- U.S. economy: Goodbye, debt limit. President Trump is putting the debt cap on hold in order to ramp up domestic and defense spending. The annual budget deficit is on track to top $1 trillion.
- Jobs: Private payrolls as measured by ADP and Moody's grew by 156,000 in July, better than economists anticipated. Next up? The Labor Department's big jobs report, out tomorrow morning.
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The Fed Cut Is the Deepest
You called that from a mile away. So what now?
For the worriers, the NYT puts it well: The Fed is "vaccinating the economy against risks." While the stock market has been all gas/no brakes, consumer spending has been strong, and unemployment is at its lowest in a generation...
There are some nagging issues that sent the Fed into the locker room for a quick hammy massage.
- The trade war is still a threat to the economy, despite "constructive" talks with China.
- Slowing global growth is concerning-especially in Europe, where manufacturing gauges have been flashing red.
For President Trump: He got the rate cut he's been tweeting about, but it's not as yuge as he'd hoped. Some critics are whacking the Fed for seemingly caving under White House pressure...even if the cut was technically warranted.
For lending: Look across the Atlantic for clues. UBS said it's implementing a negative interest rate on wealthy clients who deposit over 2 million Swiss francs with its Swiss bank, citing expectations of a long period of loose monetary policy (aka very low interest rates).
- The Swiss National Bank kept negative rates at a meeting last month.
- The European Central Bank's deposit rate is currently -0.4%.
And for you: The Fed's decision only directly affects borrowing costs for banks, not consumers. But changes will trickle down to car loans, mortgages, and credit card balances.
Looking ahead...the Fed said it'll "act as appropriate" to keep the expansion on track, but Chairman Jerome Powell clarified that this cut was "not the beginning of a long series of rate cuts." When that news reached President Trump, he said, "As usual, Powell let us down."
Scotts Reports Blazing Sales
New marijuana-friendly laws in Ohio, Michigan, Florida, and Massachusetts aren't just increasing the number of unintelligible Postmates orders, they're boosting the fortunes of Scotts Miracle-Gro (+8.61%). The consumer garden supply company's stock jumped to a record high yesterday after it reported:
- 18% revenue growth in fiscal Q3, easily beating estimates.
- A third consecutive quarter of revenue growth at Scotts's marijuana-focused subsidiary, Hawthorne Gardening. Sales at the unit more than doubled during the quarter.
Its success isn't all about pot. Scotts's tentpole consumer products also sold well, and the company negotiated a more favorable deal to distribute Bayer's Roundup weedkiller.
But Scotts deserves points for foresight. When it bought a hydroponics supplier in 2015, it became one of the first public companies to bet on pot. It's been a long, strange trip since then. States have taken their sweet, earthy time to legalize marijuana, and the industry didn't become viable as quickly as the company had hoped.
Told ya. CEO Jim Hagedorn didn't miss his chance to spike the ball. "We see today's results as a validation of the strategy we initially laid out in 2015," Hagedorn said.
Alphabet's Bathing in Cash
For a decade, Apple has done cannonballs into the biggest cash pile around. But as the FT reported yesterday, Alphabet has overtaken its Silicon Valley frenemy in the liquidity department.
- Apple's cash pile peaked at $163 billion in 2017. Now it's $102 billion.
- At the same time, Alphabet's holdings have climbed to about $117 billion.
But that's not necessarily something to be proud of. Investors have lost patience with Alphabet for not putting the cash toward stock buybacks or dividends. Apple has spent $122 billion doing just that in the last 18 months, while Alphabet averages $1.7 billion/quarter.
It's not like Alphabet isn't trying to spend.
- It's buying so much real estate in NYC, you'll soon be flying out of LaGoogle Intl.
- Alphabet siphons profits from search advertising into moonshots like internet balloons and salt-based energy storage. Alphabet has lost $15 billion on those "Other Bets" in the six years since it started breaking out the unit's financials.
- And last week, Alphabet pledged another $25 billion for its stock buyback program. It's now greenlighted $37.5 billion in repurchases year-to-date.
The Earth May Be Flat, but It's Got a Lot of News
The first stop on our trip around the world is Shenzhen, where earlier this week the NBA re-upped its streaming deal with Chinese internet services conglomerate Tencent. The deal includes both live and on-demand video.
- An almost inconceivable number of people in China watch NBA programming: 490 million tuned in on Tencent's platforms last season. The entire U.S. population is ~330 million.
Now re-board the Brew Gulfstream and head west to Saudi Arabia, which is making progress in gender parity.
- 23% of Saudi women are now in the workforce, up from 18% in 2010 but way behind the global average of 48%.
- A big part of that uptick? Glowork, a recruiting company founded by a former KPMG exec that works with the government to help women find jobs.
Finally, hop across the Red Sea to Ethiopia, where the government said over 350 million trees were planted in 12 hours on Monday. If accurate, that sets a record for a one-day tree-planting spree.
- The prime minister, Abiy Ahmed, hopes to eventually plant 4 billion to combat deforestation, improve farmers' incomes, and tackle climate change.
Careful What You Wish For
The backstory: Locast was founded last year as a nonprofit by former Dish Network exec and lobbyist David Goodfriend. He threw a grenade on the TV business by transmitting signals to the Locast service, where people could watch for free, without permission.
- Locast argues that's a-okay thanks to a legal exemption from copyright laws for noncommercial entities servicing local jurisdictions.
But the big broadcasters disagree. They say the law applies to Locast because a) it isn't truly local and b) it has not-so-noncommercial beginnings-Locast got $500,000 in donations from AT&T earlier this year, for example.
Bottom line: Pay-TV players (like Dish and AT&T) prefer Locast's model over what they consider unfair distribution fees broadcasters charge. But the networks, facing an existential threat to their fee structures, say Goodfriend is less Robin Hood, more IP thief.
WHAT ELSE IS BREWING
- Beyond Meat (+0.90%) is now the most expensive stock to bet against in the U.S. And its main rival, Impossible Foods, just got the FDA's go-ahead to sell in stores in September.
- GE (-0.67%) turnaround update: It reported better-than-expected Q2 earnings and upped its forecast for industrial free cash flow. It also said CFO Jamie Miller is stepping down.
- Spotify (-0.17%) added more users than expected last quarter. Never underestimate the power of the summer playlist.
- Fitbit stock tanked almost 14% after hours following a Q2 earnings beat that just wasn't enough to cover the stain of lowering guidance for next quarter.
- Audi's former head, Rupert Stadler, was charged with fraud in Germany for selling cars with software that enabled cheating on emissions tests. Remember, Audi's the luxury arm of emissions black sheep Volkswagen.
Per a US Foods survey on the delivery industry, 28% of deliverers said they did what?
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Taken food from an order.