Heavy Metal

MARKETS

• A surge in healthcare stocks drove the S&P higher.
• Fears of a trade war boosted gold prices.

ECONOMY

Concerns Rise of Trade War

Here’s a reminder from your Econ 101 textbooks: institute 25% tariffs on steel imports and 10% on aluminum and you can expect international backlash. Especially when the decision is based on a Cold War-era statute that can be invoked when foreign imports pose a risk to national security.

Because threat or no, that type of declaration is bound to put the U.S.’ relationships with other countries on shaky ground.

And it did…

Some context: The U.S. is the world’s largest steel importer (26.9 million metric tons in 2017).

Here’s what some of our suppliers had to say:

Canada: “It will take responsive measures to defend its trade interests and workers.”

Brazil expressed “enormous concern” and might take “multilateral or bilateral” protective measures.

European Union: “We will react swiftly, firmly and proportionally.”

It’s the classic Settlers of Catan conundrum: If you screw over Bethany when you trade for ore, you better believe she’s gonna lowball when you trade back for sheep.

But the administration is standing strong

President Trump (tweeting in response): “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.”

His thought process? (1) The U.S. has been bleeding blue collar steel jobs, and these tariffs will bring them back. (2) China’s monopoly on steel production has led to unfair competition in the market.

But many fear these tariffs could raise costs in other industries that rely on imported steel (i.e. car manufacturing). Not to mention, China is only the U.S.’ 11th biggest source of imported steel.

What it means for you: If a trade war breaks out, look out for higher consumer prices and a depressed stock market.

TRANSPORTATION

Controversial MIT Study Points to Low Wages for Ride-Hailers

Lump a bunch of MIT researchers into an Uber and they’ll come out with a thesis. In this case, a new study titled The Economics of Ride-Hailing: Driver Revenue, Expenses and Taxes.

The sparknotes:

Drivers for Uber and Lyft make a median hourly profit of $3.37
74% of drivers earn less than minimum wage
30% of drivers lose money every mile
Who (or what’s) to blame? Gig economy business models that saddle employees with fixed costs (e.g. cars), while their income shrinks due to industry competition.

But Uber said we’ve got some numbers of our own: Two studies from 2015 and 2017 put average hourly earnings at $19.04 and $21.07, respectively. In a weekend post on Medium, it also convincingly pointed out how MIT’s methodology was flawed.

Then there was this…

MIT’s lead author shouldered the criticism and agreed to take another look. So for now, we’re still left wondering: is it better to have a minimum wage job or “be your own boss” in the gig economy?

STOCKS

Stock Up: Gap. Stock Down: McDonald’s.

Gap rides Old Navy to crush quarterly estimates

Gap followed the lead of retailers Macy’s and TJX, reporting a strong holiday quarter and its first annual comparable sales growth since 2013. Investors threw on their hoodies and boosted the stock 9%.

The real star of the show? Old Navy, which saw same-store sales grow 9%. The brand’s secret sauce is a flexible supply chain that allows it to compete in the fast-fashion game.

Bet on it: Gap should continue to pour resources into Old Navy while focusing less on its Gap and Banana Republic brands.

McDonald’s wasn’t so lucky

McDonald’s just got hit with its biggest one-day McStock drop ever, as shares fell 4.8%. Apparently, consumers aren’t digging the new $1, $2, and $3 value menus (and neither is RBC Capital Markets, which downgraded the stock).

To make things worse, increased ad spend highlighting the new menu options undercut the rest of McDonald’s breadwinners. Now? The stock is down from 2017 highs, some investors continue to heavily short it, and others are McDoubling down.

FINANCE

BlackRock Has the Talk With Gun Companies

You know that person who doesn’t talk a lot, but when she does…you listen? In finance, that’s BlackRock, the world’s largest asset manager ($6.3 trillion AUM). The firm posted a note on its website explaining its active approach to the gun industry controversy.

What’s in the note:

* BlackRock said it’s spoken to companies in its portfolios that make and sell firearms, asking questions like, “What steps do you take to support and promote gun safety education at the point of sale?”
* It also said it’s looking into creating funds and index-based portfolios that exclude gun companies. Some of its clients—which range from large pension plans to your average Joe—have asked for this option.
* BlackRock will use its voting power in specific companies to “vote against specific directors” on this “issue of tremendous urgency.”

Zoom out: BlackRock is the top shareholder in two (American Outdoor and Sturm Ruger) of the three public firearm companies, so its voice carries weight.

WHAT ELSE IS HAPPENING

• J.C. Penney is cutting 360 jobs and reported disappointing earnings.
• L.L. Bean is the next retailer raising the minimum age for purchasing guns to 21.
• Toyota is starting a new company to develop self-driving software.
• Axa is in talks to buy property insurer XL Group.
• Siemens is moving forward with its plan to take its healthcare unit public. Mark your calendars for March 16.
• China set GDP growth forecasts at 6.5% for 2018.

BREAKROOM ANSWERS

RISE & GRIND

Productivity Tip

If you want to make it to the top, start with some productivity hacks from the most successful people. This week’s tip? Accomplish your biggest task first every morning. Make a list, Monday-Friday. See you if you can do it each day this week and circle back with us on Friday to tell us how it went.

MENTAL STRETCH

Trivia
Rank these Dow companies by when they were founded from oldest to youngest. Apple, Boeing, Home Depot, GE

BRAIN TEASER
Participation in the local soccer league is 10 percent greater than it was last year. The number of boys increased by 5 percent, and the number of girls increased by 20 percent. What fraction of the soccer league is now girls?

Breakroom Answers

Trivia
GE (1892), Boeing (1916), Apple (1976), Home Depot (1978)

Brain Teaser
4/11 (See explanation)