That's a wrap

MARKETS

  • U.S. markets: Stocks surged Thursday before the long weekend.
  • Crypto: Bitcoin has seen better days—it's now hovering below $7,000.



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ECONOMY

Well How Bout That Q1

Picture

The conversation starter around Easter dinner, Passover seder, and every other kitchen table this weekend, probably:

‘Well how bout that Q1?'

Stocks were mixed: Between the February sell-off, a slide in tech, and the threat of a trade war, stocks didn't surf the tax cut wave like we expected. The S&P (-1.20%) and Dow (-2.26%) both finished down, though the tech-heavy Nasdaq (+2.32%) held on tight to its gains.

But the index you should really be paying attention to is the VIX, the standard measure of market volatility. It jumped 81% on fears of inflation and interest rate hikes.

M&A boomed: Companies cozied up to each other in Q1, with global mergers and acquisitions hitting $1.2 trillion in value (strongest start ever). The value of deals increased 67% YoY, although the number of deals decreased 10%. Shows you the size of some of these mergers...

...like these two standouts: Cigna's $52 billion deal for Express Scripts and EON's $27.1 billion acquisition of Innogy, the renewable energy arm of German utility group RWE.

What happened? Well, it's hard to draw a line across all industries, but tax cuts and strong economic growth clearly gave CEOs the confidence to pull the trigger.

Crypto tanked: Hmmm...suddenly your friends aren't shoving their Coinbase accounts in your face as much. Bitcoin slumped 49%, its second worst quarter on record. And as Bitcoin goes, so does the rest of the digital token world, shedding more than $300 billion in value.

Crypto bulls still preach "HODL," but bears say, "I told you so."

What to watch: Corporate earnings. In the next few weeks, CEOs will describe in the most flattering terms how well their companies performed in Q1.

And after the massive cut in the corporate tax rate, we expect record profits to match the rhetoric.

E-COMMERCE

President Trump Tweets @Amazon

President Trump tweeted another Arial attack at Amazon—this time suggesting USPS was losing $1.50 on each Amazon shipment. He also argued Amazon is part of the reason USPS loses billions of dollars each year on nearly $70 billion in revenue.

Why the president is wrong: Put simply, USPS’ contract with Amazon is profitable—a 2006 law demands it.

Why the president is right: USPS could be charging more on each delivery—and like he said—around $1.50 more.

To understand why, let's take it back to 2007

As e-commerce continued to grow, the Postal Service set a precedent: allocate at least 5.5% of its fixed costs to package delivery. A larger chunk? Use for USPS' biggest business: first-class mail (birthday invites, colonoscopy bills, etc.).

But over the last decade, package delivery grew to account for 25% of USPS revenue, while first-class mail revenue continued to slide. The issue is, first-class mail continues to absorb USPS' fixed costs, effectively subsidizing Amazon's package delivery costs.

Of course, Amazon isn't the only company with a USPS "discount." But its sheer delivery volume allows it to benefit more than others.

The Crew's take: The president is right—USPS could and should be charging more, but it likely won't. That's because USPS needs Amazon to drive business, while Amazon is already crafting alternative solutions to crop USPS out of the picture.

Be on the lookout for...these attacks to continue and how they affect Amazon's stock.

M&A

Walmart Cozies Up to Humana

Walmart invited Humana over for the holiday weekend to discuss an acquisition (h/t WSJ). And if all went well, a deal could marry Walmart's retail empire with Humana's health care ecosystem. An interesting combo, if you ask us.

But Walmart says it's a perfect match. Between acquisitions (Jet.com, Modcloth, Bonobos), and investing in e-commerce to compete with Amazon, CEO Doug McMillon is looking for a way to push beyond traditional retail.

Good thing Humana might be on board. Health care consolidation between CVS and Aetna and Cigna and Express Scripts has left Humana fifth-wheeling. But if it swipes right on Walmart, it would gain access to mountains of consumer pharmacy data. Translation? With better insight on who's filling scripts and who's not, Humana could better price insurance—a critical advantage in a competitive industry.

What the Crew's watching: Cash for an acquisition. Humana's valued at $37 billion, and last time Walmart checked its pockets, it had only $7 billion on hand.

TRANSPORTATION

Tesla’s Autopilot Comes Under Fire

A new month, a new problem for Tesla.

Musk's electric car maker acknowledged that its Autopilot system was engaged during last week's fatal crash involving a Model X. We also found out the victim, Wei Huang, didn't use the steering wheel for a full six seconds before the SUV struck a highway divider.

What is Autopilot? Tesla's "driver-assistance" system. It's not quite 100% self-driving, but it can detect other cars and objects, brake, steer, and stay in lanes. As you can imagine, critics attack it for making drivers complacent at the wheel.

But, even following this accident, Tesla is still confident Autopilot "unequivocally makes the world safer." It cites statistics that an Autopilot-enabled Tesla is 3.7x less likely to be a part of a fatal crash.

Zoom out: We'll know more as the National Transportation Safety Board investigates the case. But one thing's clear—the honeymoon for self-driving tech is officially over.

WHAT ELSE IS BREWING

  • SpaceX completed another launch.
  • Major advertisers pulled out of Laura Ingraham's show on Fox News after she criticized a Parkland survivor on Twitter. She's taking a vacation this week.
  • Tesla is recalling 123,000 cars after "a power steering issue."
  • Under Armour was hacked, impacting over 150 million MyFitnessPal accounts.
  • Saks Fifth Avenue and Lord & Taylor were hit with data breaches as well.

WATER COOLER

A CLOSER LOOK

Having trouble staying up-to-date on the latest developments in each industry? We got your back.

Director Steven Spielberg helped us phone home with E.T. and brought great whites to the shores of New England. So what's next? How about jumpstarting the VR industry.

That's the hope following this past weekend's release of "Ready Player One," a major blockbuster in which virtual reality is the main attraction.

Some background: The movie is based on an Ernest Cline novel set in 2044. It depicts the adventures of a boy who spends all his time in a fully-realized virtual world called the OASIS.

Of course, Hollywood is a pro at leveraging star power to move inventory. Did you want to rock Ray-Bans like Tom Cruise in Risky Business? You weren't alone. Sales of its Wayfarer brand almost doubled the year the movie was released (1983).

But selling consumers on VR headsets could be more challenging. Because unlike sunglasses, the headsets are clunky and expensive, while the content isn't quite there yet. There is some hope: in late 2017, sales of major brands HTC Vive (the movie's official VR partner), PlayStation VR, and Oculus Rift slowly picked up after a miserable start.

Still, the industry will need more than a little Spielberg magic to start fulfilling its other-worldly expectations.

THE BREAKROOM

PRODUCTIVITY TIP

Designate two blocks of the day to respond to emails—per Tim Ferriss. Odds are, your inbox is getting blasted all day (starting with the Brew, of course). Answering emails in a one-off fashion is inefficient and will disrupt your focus on other tasks. So the Crew has set aside two blocks during the day to answer emails, one in the AM, the other in the afternoon. It's been a game-changer.

Have a productivity tip for the Brew community? Let us know!

THEY SAID IT

"The ugly truth is that we believe in connecting people so deeply that anything that allows us to connect more people more often is *de facto* good...That's why all the work we do in growth is justified. All the questionable contact importing practices. All the subtle language that helps people stay searchable by friends."

From a 2016 memo (titled "The Ugly") written by Facebook VP Andrew "Boz" Bosworth. Zuckerberg and Boz say they now disagree with the message.

BRAIN TEASER

What emotion is an anagram of a homophone of an antonym of a homophone of an anagram of "wolf"?

(Answer located at bottom of newsletter)

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Breakroom Answer

Brain Teaser
Fear. (The anagram of wolf is fowl. The homophone of fowl is foul. The antonym of foul is fair. The homophone of fair is fare. The anagram of fare is fear, which is the emotion.)

 

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