The greatest show in Cupertino

QUOTE OF THE DAY

It’s worse than tulip bulbs. It won’t end well. Someone is going to get killed.”

Market Snapshot

• All major U.S. indexes closed at record highs.
• Oil prices rose due to lower production from OPEC.
• Treasury yields rose as investors poured through economic data.
• After reportedly seeking a buyout, Nordstrom shares spiked after hours.



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The Greatest Show in Cupertino

Apple (-0.40%) hosted its annual jamboree at the brand new Steve Jobs Theater. And in between the stunning videos, enthusiastic applause, and product descriptions, Apple made some pretty significant news.

Let’s take a scroll through the highlights:

iPhones

• Apple introduced three new phones (it has announced two per year since 2013).
• iPhone 8 and iPhone 8 Plus. There were modest tweaks (like a new processor) to the previous editions. Models will start at $699 and hit stores September 22.
• iPhone X. Among other upgrades, Apple’s dropping the home button, adding facial recognition sensors, going edge-to-edge with an OLED screen, and jacking up the price to $999. It’ll ship November 3.

Apple Watch Series 3 ($329)

• LTE cellular networks (aka no phone needed in the gym).
• Hits stores September 22.

Other Products

• The new Apple TV ($179) will support 4K and HDR displays.
• Apple’s new AirPower (coming next year) is a wireless charging dock that can simultaneously charge your iPhone X, Apple Watch, and AirPods.

Our Take

The iPhone: For the 10th anniversary of the first iPhone, Apple certainly didn’t disappoint with the iPhone X. But that didn’t stop its stock price from dropping before the end of trading. Apple’s iPhone remains its biggest moneymaker, earning $762 billion for the company in the last ten years. But with the iPhone X there are some questions in the air. Will facial recognition take off? Will consumers cough up a month’s worth of rent for the new phone? Will poop emojis replace English?

At the very least, investors were not happy about orders being held till October, disqualifying iPhone X revenue from being included this fiscal year.

The Watch: The Apple Watch sprinted past Fitbit in Q1 of this year, grabbing 16% market share to make it the most popular item in the wearables market. According to Tim Cook, the Apple Watch is the best-selling watch in the world, with sales increasing 50% YoY.

To be clear, wearables are still not a must-have for many of us…but as health monitoring technologies rev up, so will sales. Researchers expect shipments of smartwatches to increase from 71 million units to 161 million by 2021.

The Apple Ecosystem: For us, the most compelling visual from the entire event (and there were plenty of compelling visuals) was the image of the new iPhone, Apple Watch, and AirPods all wirelessly charging on the AirPower. It’s Apple’s latest tactic to create seamless integration between all of its software, hardware, and cloud services.

Because Apple hopes that once you enter its all-encompassing universe…you never leave.

Incoming: Median Household Wages

In 2016, the median income for U.S. households hit a record high at $59,039 (+9.1% over the last 20 years).

But before you wind up for that high-five, let’s take a closer look:

• Some economists suggest these data are misleading, arguing that new Census Bureau metrics for median income aren’t comparable to those before 2014. In fact, it’s entirely possible the previous record (set in 1999) still stands.
• Other analysts say the figure underestimates true purchasing power, now that the average household has fewer people.

Meanwhile, income inequality remains a problem. U.S. households in the 10th percentile earned $13,200 (+0.2% in last 20 years), while those in the 95th percentile earned $225,000 (+23.6% in last 20 years).

But there’s good news: the poverty rate has dropped from 14.8% to 12.7% over the last two years.

We Want Free HBO

Interested in free HBO? Better stick with AT&T. Now, subscribers on its lower-tier Unlimited Choice Plan will have free access to HBO’s binge-worthy favorites.

Sure, this move feels a bit drastic—just this April, AT&T rolled out the same promotion on its most expensive plan—but as CEO Randall Stephenson put it, “Any plan that keeps communications customers from leaving makes the overall business more profitable.”

Interesting point, Randall, but maybe it also had to do with marketplace trends. T-Mobile released something similar, offering free Netflix to subscribers on its unlimited family data plan, and Verizon is providing its homegrown video service (go90) to keep customers hooked.

Regardless, AT&T and Time Warner Cable (HBO’s parent) appear to be pregaming the $85 billion merger…even before it gets approved.

What Else Is Happening…

• Austria issued 100-year government bonds; it’s the first eurozone country to do so.
• Ancestry.com CEO Tim Sullivan will leave after 12 years at the company—it will delay the company’s $2.6 billion IPO.
• DowDuPont is still splitting into three public companies, but with slightly different structures.
• SoFi CEO Mike Cagney plans to step down by the end of the year.

Economic Calendar

• Monday     Earnings: No Events

                    Economic Events: No Events

• Tuesday    Earnings: No Events

                  Economic Events: Small Business Optimism Index (+)

• Wednesday    Earnings: No Events

                        Economic Events: MBA Mortgage Application, PPI,
Treasury Budget

• Thursday   Earnings: Oracle

                   Economic Events: CPI, Jobless Claims

• Friday       Earnings: No Events

                 Economic Events: Retail Sale, Industrial Production, Business Inventories, Consumer Sentiment, Baker-Hughes Rig Count

Brewified Terms

Master Limited Partnership (MLP)

We scratched the surface of Master Limited Partnerships in yesterday’s BP piece. Now, let’s dive a little deeper.

What is it

A publicly traded limited partnership. It is a strategic way for companies to raise money while allowing investors to avoid double taxation.

Unique characteristics

• Whereas public corporations issue stock shares to investors, MLPs issue stock units.
• Investors in public companies are taxed twice on the same earned income. This is because corporations are defined as their own legal entities. Investors are taxed once at the corporate level and again at the personal income level. MLPs are not separate legal entities and only get taxed once at the personal level.
• MLPs must generate at least 90% or more of their income from the processing and transportation of natural resources.
• MLPs have two classes of partners:

* General Partners manage the day-to-day operations of the company.
* Limited Partners purchase units of the MLP and help raise capital for operations.

Let’s tie it back to BP

BP’s massive U.S. pipeline business transports oil and natural gas.

• Pro: it’s a very stable business which provides great cash flow to investors.
• Con: it’s extremely capital intensive, and money can be tied up in operations for a long time.

BP’s “aha moment,” like many energy companies before it, was to free up and raise additional capital by spinning this business into an MLP. Public investors get their slice of the pie, and BP can put the money towards other operations.

The Breakroom

Question of the Day

If 9999 = 4, 8888 = 8, 1816 = 6, 1212 = 0, then 1919 = ?

(Give up?)

Who Am I?

I’m the Senior Vice President of Retail at Apple—I used to be the CEO of Burberry—I was a member of the U.K. Prime Minister’s Business Advisory Council.

(Any guesses?)

Stat of the Day

$100 billion–The amount Americans have spent consuming sports over the past year.