for Q1, boosted by its 2013 investment in Uber.
• Netflix (-2.77%) wants to raise around $1.5 billion in junk bonds. Investors weren't feeling it.
• Health insurer Humana (+0.13%) wrote a $1.4 billion script for hospice operator Curo Health Services.
• Hasbro (+4.00%) reported a huge drop in sales for Q1, blaming Toys 'R' Us for liquidating.

WATER COOLER

VENTURE THIS

Each week, we’ll let you know about a startup making waves. We’ll tell you about the company, pitching you the good and the bad. Then we want to hear from you. Would you invest?

Earlier this month, Elon Musk raised $113 million for The Boring Company from guess who? Elon Musk. He contributed about 90% of the investment round, giving the company some much needed runway as it breaks ground in LA.

Seriously, Musk is actually breaking ground. He hopes to dig a network of tunnels under congested cities like LA, New York, Philly, D.C., and Baltimore. Cars or "pods" will then travel at high speeds from point A to B, alleviating city traffic.

Why we Musk invest

1. It could vastly improve traffic in congested cities and offer an alternative to public transportation.
2. Musk sometimes falls short of expectations, but when he says he's gonna do something, he usually does it.
3. It's got flamethrowers.

Why we Musk hesitate

1. We don't know about you, but something's a little fishy about The Boring Company having to tap Elon for funds.
2. Musk is only spending 2-3% of his time on it, adding, "This is basically interns and people doing it part-time."
3. This project is capital intensive, logistically complex, and bound to face significant regulation.

But enough from us, we want to hear from you. Would you get tunneling with The Boring Company? Are you IN or OUT?

THE BREAKROOM

#TradeTalks Tuesday
Fintech is quickly disrupting the finance industry. But it's a complex topic with many moving parts. Luckily, our friends at Nasdaq put together a great video breaking down the 4 biggest fintech trends to watch in 2018 (we'll give you a hint: AI will be a game changer). So stay ahead of the game and wrap your head around fintech. Don't forget to search #TradeTalks on Twitter for the latest trading trends, education and news.

THEY SAID IT

You think Kanye likes Tesla?

BRAIN TEASER
Numbers from 1 to 30 are written on a blackboard. Add the first two numbers, and append it to the end, then erase the first two numbers. For example, after the first time, the numbers become 3, 4, 5, ..., 29, 30, and 3. Repeat this process until you get only one number. How many addition operations are there, and what is the last number on the blackboard?

(Answer located at bottom of newsletter)

Breakroom Answers

Brain Teaser
After each operation, the numbers reduce by one, therefore you need 29 times. Of course, the last number remaining on the blackboard is the sum of all the numbers from 1 to 30, which is (1+30)*30/2=465.