QUOTE OF THE DAY
Control-Alt-Delete is awkward. You came up with that. Why?”
David Rubenstein, co-founder of Carlyle, asking Bill Gates why that become the combo for closing any uncooperative application. Gates said if there was one thing he could change, this was it.
Market Snapshot
- U.S. household wealth rose $1.7 trillion.
- The Bank of Japan kept its monetary stimulus unchanged.
- All three major U.S. indexes were down, with 9 of 11 S&P 500 sectors in the red.
- Gold fell as the Fed signaled it was on track to raise interest rates in December.
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The Perfect Storm
Less than two weeks after Hurricane Irma brought chaos to the Caribbean, Hurricane Maria made landfall in Puerto Rico (Wednesday morning) as a Category 4 storm.
PR’s worst storm in nearly a decade generated winds up to 155 miles per hour, caused at least one fatality, and left every island inhabitant without power.
But other powers are to blame for a potential six month outage
Namely the Puerto Rico Electric Power Authority (PREPA).
The state-owned (and sole) electricity provider is trying to claw its way out of a hole, deep enough to support one of its rickety transmission lines.
The utility is plagued by 44-year-old power plants (industry average: 19 years), a depleted workforce (lost 30% of employees since 2012), and infrastructure that relies on imported oil.
Oh, and $9 billion in debt. Which…it defaulted on in July.
The reason?
For decades, PREPA has offered free(!) power to 78 municipalities, government projects, and even for-profit businesses. Yet as the utility sunk deeper into debt, it continued to give away electricity like it grew on trees (which it did not), while borrowing more and more from creditors to pay for the oil it was burning (to create electricity).
Here’s the craziest part…
PREPA isn’t the only one feeling powerless
It’s just the tip of the iceberg waiting to sink Puerto Rico.
The U.S. territory has been in a painful recession since 2006, which includes (but is not limited to):
* $123 billion in debt and pension obligations (and declaration of bankruptcy)
* 11.5% unemployment rate (peak of 17.0% in 2010)
* 45% poverty rate
* An aging population
* "Brain drain" with professionals moving to mainland U.S.
So here we are with a storm stripping shingles off stadiums, a public utility that is as unstable financially as it is physically, and an island of 3.5 million riddled with bad debt and a bad labor force.
Could this be the straw that finally broke Puerto Rico’s back?
You tell us.
Google Gambles On Hardware
At the drop of a dime (read: $1.1 billion), Google got serious about breaking into hardware. The tech giant is going all in, purchasing a division of 2,000 engineers from smartphone maker HTC.
Given prior speculation about the acquisition and HTC’s previous history with Google (manufacturing the first Pixel phone), the finalized deal comes as no surprise. But what exactly does it mean?
Google sees hardware as a key driver for continued success. And it’s placing emphasis on hardware talent rather than expensive hardware assets. Remember: Google sold Motorola to Lenovo for $2.9 billion in 2014, after buying the company for $12.5 billion less than three years earlier.
Plus, Google’s hardware business has grown rapidly over the past year, so we don’t blame it for being hungry for more.
In light of the deal, the iPhone has more reason to worry than ever before.
Albertsons Is Hungry
Why eat out when you can stay in? The US’ second-largest grocery chain, Albertsons, is buying meal kit startup Plated for around $175 million.
If you thought you’d heard enough about the grocery business, best prepare yourself. Since Amazon’s acquisition of Whole Foods, grocery chain stocks have taken a major hit—Kroger alone is down 30% since the announcement. So this Plated acquisition might be a sign of things to come as grocers look for anything and everything to keep customers coming back.
And who’s happiest about this?
Potentially Blue Apron (+0.96% after-hours). It’s safe to say that the largest meal-prep company in the U.S. has had a… rocky start in the public markets. With its stock falling almost 50% since a June IPO, Blue Apron could be a ripe candidate for grocery M&A.
What Else Is Happening…
- MongoDB is looking to raise $100 million through an IPO.
- Hyperloop One closed an $85 million round at a more than $700 million valuation.
- The SEC’s Edgar system was hacked last year; hackers may have traded on the corporate filings.
- Daimler (which owns Mercedes) will invest $1 billion in its Alabama plant, focusing on fully electric SUVs.
- S&P downgraded China’s debt to A+ from AA- just months after rival rating firm, Moody’s, made the same move.
Economic Calendar
- Monday Earnings: No Events
- Tuesday Earnings: Adobe (+), Bed Bath & Beyond (-), FedEx (-)
- Wednesday Earnings: General Mills (-)
- Thursday Earnings: YogaWorks (+/-)
- Friday Earnings: No Events
Economic Events: Housing Market Index (-)
Economic Events: Import and Export Prices (+)
Economic Events: MBA Mortgage Applications (-), Existing Home Sales (-), Petroleum Status (+)
Economic Events: Jobless Claims (+), House Price Index (-), Consumer Comfort (-), Fed Balance Sheet (+/-)
Economic Events: PMI, Baker-Hughes Rig Count
Buy/Sell/Hold
BUY—Whatever Buffett’s Buying
Buffett’s about to win a decade-long bet made back in 2007. Sure, it’s only for $1 million (chump change for the Oracle of Omaha), but he still made his point when telling Ted Seides of Protege Partners that a low-cost S&P 500 index fund would outperform his hedge fund. Seides’ fund returned $220,000 on a $1 million, while Buffett’s strategy returned $854,000.
Protege Partners has till December to make up lost ground.
SELL—Face Masks
We all have our irrational fears: clowns, public speaking, the 10th floor of buildings (we’d get that one checked out). But China was quick to address its own phobia after the iPhone X reveal: fear of someone stealing your face. That’s right… you can now order facemasks designed to protect your face while you sleep (because what else would an intruder be doing). If this fear hits home…
Maybe check it out for yourself.
HOLD—iOS11
iOS11 is out and there’s no doubt it comes with a number of great features including a revamped Control Center, ARkit, and better Maps. But there’s one glaring absence. Peer-to-peer payments. Apple’s Venmo killer and most anticipated feature is not being released until “Fall.” We don’t know exactly what “Fall” means Tim, but we want our money.
And we want them now.
The Breakroom
Question of the Day
After installing a powerful pump onto a large gasoline tank, John pumped gasoline out of the tank. Each time John ran the pump, it removed 1/3 of the gas remaining in the tank. Assuming the gas tank was full when John began, what fraction of the total gas in the tank at the beginning was removed if John ran the pump three times?
Who Am I?
I received my Ph.D from the University of Oxford in 2002—I teach at the Hebrew University of Jerusalem and specialize in world history—I have two bestselling books about a “Brief History of Humankind,” and a “Brief History of Tomorrow.”
Stat of the Day
143%–That’s how much the Swiss National Bank’s stock has surged this year. The Stoxx Europe 600 is up only 5.6%.
